Here’s the Truth About Credit Card Debt Relief

Although you tried hard, you couldn’t keep up with your credit card debt. In fact, you have fallen even deeper. Well you have an option to run out of bankruptcy and it is called debt relief. While no financial strategy is perfect, debt relief has helped dozens of people just like you.

Here is the truth about credit card debt relief.

What is debt relief?

Also called debt settlement, debt relief involves bringing in a company to see if your creditors – primarily credit card companies – will allow you to pay less than the full amount you owe to “settle”. »Your debts once and for all. And why would they do that? Well they can see what shape you are in, and know that if you drop bankruptcy, they probably won’t get anything.

How Does Debt Relief Work?

After an initial consultation with a company such as Freedom Debt Relief, you will have a plan formulated just for you. You will be asked to start making monthly deposits to a savings type account that you control. When you’ve saved enough – the amount will depend on your debt and income – your business negotiators will speak to your creditors on your behalf. Once each settlement is reached and accepted by you, the funds will flow out of your account.

Won’t debt relief hurt my credit?

The debt relief process requires that each of your creditors receive a one-time payment in full to meet your obligations. Because you pay your creditors indirectly – from your account – and only after a settlement, your credit will suffer a temporary decline. Once all of your settlements are met and you rebuild your credit, your scores will rebound and then some.

How Long Does Debt Relief Take?

Credit Card Debt Relief – which is basically what debt settlement is – takes anywhere from two to four years, which might sound like a long time, but not compared to the time it would take to try and pay off your debts on your own. Now it would take years, if not decades. Plus, your first settlement will likely come in a few months.

How Much Does Debt Relief Cost?

It depends on the business, but you can have 15-25% of your debt listed. But do you know how “priceless” things can be? It would be your new peace of mind.

Aren’t there a lot of scammers in debt relief?

Not a lot – unless YOU are caught, of course. The point is, most debt relief agencies are up and up. However, it is also true that there is some bad actors there who are more interested in parting with your cash than getting you back on track financially.

What you want is a reputable, credible company with a proven track record. You also want accreditation, so find a company that is a member of the American Fair Credit Council and the International Association of Professional Debt Arbitrators.

What you don’t want is a business charging upfront fees – before they’ve paid off a single debt. It is against the law, by the way. Make sure the company is transparent about their pricing structure and doesn’t force you to sign up. Sometimes companies promise too much or make guarantees, which are further red flags. While debt relief is a popular and broadly wise strategy, negotiations, by their very nature, are unpredictable.

Now that you know the truth about credit card debt relief, you can act with confidence if the approach is right for you. Just make sure you pick a credible, established business to help you out, and you’ll be back on track in no time.

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What to put as income on a student credit card application – Forbes Advisor

Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.

Find the best student credit cards of 2021

Getting a credit card while attending college full time is a great way to start building credit. Even if students do not have gainful employment, they can use other forms of income in their credit card application, such as family bank deposits or financial aid leftovers.

Students must be at least 18 years old to be eligible for a credit card.

Why is income required on a credit card application?

Credit card issuers typically require income information on a new application. Issuers often look at disposable income – what is left over after someone pays expenses like rent or utility bills. Disposable income helps issuers determine what the applicant’s credit card limit will be and whether the cardholder will be able to make payments on time.

It is common for full-time students to have no income or minimal income from part-time employment. So what should a student put on a credit card application for income?

What counts as income?

Students can list actual earnings from a job if they have one. In addition to income from work, regular allowances or bank deposits received from parents or family may be included in income. As long as the monthly bank statements prove income, they are valid as income on a credit card application. Remaining financial aid (after paying tuition and college fees) may also count towards the income of a credit card application.

Make sure you add up all the potential income received and enter it into the credit card application. Students may be required to provide documents to prove their income, such as pay stubs, bank statements, or financial aid records.

How Much Income Do Students Need to Qualify for a Credit Card?

Technically, there is no minimum income required to obtain a credit card. A student’s disposable income could be as low as $ 100 and they would still have the option of being approved for a credit card.

Higher incomes generally give applicants a better chance of getting a card approved and a higher credit limit. Don’t lie about the income on a credit card application. Putting false information on a credit card application is fraud and can result in jail time or heavy fines.

