Getting on Track to Pay Off Debt

By: Kate Welker, CFP®

Making a Plan to Tackle Debt

By: Kate Welker, CFP®

When I was in college one of the first classes I took in the Financial Planning curriculum was Introduction to Personal Financial Planning. I distinctly remember a graphic the professor showed the class that demonstrated the different financial life stages. The stage that stood out the most to me was described as debt accumulation. The age range for this was your early 20s through your 30s; this is the time you are pursuing education and likely taking out student loans, buying your first car and taking out an auto loan, purchasing a home and taking out a mortgage, and then paying off these balances and building wealth in your 40s. This stood out to me because I saw so many problems with that static representation of life. What this chart didn’t take into account was adding in what we often see in reality, and that is what if you just can’t get ahead and you see your debt growing instead of shrinking? 

How ever the debt came about, the result of too many payments and growing balances is often anxiety, stress, feelings of frustration, and general barriers to building your wealth. It can be overwhelming when you don’t know where to start or you feel like you are trying, but just not making progress. Our goal is to help you understand that you can get committed to making a change and developing a plan to reduce your debt. 

Commit

I love the following definition of commit from Merriam-Webster: “to carry into action deliberately.” Commit to making a plan, budgeting money for your plan, and keeping yourself accountable. You also need to commit to spending within your budget so that you aren’t adding more debt. 

Strategize

Developing a strategy and making a plan helps you focus on your goal and gives guidance on how to get there. If you are only making the minimum payments on each balance, take a hard look at your spending to see where you may be able to cut expenses to be able to put more resources into your debt payment strategy. This will allow you to make larger payments and see faster progress.  Below are the two most common methods of strategies to attack your debt:

Snowball Method: With this method you begin by applying extra payments to your smallest debt first. When that account’s balance is zero, you will celebrate paying off one balance and then take what you were paying each month on that first debt and add it to the payment you were making on the next smallest debt. Keep repeating this cycle building the payment you are making on the smallest debt each time. 

The Snowball Method May be right for you if:

• Seeing little steps of progress is motivating to you

• The sense of accomplishment encourages you to continue

• You need to see progress to be incentivized to continue

Avalanche Method: Under this method you begin by applying extra payments to the highest interest rate debt first. After that is paid you will take what you were paying each month on that first debt and add it to the payment you were making on the next highest interest rate debt reducing the overall interest charges each month. 

The Avalanche Method May be right for you if:

• You can see the long term goal and will stay committed even if the progress feels slow

• You have high interest rates that are adding more in interest than your payment covers

• The amount you are paying in interest is causing you anxiety

Committing to a plan will keep you focused, encourage you to make progress, and allow you to see the path to being debt free. 

Get Financially Organized in 2021

By: Kerrie Beene, CFP®

Holiday Cash for Students

By: Becky Eason, CFP®

The holidays are upon us and although 2020 isn’t a traditional year people are still getting into the holiday spirits. Gifts have become a huge part of the holidays, which we all know can add a lot of additional stress. This year there is the added stress of what is the best way to get gifts to loved ones? Shipping can be expensive and you risk packages getting delayed, lost, or broken so I wouldn’t be surprised to see more monetary gifts be given. 

If you are the recipient of a cash gift and are in high school or college you can use this money to help fund college expenses. Yeah, it’s not exactly a “fun” use of the money but it’s a great opportunity to get a jump start on your finances. While this extra cash may not pay much of your tuition it can certainly help reduce the amount of excess student loans or credit card debt you may have to take on to fund living expenses during college. An added benefit is that I’m sure whomever gave you the money would be happy to know it’s being put to such great use.

Maybe you already have your college living expenses covered by cash flow but you have student loans. If that’s you, you could use the cash gifts to pay down your student loans. There are a couple potential benefits of paying down your student loans while still in school. 

The first benefit is it can help reduce your monthly payment once you graduate. If you are on the standard 10 year repayment plan they typically take your outstanding balance when your loans go into repayment and calculate your monthly payment as 1% of the outstanding balance. For example, if you have $50,000 of student loans your monthly payment will be around $500. Now say that over 4 years of college you’re able to pay down $2,000 of your student loan. Your new monthly payment when you graduate with $48,000 of student loans should be $480. The $20 difference doesn’t sound like a lot, but it does add up. 

The second benefit is a savings of interest. Once your student loans go into repayment a portion of your student loan payment is interest. If you can reduce the balance of your loans a smaller amount of your payment will be interest, because it’s a percentage of your balance. While the interest savings might be small it’s worth considering. 

Please note that the two benefits listed above are mainly for borrowers who plan on paying back their student loans in full instead of using a student loan forgiveness strategy. However, if you’re going for a student loan forgiveness strategy on your federal student loans you could still take advantage of these benefits on your private loans. 

As we enjoy the holidays remember that it’s not about the gifts, but it’s about the time we spend with friends and family, even if it’s virtually. We wish you safe and happy holidays!

Love and Money

With Valentine’s Day right in the middle of February, we are surrounded by reminders of love and relationships. We thought this month it would be appropriate to spend some time talking about relationships and finance.

by Kate Welker, CFP®

Money consistently is listed as one of the top reasons for stress in relationships and causes for divorce. Money is one of those topics that people sometimes like to avoid, as if they don’t talk about it it won’t exist, and that just leads to more stress. Along with your Valentine’s dinner I want to encourage you to set up a money date.

Make it a real date. Mark it on the calendar, get a babysitter for the kids, put on a nice outfit. You want to be able to focus and still enjoy your time together.

Spend some time reviewing what your current status is.  Take a look at your current accounts, your assets and your debts, income and expenses, to get a “snapshot” of what your financial picture looks like. Talk about your goals to see if you are spending your money in the right areas.If you’re not, ask why. Is it debt, unnecessary spending, or something else in your lifestyle? When you talk about these things together you have a teammate to work towards your goals with. It’s easier to say no to extra spending if there are two of you on board.

Check in on your feelings about your money. Do you feel stressed over your spending, do you feel like you aren’t saving enough, maybe you have plenty each month but you don’t feel in control over where its going. Whatever it is, spend some time discussing if you are happy with your money and why or why not. 

If you decide there are changes to be made talk about what that looks like and what the next steps are.

It is extremely important to be honest, hiding financial problems leads to more stress and bigger problems. There is actually a term for this - financial infidelity. If you are hiding anything it will be extremely difficult to bring this up, but it needs to be addressed. If you are struggling with how to work through this you may want to enlist the assistance or a counselor or financial professional. 

We hope you enjoy your money dates and it encourages you to do it more often. We would love to hear from you if you try this, let us know how it went!