Credit & Debt

Most Americans have one form of debt or another. Credit cards, loans, mortgages, they can all add up. We want the nice things, from brand new cars to wearing nice clothes. We even enjoy going out with friends and family. What happens if we cannot afford these things on our own? We take out debt to pay for it.

Eventually, it can become too much for us. Do you know when is the right time to stop pulling out the plastic? It can take some honesty and discipline to realize you might have gotten over your head. Take a look at these 5 ways you can realize you have too much debt.

1) You Can Only Afford the Minimum Debt Payment

If you use credit cards or a loan, you are expected to make monthly payments. These are the minimum payments. The thing is, you’re not meant to max out your credit cards every month. This is especially true if you want to build your credit. You make a few smaller purchases and pay the debt in full. That way you avoid expensive interest tacked on. Maxing out your cards and paying a little at a time will only hurt you in the long run. Why have credit cards if you’re going to pay so much more money to have them?

2) You Keep Getting Denied

Let’s face it, you’ve become a risk. At one point, you were able to get credit cards and loans. Now, no one will touch you. That’s because you’ve taken out a lot of debt and aren’t trying to pay it back. One big thing lenders look at is your credit utilization rate. This is the ratio between the debt you have to the amount of credit you can use.

3) You Worry A Lot About Your Debt

This is one big sign you’re in over your head. When you’re laying awake at night, worried about your debt, it’s become a problem. You shouldn’t be losing sleep over whether you’ll be able to make your payments. Also, are you fighting more about money with your spouse? This is another big sign that you’re in deep.

4) You’re Not Being Honest About How Much You Owe

Let’s face it, you’re ashamed of how much debt you have. That can translate into you not being honest about how much you have. Many people lie to people they’re dating, friends, family members, and more. Yes, it’s probably not their business, but consider that lie as a sign that you’re not doing as well as you’re saying you are. It might be time to fix it.

5) The Offers Stop Coming in the Mail

When you’re in good standing, the offers will come routinely in the mail. If they stop coming, then you’re not really eligible anymore. Simply put, they don’t want you to be a customer any longer. That should be a wakeup call that it’s time to get your debt and finances in order.

We all have a credit card (or several) for a variety of reasons. The main one usually is that it’s convenient to put something on plastic. Then, you can pay for it later or in monthly installments. It can make life easier. Yet, in a lot of ways, it can make things more difficult and expensive. It’s a ‘out of sight, out of mind’ sort of situation. This is how so many people find themselves in debt.

They can make purchases on their credit card and not spend a dollar of their own money. When the statement comes, you’ve purchased things you don’t even remember buying. You might find you ate out more often than you normally do. Or you bought things you don’t even need because it was just so easy to swipe and buy.

Having a credit card can really impact our spending habits negatively. Then, when we get the bill, we don’t want to pay for it. So, instead of paying it in full, we pay the minimum balance. What does that ultimately get us? More interest tacked on, costing you even more in the long run. It’s never an easy thing to see.

Let’s look at three ways your credit card is costing you.

1) Making Only Minimum Credit Card Payments

This is one mistake so many people make. They think it’s an easier way to pay off something, but it’s really not. In fact, it can make your credit score drop. Your credit score is usually based upon how much available debt you have. If you’ve maxed out your cards, then your score will drop big time. That also doesn’t include the additional interest that is added on.

2) Risk Making Late Payments

Just like with any other bill, you’ll have to make at least the minimum payment monthly. If you can’t or don’t make that payment, it won’t be good for you. You will most likely face a hefty late-payment fee. If you don’t pay within 60 days, you can be slapped with a 30% charge. Not to mention, your credit score will go down.

3)  Taking Out Cash Advances

Your credit card company may provide you with the option of taking out a cash advance. It can be good on the rough occasion you’re waiting to get paid. The problem is, this advance will cost you a lot. They can charge you an additional 5% or more than what you’re taking out. Plus, cash advances pay out much higher interest.

A new survey conducted by Bankrate.com has revealed that as many as 58% of all millennials who have applied for a credit card has been denied. Credit cards can be an important tool if used correctly to help build credit. The problem is, you can’t get one if you don’t at least pass a basic minimum credit score, which is exactly the problem millennials are facing.

These numbers are compared to 53% of Generation X and 27% of all baby boomers that have also been denied. It’s astonishing to see that more millennials are being denied than Gen-Xers, but that discrepancy mostly has to do with very few of that generation out in the working market and applying for credit cards. The number might increase over the next few years.