What to do if you don’t get approved for a credit card

Some students without a credit history may have difficulty obtaining a credit card. Credit card issuers review an applicant’s credit history, but younger students usually have no history to analyze. They need a first credit card to build a line of credit for future loans and major purchases. Fortunately, there are alternatives for students to build a credit history if a credit card issuer denies an application.

  • Apply for a student credit card. Student credit cards are designed to help students get their first credit card. Issuers may have lower expectations for key application information such as revenue. Some do not have an annual fee and offer the option of increasing the line of credit over time as long as payments are made on time.
  • Apply for a secure credit card. Secured credit cards are approved for a predetermined amount of cash prepaid by the cardholder. The initial payment becomes the credit limit of the card. Cardholders can begin to build a positive credit history by using the card to make purchases and pay off their monthly balances. Keep in mind that purchases can still be charged with interest if the balance is not paid monthly. The cash amount will be returned to the cardholder once their account is closed.
  • Become an authorized user. Parents or other family members can add someone as an authorized user to credit card accounts. This is a great way for students to build on someone’s good credit history to start building their own. Be sure to ask the issuer first if they are reporting authorized user activity to the credit bureaus.
  • Have a co-signer sign the application. Having a parent or other responsible family member co-sign a credit card application can be one way to make approval more likely. As long as the co-signer has decent credit and pays their bills on time, it increases the chances of student approval. Many banks do not allow co-signers on credit card applications.

Final result

Students can list actual income from employment, regular bank deposits from family members, or remaining financial aid as income on a credit card application. Make sure you are honest about the income on an application. Creating or faking the truth about any information is fraud and can result in jail time or heavy fines. If a student receives a credit card denial, they can try again using a co-signer on their application. Alternatively, students can apply for secure credit cards, student credit cards, or become an authorized user on a family member’s account in order to start building their own credit history.

Find the best student credit cards of 2021

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What does your credit card number mean?

Most of us are curious by nature. So if you’ve been lying awake at night wondering what your 16-digit credit card number means, it’s your lucky day.

I’m going to pull the curtain back and show you not only what the numbers stand for, but also how they’re designed to detect an invalid credit card account number. I know the suspense is killing you, so let’s go.

Decode your credit card number

There are standards for account numbers, and this falls under the purview of the International Organization for Standardization. ISO is an independent international non-governmental organization.

So, credit card, which typically have between 13 and 16 account numbers, aren’t just random. Each digit conveys identifying information about the credit card, and the assigned numbers must follow the guidelines set by ISO.

However, there is some variation in how the standards are applied, and you’ll see what I mean when we get to the second set of numbers.

The first number.

Numbers 2 to 6.

Numbers 7 to 15 (or more).

The last digit.

[READ: Best Credit Cards for Young Adults.]

The first number

This number is called MII, or Industry Principal Identifier, and it specifies the card’s network and industry. If your card starts with 3, your card uses the American Express network. Visa starts with 4, Mastercard is 5, and Discover is 6.

Other numbers are used to identify the industry. For example, 1 and 2 are used for the airline industry. The number 3 represents travel and entertainment, so it makes sense that 3 also indicates that it is an American Express card. (AmEx cards focus largely on travel.)

Here is a full list of MII numbers:

1. Airlines.

2. Airline and other industry missions.

3. Travel and entertainment.

4. Banking and finance.

5. Banking and finance.

6. Merchandising and banking.

7. Oil.

8. Telecommunications and other industry missions.

9. Open for assignment.

Numbers 2 to 6

This group of numbers is called the issuer identification number. Usually, these numbers identify the company or institution that issued the credit card.

But note that different credit cards may have slightly different numbering systems. For example, Visa uses the second to sixth digits for the bank number. But American Express uses the third and fourth digits to identify the type of card and the currency used.

[Read: Best Starter Credit Cards.]

Numbers 7 to 15 (or more, depending on the length of the account number)

These numbers are linked to the cardholder’s account. The numbers in this group are unique to a transmitter and help route information to the correct channels.

The last digit

The account number van has an important role. It’s called the check digit, and it’s designed to ensure that all account numbers represent a valid credit card number.

