Tired of being nickled and dimed by the big banks? Savings hints, advice and tidbits of information for people who aren't interested in banking gimmicks but want a smart way to manage their money.
Monday, September 9, 2013
4 Tips to Help 40-Somethings Manage Their Debt
Handling debt is a challenge for those of all ages, and the problems start early in our adult lives. It's only natural to incur some heavy debts in our 20s and 30s, as we're dealing with the imbalance between our relatively scarce financial resources and the sizable expenses of getting started with careers and families.
By the time you hit your 40s, you might hope to have moved past that phase. But although many people in their 40s have well-established careers that produce sizable incomes, they also often face growing financial commitments -- both to themselves and to family members. That's a big reason why 40-somethings have the highest levels of debt of any age group, and unlike younger groups, they've seen their debt levels increase slightly since 2005, according to figures from the FICO Banking Analytics Blog.
Debt management in your 40s isn't just about paying down debt. It's also about making sure you're using the right kind of debt to handle the most important expenses you face. Also vital -- maintaining the ability to repay your debts while simultaneously ramping up savings for your longer-term goals.
To address all those issues, here are four things that 40-somethings should keep in mind in dealing with their debt.
1. Anticipate Big-Ticket Expenses.
Dealing with unanticipated expenses can break the budgets of young adults. But by the time you hit 40, you have plenty of life experience behind you and can predict what sorts of financial demands will come up. In particular, major expenses like putting children through college or replacing a vehicle are fairly easy to foresee. The smarter you can be about planning for them beforehand, the better you'll be positioned to minimize how much debt you have to take on to pay for those expenses later.
Peter Dazeley, Getty Images No matter what our age, we all have to be careful about the level of debt we hold, but for those in their 30s, managing debt can be especially challenging.
According to the most recent data from the Census Bureau, those ages 35 to 44 have the highest levels of household debt of any age group; their $108,000 in median debt weighs in 25 percent higher than the next most indebted age group.
Increasingly, student loan debt represents a big portion of overall debt for 30-somethings. A Federal Reserve Bank of New York study showed average student loan balances for those ages 30 to 39 topped those of other age groups, approaching the $30,000 mark as of the end of 2012.
It all adds up to an increasingly difficult financial balancing act. Even as their incomes begin to grow as their careers take root, 30-somethings are also in the highest-consumption phase of their lives, as they start families, consider buying a home for the first time or upgrading to a more family-friendly home, and improving their lifestyles as their incomes improve. Debt is a necessary part of meeting those challenges, but you have to handle it correctly.
Let's take a look at four tips for those in their 30s to keep control of debt and use it to your advantage.
Sneaky charges hiding in your credit and debit card statements can add up to hundreds of dollars a year, a new study finds.
There are the charges that pop up when a subscription or membership is automatically renewed, the fees you're hit with when a free trial unknowingly turns into an ongoing membership, the extra charges tacked on to a purchase after you think you've been quoted a final price, and many other misleading and unwanted fees.
These so-called "grey charges" average $61 apiece and amounted to $14.3 billion last year, according to an analysis of 5,000 credit and debit card statements conducted by consulting firm Aite Group.
Millions without credit scores not so risky after all
Millions of people who either have little to no credit history or who have gone credit-free for a long stretch of time don't have credit scores -- meaning many lenders consider them too risky.
Millions of Americans don't have credit scores. And while lenders typically steer clear of this group, it turns out they aren't always as risky as banks think.
There are at least 64 million "unscoreable" consumers out there, estimates Experian, one of the three major credit bureaus. These consumers are often immigrants or recent college grads who have little to no credit history or they are people who haven't had an active credit account for at least six months. They may be completely responsible or they could be financial train wrecks waiting to happen -- lenders have no easy way to tell because there is no credit score available.
Credit scoring company, VantageScore, is trying to shed light on this mysterious group with its newest scoring model, which it estimates can assess an additional 30 to 35 million people who were previously unscoreable. It does this by looking at 24 months of credit history, rather than six months, and by considering alternative data like rent and utility payments and public records when available. "The unscoreables are a big population and in today's rather conservative credit climate they're having a hard time finding mainstream credit," said VantageScore CEO Barrett Burns. The VantageScore model was created by the three major credit bureaus -- Experian, Equifax and TransUnion.
VantageScore found that 10 million, or about a third of unscoreable consumers, aren't high risk at all -- instead, they were determined to be near-prime or prime. Burns calls this the "sweet spot" for lenders, because it means a consumer isn't so risky that a lender would lose money taking them on as a borrowerand they're not such low risk that a creditor is forced to reward them with the best terms available.
IT BEARS REPEATING! There's no shortage of debt detractors out there, and with good reason. After a credit crisis brought the world's economy to its knees a few years back, the downside of debt is painfully clear.
But there's a bright side, too.
Case in point: In 2006, Muhammad Yunus won the Nobel Peace Prize for his idea to use debt — as little as $200 or less — as a path out of poverty.
Or consider a young, middle-class American named Barack Obama who took out loans for undergrad and law school. That investment in education seems to have paid off for him nicely.
Last, look at revolutionary electric car company Tesla (TSLA), which recently fully repaid its 2009 loan from the government. If we had to wait until an entrepreneur had enough ready cash to build out an automobile manufacturing company without financing, we would be waiting forever.
The idea is simple: A handhold to opportunity that is out of reach becomes attainable when debt gives you a leg up.
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Ups to USPS!
When the host of HBO's "Real Time with Bill Maher" was questioned if he really wanted healthcare and the banks “to be run like the Post Office” (meaning "nationalized") he replied:
“I can mail my sister a postcard from California on Monday and it gets to her in New Jersey by Wednesday for .42 cents….. h*ll yeah I’d like it to run like the Post Office!”
Savvy Quote of the Day
"The retail industry has stolen the word 'saving' and redefined it as saving money when spending.
Saving used to mean putting money away in a savings account or in a piggy bank. But, now we must spend to save."
Tim McAlpine President/Chief Strategist Currency Marketing
Savvy Saver enjoys showing all the wonderful things CPCU employees do in the community on the CPCU Blog, loves helping members set up a savings plan that will help them with their financial goals & dreams @ her Brighter than a Bank blog and riding down the highway of life in her Hoopty! (check out her "I love my Hoopty" blogspot!)