“An unintended consequence of the CARD Act, which went into effect in 2010, is that it has become much harder for people in their early and mid-twenties to obtain credit,” Bankrate credit card industry analyst Ted Rossman said in the report. “Establishing credit is a lot like getting started in your career. Everyone wants you to have experience, but it’s hard to get that first experience,” Rossman added.

Most Credit Card Rejections

Most people with bad credit are often denied car loans and credit cards. Without a clear history of on-time payments and proper history using credit, no one will trust you. It can take several years to build up your credit to the appropriate levels needed, but if you have lots of debt, that can complicate matters. Then you’re running around trying to make a lot of payments to keep your head above water.

Any small mistakes can really hurt your credit score. This is why knowing the basics behind credit will help prevent you from making those mistakes. The best advice is to get a credit card for beginners. You might have to pre-pay to use it. The interest rates won’t be that good, but it’s a good way to get started.

One you develop a good history, your credit score will start to rise. Then you will be able to take on other credit cards to continue the process. Have a few credit cards and only using a little bit of them each month. That way you can pay them off completely is the smart way to do it. Whatever you do, refrain from maxing out your cards. Prevent yourself from being able to pay the back reliably each month.

One of the biggest struggles Americans have is paying back their debt. Even while the economy is soaring, and unemployment is at record lows, debt continues to pile up. It seems as if we find more reasons to keep getting more debt and less reasons to actually pay back. Yet, the good times never last and there will be a time when most Americans regret of the debt they’ve accumulated.

Collectively, Americans all around $13.2 trillion in personal debt. This combines all types of debt including credit card debt, mortgage debt, student loans, auto loans, and personal loans. Were always eager to buy the next big thing, but we scarcely consider the impact paying and trust will have down the road. Especially if the economy slows down or work dries up.

The worst thing about debt is the stress that puts on so many people. Student loan debt alone is forcing young Americans to put off making major life decisions. New studies have revealed that millennials are waiting longer to get married, by home, or start a business. They’re waiting longer than any other previous generation.

Having a lot of debt causes a lot of major problems. They can be difficult to keep up with the payments. When that happens, usually collectors come calling in a have many tricks and tactics to use to get you to pay up. Not to mention how much unpaid debt can destroy your credit score and make life even more difficult for you.

Let’s look at several ways removing debt from your life can ease your stress:

1) No More Debt Collectors Calling

Nothing can strike more fear in a person that a call from a debt collector. As stated previously, they have many tricks and tools up their sleeves to help entice you to pay up. They don’t care about what you’re going through or any situation you might be in. The truth is, they’ll continue bugging you until you do pay them what you owe.

This can be very stressful, but the only way to get them off your back is by being current. Once the debt is paid off, it is officially yours! You won’t have to worry any longer about whether you will lose what you’ve been working hard to pay off. Pay off your debts as soon as you can and life will get easier. Remember the feeling of being hounded and make better decisions.

2) You’ll Have More Money

There’s already so much we have to pay for. Most Americans can’t even afford to pay for their healthcare or insurance. You never know when your car insurance is going to go up, you might need a little emergency money. When it be good to finally have a little extra disposable income? When you pay off certain debts, you finally own what you are paying off. That means no more money is escaping out of your purse or wallet. You can finally see or have a little extra spending money if you’re spending is already covered.

3) You Will Finally Repair Your Credit Score

Repairing your credit score takes time. It may be really low right now, but have to stay that way. Don’t let it get worse by acquiring more and more debt. And as you begin to pay off your debt and the total amount you owed starts going down, that’s when your credit score starts to inch back up. When you finally pay off the debt in full, you’ll be seen in a better light in the event you need to take out credit again.

4) You Can Finally Plan for the Future

Here’s a difficult fact: most Americans are ill-prepared for retirement. We spoke previously about how it’s forcing people to put off making major decisions. One of those major decisions is the ability to afford saving for retirement. Having more money provides you with many more options. The more you save, the more you can plan a good vacation, for retirement, or even decide to start a business. Maybe you want to invest in the stock market. Whatever it is you want to do, the list that you have, the better off you’ll be.

It’s understandable that someone who graduates college might want to decide to default on their student debt. It can be hard keeping up with monthly payments. You already graduated and trying to get your life in order. Then, here comes the payments, sapping your money. People with student debt are deciding to put off major life decisions. That’s how expensive this crisis is.