Payment processors use a checksum formula called the Luhn algorithm. It was invented by Hans Peter Luhn of IBM. It is used to determine if credit card numbers have a logical pattern. If the numbers do not work with the algorithm, it is not a valid credit card number.

Where is the security code on a credit card?

This is a three or four digit number, often referred to as the CVV, or card verification value. The location of the CVV depends on the network payment processor used.

Visa, Mastercard and Discover: These networks have a three-digit CVV, and it is located on the back of the card.

American Express: This network has a four-digit CVV, and you can find it on the front of the card.

The CVV is designed to increase security, as you will likely need to have the card in hand to know this code number. For example, if someone has stolen your credit card number and tried to buy something online, unless the thief knows your CVV, that person will not be able to complete the purchase.

This code also comes into play when you order pizza over the phone. You give the credit card number, and the restaurant clerk asks for the expiration date and CVV. It’s easy to answer, of course, if you look at the actual credit card.

[Read: Best Cash Back Credit Cards.]

It is by no means foolproof. It is possible that a thief has your physical card and has access to the CVV. But the security code provides another layer of security against certain types of fraud. In particular, he fights what is called ” missing card fraud, “or CNP fraud, which can occur online and over the phone.

So be sure to keep your CVV number. And when you share it, make sure you’re on a secure website or on a phone call you initiated.

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Credit card debt plagues tenants as eviction moratorium expires

While total credit card balances have declined significantly during the COVID-19 pandemic, this overall improvement masks some significant challenges at the household level. Many tenants are caught in the crosshairs, and the situation could worsen as a result of the Supreme Court decision of August 26 which struck down the CDC’s moratorium on evictions.

Money Management International (MMI), the country’s largest nonprofit credit counseling agency, reports that about half of its recent counseling sessions have focused on housing issues, up from about one in four before the pandemic. . Tenants who turned to MMI for help in 2021 have accumulated an average of nearly $ 25,000 in credit card debtsaid Michelle Jones, the agency’s chief external affairs officer. In 2019, the average was around $ 3,000. This indicates that many have racked up substantial living expenses on their credit cards because they fell behind on their housing bills.

For context, the national average credit card balance is $ 5,313. according to Experian. Just over half of active credit cardholders carry month-to-month balances, the American Bankers Association said. And it is a very expensive debt; Bankrate sets the average credit card interest rate at 16.21%.

Multiple crises collide

Some 11.4 million American adults were behind on rent payments in late June and early July, a Center on Budget and Policy Priorities investigation revealed.

The pandemic is making a comeback, fueled by the Delta variant. The seven-day moving average of new COVID cases in the United States was 153,245 on September 1. as measured by the CDC. This was well above the seven-day moving average (88,047) recorded exactly one month earlier.

While total credit card balances were 15% lower in the second quarter of 2021 compared to the fourth quarter of 2019, according to the New York Federal, MMI’s experiences show how this improvement was not shared equally by all Americans.

A deeper dive into this Bureau of Labor Statistics data reveals a similar trend: general improvements mask the fact that not everyone is doing betternot by far.

The unemployment rate peaked at 14.7% in April 2020 and fell to 5.4% in July 2021. Although this is substantial progress, the unemployment rate is still higher today than it was before the pandemic. In February 2020, unemployment was only 3.5%. This means that the number of unemployed Americans fell from 5.7 million in February 2020 to 8.7 million in July 2021, and that doesn’t even include those who have stopped looking for work for various reasons.

The labor force participation rate, which includes workers and those actively seeking employment, declined 1.6 percentage points during the pandemic.

What to do if you are having trouble

While Congress has designated more than $ 45 billion in rental assistance in late 2020 and early 2021, the rollout has been bumpy and most of that money has not been spent. The Consumer Financial Protection Bureau has a useful list of rental assistance programs available to tenants and landlords. Certified housing advisers such as Money Management International can also help. The end of the moratorium on CDC evictions should make the distribution of this aid even more urgent. (By the way, some cities and states still have moratoriums on evictions, so find out about policies in your area.)

If you have good credit but have accumulated debt, consider getting a 0% balance transfer credit card. Suspending the interest clock for up to 20 months can save you a lot of money. Just make sure you are making progressyou shouldn’t see this as a shell game of moving debt from one card to another, and ending up where you started. Finding ways to increase your income or reduce your expenses can boost your debt repayment strategy.

For those with lesser credit, or even if your credit score is strong but you need a little extra nudge in the right direction, reputable nonprofit credit counseling agencies such as MMI can be extremely helpful. In addition to providing great advice tailored to your individual situation, they can negotiate lower rates with your creditors and consolidate your monthly bills into one payment you can afford. A common scenario is something like a four year payback with a 7% interest rate. These numbers are similar to the personal loan terms available to people with good credit, but accessible to a much wider audience.

Finally, while the window to appeal for goodwill may have expiredif you are late on your bills, you can only buy a limited time from a landlord, credit card issuer or other creditorI still think communication is a good idea. Don’t ignore the problem. At the very least, acknowledge that you are late and come up with a solution. Consider asking for more time to pay them off, a lower interest rate, or another break.

If nothing else, keep the lines of communication open. Hiding is not the answer. Face issues head-on before you get sued or find yourself in a corner where bankruptcy and eviction are your only answers. Getting out of debt is not easy, but it is possible. Don’t be afraid to ask for help along the way.

A question about credit cards? Email me at [email protected] and I would be happy to help.

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3 ways too much credit card debt can hurt your finances

Some people find themselves in credit card debt when too many surprise bills hit. Other times, credit card debt is something that slowly but steadily accumulates over time, to the point where it becomes less and less manageable.

As a rule of thumb, it’s best not to run into credit card debt at all. The more you accumulate, the more money you will lose in interest charges.

But that’s not the only problem with credit card debt. Here are some reasons why too high a balance could hurt you financially.

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1. This can leave you with a higher mortgage rate

The more credit card debt you have, the higher your credit utilization rate is likely to be. It is the ratio that measures your existing revolving debt against your total credit limit. Once this ratio exceeds the 30% threshold, it can lead to damage to the credit score. For example, if you have a total credit limit of $ 10,000 and you owe more than $ 3,000, you risk negative consequences. This, in turn, can make borrowing more expensive.

If you’re looking to buy a home, having too much credit card debt could leave you with a lower credit score – and end up with a higher mortgage rate. Plus, if you have too much debt that you monopolize too much of your income, a mortgage lender may turn you down completely.

2. It can make a personal loan more expensive

Just as you might end up with a lower interest rate on a mortgage when your debt load is huge, the same could happen with a personal loan. In fact, since personal loans are unsecured, meaning that they are not backed by a specific asset, lenders rely heavily on the credit scores of borrowers to determine rates. interest to be granted. But if a huge pile of debt lowers your score, it could mean paying a lot more to borrow.

3. It can cause you to lose lucrative credit card offers

There are many credit cards that offer attractive rewards programs and signup bonuses. These can put extra money in your pocket, but if your high level of credit card debt lowers your credit rating, you might not be eligible for these offers. If anything, you’re more likely to end up with a credit card that offers less rewards and charges a higher interest rate on new balances.

No longer have debts

If you’ve somehow climbed a huge pile of credit card debt, don’t despair. Instead, try to reduce that balance as quickly as possible.

Set a budget so that you can carefully track your spending, and cut as much spending as possible to free up money to pay off your debt. You might also consider finding a side job to raise extra money that can be used to pay off your debt.

At the same time, check to see if you qualify for a balance transfer, which will allow you to transfer your existing credit card balances to a new card with a lower interest rate. This, in turn, will make that debt easier and less expensive to eliminate. And the sooner you do it, the less your personal finances will be affected.

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Need to memorize your next year’s debit, credit, CVV card number?

Refuting reports that customers will have to remember their credit and debit card numbers, the Payments Council of India (PCI), the representative body of payment companies in the country, said the claims were false and that it was not necessary to memorize the numbers. .

The clarification comes after several news articles claimed that starting next year, people will need to memorize their 16-digit card numbers for online payments.

“Industry and PCI are working in alignment with the Reserve Bank of India (RBI) on possible secure card-to-file solutions that will ensure a nearly similar customer experience for online purchases while improving the security of information storage. ‘customer card identification,’ said a statement from the PCI reading.

In March 2020, the RBI asked payment system providers to come up with viable solutions to improve the security of storing customer card identifiers under relevant guidelines issued by it. In accordance with this, PCI shared the principles that the industry can adopt to develop such a secure card-to-file solution with RBI.

“We are working closely with RBI on developing a roadmap of possible solutions that could be adopted by the industry to secure the storage of raw card data. The solutions being developed would not require customers to manually enter their card number every time they make an online purchase, ”explains PCI. “The solutions will adhere to the security checks and controls and frameworks prescribed by RBI,” the PCI statement added.

According to reports, new guidelines proposed by the RBI prevent payment aggregators and merchants like Amazon, Flipkart, and Netflix from storing credit or debit card information used by the customer on their servers or databases. The new guidelines essentially mean that customers with debit or credit cards will now need to enter their 16-digit card number to make a payment.

Typically, the ecommerce model works on data stored by businesses that use it to market new items to customer demographics based on the information they have. Once the guidelines are implemented, it will become difficult for these sites to target their audience and reduce their reach.

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How Diversifying the Economy Can Solve the Racial Wealth Gap – Forbes Advisor

Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but this does not affect the opinions or ratings of our editors.

Black voices have been suppressed in America for far too long. And the problem has become so glaring in the economics industry that an entire federal agency still struggles to diversify its workforce, even after federal law required it.

The Federal Reserve, the country’s central bank tasked with controlling the monetary system and fending off financial crises, is predominantly white. Ten years after the Dodd Frank Act forced the system to diversify its hires, a New York Times analysis found it to be still far from inclusive.

Even on a smaller scale, it can be difficult to find black voices in economics. #EconTwitter is dominated by white males. Studies show the voices of black economists were largely absent from the initial discussions on the financial impact of the Covid-19 pandemic.

In a country where systemic racism steals the promise of a flourishing financial future for black Americans, representation is important, especially when it comes to those charged with researching, proposing and implementing economic policy that can help the community thrive.

The economy lacks black voices, prospects

There is a long history of racial inequality in economics. The first black woman to earn a doctorate in economics, Sadie Alexander, was unable to practice after earning her doctorate because of racism and sexism in the industry in 1921, the same year Black Wall Street was destroyed. The incident took place in Tulsa, Oklahoma, where one of the richest territories of black-owned businesses was reduced to ashes by a mob of whites.

George Stigler, Nobel Laureate in Economics in 1982, once argued that black Americans are inferior as workers and can succeed economically with a “willingness to work hard.”

Today, there is still a glaring lack of representation of blacks in the economic industry. Alone 4% PhDs in economics in the United States went to black economists in 2018.

Few of these professionals end up in one of the country’s top economic agencies, the Federal Reserve – just 0.5% of Fed staff in Washington were black in April 2021, according to the New York Times analysis.

The Federal Reserve is one of the cornerstones of economic research in the United States, and its work has a great influence on research and policy development. The agency is responsible for implementing monetary policy that strongly affects vulnerable groups in the country, including black Americans.

When there is not an appropriate representation among its researchers and principal economists, policy choices may not be sufficient to help improve these demographics along with the rest of the economy.

“If you block out certain perspectives or voices, you are missing out on a wide range of experiences representative of culture and the population at large,” says Valerie Wilson, PhD in Economics and Director of the Economic Policy Institute. Program on Race, Ethnicity and Economy, which analyzes the impact of political decisions on the economic situation of people of color in the United States. “By doing this, you are automatically limiting your ability to resolve policy issues. “

Even though the issue of racial representation has been resolved at the Fed, there is still an alarming lack of research and discussion around racism and equality.

An analysis of the International Monetary Fund in 2020, only 0.2% of articles in the top 10 economic journals published in the past 10 years, or about 16 articles out of a total of 7,920, covered issues of race, racial inequality and racism. And when it comes to amplifying the few black voices on the ground, the world of economics is strikingly lacking. A study finds that black business authors are slightly less likely to publish in leading journals than their white counterparts.

Without additional emphasis on these topics and the voices of experts from these communities, blind spots persist throughout economic research. Little change can happen when problems are not properly identified and addressed.

William Spriggs, a doctorate in economics and a professor at Howard University and chief economist at the AFL-CIO, acknowledged these blind spots at a conference in April where he said economists were completely not to recognize everyday racism at all in their research.

Why representation is important in economics

The industry’s lack of attention to – and sometimes blatant disregard for systemic racism – can result in economic policy that neglects the financial condition of much of the country. And these political blind spots perpetuate the racial wealth gap.

The racial wealth gap is the result of institutionalized racism that has eaten away at the incomes, economies, home values, and overall wealth of Americans of color. The gap makes these communities more at risk of financial insecurity throughout their lives, including in retirement.

Read more: America’s racial wealth gap in retirement savings

Adding more black voices to the economy is becoming a way to overcome the racial wealth gap. Wilson says black economists are largely responsible for bringing the problem to the fore as “a problem worthy of serious consideration.” Their role is crucial in creating solutions.

“Your interpretation of [economic] the disparity will be largely influenced by your personal experiences, and that comes into play in thinking about how we decide to solve a problem, ”says Wilson.

But it’s not as easy as telling the federal government or research organizations to hire more black economists. There must be systems in place that promote and ensure diversity at every stage of life.

“As with any other institution in this country, the way to make it more diverse is to prioritize diversity, but unfortunately this is not happening organically in this country due to the long history of segregation,” Wilson said. “In order to make it a more diversified field, [it] must be a priority for those in positions of power and influence and who can make their voices heard.

The Biden administration has focused heavily on diversifying its core advisory roles, particularly in the offices of labor and economics. He appointed Janelle Jones, 36, chief economist for the Department of Labor, making her the first black woman to hold the post. Treasury Secretary Janet Yellen also expressed urgency to diversify those responsible for changes in economic policy, declaring that “diversity is important to ensure that research carried out in economics adequately reflects the priorities of society”.

These diverse voices will prove crucial to rebuilding communities of color as they continue to disproportionately bear the economic burden of the pandemic. At the height of the pandemic in April 2020, black or African American workers had an unemployment rate of 16.7%, compared to 14.1% for whites.

And although the economy is recovering, the black community is being left behind. The unemployment rate for black and African American workers was 9.7% in April; for white workers it was 5.3%.

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How to qualify for a mortgage as a retiree

Many people aim to pay off their mortgage when they retire. Others sell their homes on retirement and rent instead.

But what if you’re the opposite and decide to buy a new home or switch from renting to owning after your shift is over? You may be wondering how you will qualify with a mortgage lender in the absence of a job. But in fact, getting a mortgage as a retiree isn’t all that different getting one while you’re working. Here’s how to get a home loan during retirement.

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1. Have a healthy source of income

While some retirees choose to work part time, many do not work at all. So how do you show proof of income if you are not actually working? You’ll just need to show a lender that you have money coming in every month, even if it doesn’t come in the form of a typical paycheck.

Seniors are generally entitled to Social Security benefits. In addition, you can have:

  • A pension that pays you regularly
  • Investment income from a brokerage account
  • A retirement plan, such as an IRA, from which you can make regular withdrawals

All of this counts as income for mortgage approval purposes because it shows that you are able to pay off a loan.

2. Have great credit

Having a strong credit score is essential to getting approved for a mortgage, regardless of your age. The minimum credit score for a conventional mortgage is 620, but it’s best to aim higher. In fact, if you want to get the best mortgage rates available, you should aim for a score in the mid-700s or higher.

If your credit score might need a boost, the best thing you can do is pay all of your bills on time and also pay off some existing credit card debt. Plus, using the three major credit bureaus to check your credit report for errors – and correct those that are unfavorable to you – could help your score go up.

For more information, see our guide on how to create credit quickly.

3. Keep your debt to a minimum

Another factor that mortgage lenders look at when assessing loan applicants is their debt-to-income ratio. It is a measure of your outstanding debt compared to your income. It is important to keep this ratio low, because the more it increases, the more risky you become. And if you already have a lot of debt, your lender may be concerned that you might not be able to keep up with your mortgage payments on top of your existing loans. You can lower your debt ratio by paying off your existing debts or increasing your income. This may mean having to take a part-time job, even if you are doing it temporarily.

You might think that qualifying for a mortgage is more difficult as a retiree, but it won’t necessarily be the case. Just do your best to have some type of income stream, increase your credit score as much as possible, and reduce your debt load so that a lender is more likely to give you a home loan.

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I used my ‘FU money’ to quit my 6 figure job when I was not happy

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  • I was bad with money, but the FIRE movement helped me focus more on saving.
  • When I had a new boss who didn’t value me, I quit my job even though I was earning six figures.
  • Thanks to FIRE, I have enough “FU money” to last two years while continuing my freelance work.
  • Compare the rates and offers of savings accounts in your area »

In the fall of 2015, I pulled my credit report and I looked at my total debt: $ 30,000. At the time, I was living in New York City and thoughtlessly spending money under the misconception that I would face my debt at some point in the future when I made more. Then I discovered the FIRE movement (financial independence / early retirement), and it completely changed my life.

I reoriented myself to the value of saving and investing rather than spending, which got me out of that $ 30,000 in debt in 11 months. From there I started saving 60% of my income and over the next five years I was able to fund a two month trip to hike the Camino de Santiago (a 500 mile hike through the Spain), buy a house on my own, and finance my own business (the Economical Conference).

I settled into a plan to achieve financial independence at age 40, and everything was going really well. Until it doesn’t.

I decided to quit my 6-figure job

A huge asset that I had on my path to financial independence was my relationship with my employer. I saw my income more than double in nine years, got two months’ leave to go to Spain, and was allowed to work remotely before it was the norm. As for the full-time job, I felt like I hit the jackpot because I didn’t feel the kind of restriction in my time and energy that causes many people to pursue FIRE and quit. their jobs.

However, that all changed about a year ago when I got a new boss. The corporate culture and the work dynamics changed and it became very clear that I was no longer valued. The party was over for me, so I quit.

If I were only focused on achieve financial independence as quickly as possible, I would probably have kept my head down and tolerated this new environment in return for the six-figure salary that would have enabled me to achieve financial independence in the next six years. I hear this theme a lot in the FIRE movement. It goes something like this: “I hate my job, but I’m only X years old from FI so I’m going to put up with it for now.”

Instead, I decided to adopt a concept that I call “fi-lexibility”.

This concept is about recognizing that the pursuit of financial independence is more than the achievement of financial independence. While achieving financial independence is about opening up the possibility of early retirement, “fi-lexibility” is about seeing the options you have now, as you are on your way to even more options.

I have enough to work for myself

I looked at my finances and decided that even though I was not financially independent, I still had enough money to quit my job:

  1. I’ve had “FU Silver“(Or” Peace Out Money “, for the more polite of us). It’s like an emergency steroid fund: Two years of liquid, easily accessible living expenses.
  2. I was “FI coast“, which meant that I had enough money in my retirement vehicles to achieve what I would need for a traditional retirement without any additional contribution. This calculator helped me confirm my Coast FI status.
  3. My restless side as a host of the Optimal Finance Daily Podcast covered a third of my monthly expenses, which would help me stretch my “FU money” even further.

My current finances still require me to work for a living, but I no longer need to tolerate a less than optimal work environment. So for next year I am trying freelance work. Maybe I’ll find a way to cover my expenses independently on my time. Maybe I won’t and I’ll use up my savings a bit before I throw in the towel and look for another full-time job. Whatever the outcome, I have the financial bandwidth to try.

During my journey to financial independence, I came across a surprising irony: Perhaps the best part of pursuing FIRE isn’t achieving it. The ability to seize the opportunities that present themselves on the path to financial independence is where the real magic lies.

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Advantages and disadvantages of prepaying your mortgage

No one likes to be in debt, and for most homeowners, their mortgage is the biggest debt burden they will ever have. While this can be an important psychological step in paying off your mortgage, it might not be the best financial decision in the long run, especially if you are doing it instead of paying off low balance, higher interest debt. Michael Roberts, William H. Lawrence professor of finance at the Wharton School of Business at the University of Pennsylvania, explained why spending that money on other goals might be a better strategy. Our conversation has been edited for length and clarity.

Should people pay off their mortgages sooner if they can? Why or why not?

Much depends on how your mortgage and other expenses fit into the larger context of your budget and it depends on your risk tolerance and the level of risk you are willing to accept. Beyond that, there are a number of pros and cons associated with prepaying a mortgage.

It is becoming a lot less clear, especially in the very low interest rate environment we find ourselves in. Consider the pros and cons.

On the benefit side, you are going to pay future interest charges, you are going to reduce future monthly expenses. You will also increase your debt capacity in the future which is fancy language as you will be able to borrow more easily in the future as you will not carry as much weight on you. If you are in the PMI (private mortgage insurance) camp, you will get rid of it sooner. It alleviates psychological loads, because some people are stressed.

But there are a host of downsides that people don’t think about. If you prepay your mortgage, you are not economy This money. Depending on how much you will earn on your savings, you could lose a lot of money. For the past 14 years it was obvious to me not to pay off my mortgage, because I made more investing in the stock market than paying off my 4.5% mortgage, but this is the best choice, because I got lucky that the market is doing well.

The good thing is that, unlike a house, savings are liquid. If I need money, I can sell stocks, liquidate an ETF, whatever it is. Absent from selling a house, I’m gonna have to take one Home equity line of credit or a reverse mortgage or a second mortgage. The monthly payments actually impose a certain discipline on some people.

If you have other higher interest rate debt, prepaying a mortgage loan makes absolutely no sense because you have to get rid of that higher interest rate debt first. If all of your equity is tied up in your home, there is less diversification there.

What are the advantages of keeping your mortgage for the entire term?

To expand on some of the things we’ve covered, packing all of your money in your house can be really problematic when you need it. The illiquidity of your real estate assets tends not to be appreciated. Depending on your tax status, you also benefit from an interest shield. By paying off your mortgage faster, you lose this deduction.

Keep in mind that the average return on the stock market was 11%, mortgage rates have been below for 30 years, it seems obvious: if I only invest money in the stock market for 20 or 30 years, I will have a lot more money than if I had paid off my mortgage earlier. This is not the way to think. That’s more, how much can I lose if I don’t pay off my mortgage sooner? If things don’t go well, you’ll lose money on prepaying your mortgage.

You have to have that best outside investment. Yes, you are taking some risk by not paying off the mortgage and investing in something that is not a guaranteed risk-free rate of return. The question is: what risk? From what I’ve reviewed, this is a low risk for people who have extra cash they don’t need to take care of food, utilities, and other essentials. .

Why do people pay off their mortgages sooner and what are some other strategies to achieve these goals?

Much of the rationale for prepaying the mortgage itself is, the cost of the mortgage is higher than the return on any risk-free investment. Yields on AAA-rated treasury bills or municipal bonds are all well below 3, 4, or 5 percent. The other reason, I believe, is psychological: to avoid having to make this important monthly payment. I use my grandmother as an example. My grandmother grew up during the Great Depression and made it a rule never to go into debt. This decision was very heartwarming, psychological and financial, but I also think that this decision limits your financial potential.

This is where people’s tolerance for risk comes in. The most obvious thing is to say that you are just saving money and your savings increase. If you want to invest in something risky like the stock market, they can grow, but they can also contract. Over sufficiently long horizons, the probability of these contractions decreases, it is a fact, but the size of these contractions increases.

I own and these are issues that I am struggling with. What allayed my worries was that I touched wood, I enough savings to take care of a few months of my mortgage and any other expenses that may arise. At the end of the day, it’s: do you want the money in the house or the savings account? That’s it. I live in the suburbs of Philadelphia. This ain’t San Francisco, Palo Alto, LA, where my house appreciates by 8% each year. Do I want all my wealth and savings to be tied up where they are growing at a low rate and it’s really illiquid? Compared to a savings account where I can withdraw it at any time and practically at no cost. I took the risk with these riskier investments it’s a good bet.

Nothing else?

It is certainly a unique period in the mortgage market. I bought a house in 2004 and my mortgage broker, who was a good friend, told me at the time that it was the best time to buy because mortgage rates can’t go below 5% .

It’s very easy to get lost in all the pros and cons and arguments, but at the end of the day it’s just where do you want your money: in the house or in a savings account, and which one pays the most. ?

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