Currently in the United States, 44 million people owe $1.53 trillion. That’s a lot of money and a debt most don’t ever see being paid off. That is, unless you talk to one of the Democratic candidates running for office. They all have plans for taking care of student debt. At the same time, 11% of federal borrowers went into default last year.

To go into default means you’ve gone more than 270 days without paying your bill. That’s about 2/3 of a year. While this might seem like a solution for people struggling, it never it. That’s because your student debt never goes away. It will always stick to you until it’s completely paid off. You can’t just declare bankruptcy or hope they’ll stop chasing you.

Let’s take a look at the several ways going into default makes life miserable.

1) Not paying student debt will kill your credit score

35% of your credit score is made up of your payment history. Anything less than 100% on-time payments will hurt you. This is especially true if you go into default. Good luck getting a mortgage or any other type of loan if your student loan is in default. Lenders won’t trust you to pay it back. This is also probably why many people buried under piles of debt put off those big decisions. Going into default forced their hand.

2) You lose access to certain repayment plans

This can be a major one. After you graduate, you have the chance to enroll in difference repayment plans. These plans can help you conquer your student debt. It might take a while, usually up to ten years, but they can be helpful. If you go into default, you can kiss that goodbye. You can even file for a forbearance to pause payments if you’re going through a rough time. That’s not true any longer if you’re in default.

3) You’ll have to pay your whole loan

Lenders know they have to work with students and that’s why they’re willing to put you on a repayment plan. But what happens if you default? Suddenly, your entire student debt becomes due. You’d have to immediately call your lender to discuss putting you on a repayment plan. If not, you’ll be expected to pay it off in whole.

Debt is one of those things where we have to seriously consider whether it can positively or negatively influence our life. Yes, that can have its good moments. You need to have debt in order to build your credit. There has to be a period of time in which you can prove that you’ll regularly make on-time payments toward debt.

Were debt gets people and the problems is that they often struggle and paying it back. They want to buy something even though they can afford it. So, they use their credit and at times it can be difficult, especially when they add on tons of interest and the monthly payments are higher than anticipated.

A lot of people do not know how to manage their debt the right way. They continue piling debt until they eventually maxed out. This is a dangerous situation that can dramatically set you back in the future. You may have a need to take out a loan, but if you have so much debt or history of not being able to pay it back, you will lose out

Let’s look at 3 debt traps you should avoid:

1) Credit Card Rewards Create Debt

Credit card companies often offer a lot of rewards in order to entice people to get one. Again, using a credit card the right way can be good towards improving your credit. If you go with a credit card that offers tons of rewards, it will be a long time before you see those rewards. We’re talking spending thousands of dollars before you see a single reward. Even then, they’re not good rewards that they advertise for.

Before you know it, you racked up hundreds and interest payments and that, going broke just to get a ‘free’ airline ticket your trip that you would have paid for five times over if you didn’t get that credit card. If you need a credit card, and you want to build your credit, do it the smart way. Make small payments and pay it off each month.

2) Getting a Brand-New Car

This is one of the biggest debt traps out there today. Having a brand-new car is a status symbol to the world. You may have been eyeing that luxury car for many years, but many people don’t understand exactly how expensive that is. Not only are you expected to pay full-time coverage for insurance, you’ll also be taking a loan out for many tens of thousands of dollars which carries with it many thousands of dollars of additional interest. Owning a brand-new car is a burden that you must be ready for. Wait until you’re financially secure and have no other debts. In the meantime, there’s nothing wrong with getting something used.

3) Clothing

Just like the brand-new car, the close that we swear is indicated of our status. People love to wear expensive clothing to impress. The problem with this is, you could easily spend hundreds to thousands of dollars on designer clothing. People who buy these types of clothing also are not content after they buy something expensive. They wear it once or twice and in the ready to buy something else. If you look at a lot of the current billionaires, their wearing flip-flops and hoodies, not thousand dollars suits.

JP Morgan just released a new study that found the impact of student loan debt on people. We often consider it a personal issue you deal with alone, but the new study found that to be untrue. Its reach goes beyond just the individual, but also into families who feel the need to work together to pay it off.

Currently, student debt is the fastest growing type of household debt in America. The amount of student debt has reached $1.56 trillion, doubling its total in the last decade alone. This is causing many people and their families a lot of trouble. It’s also why many 2020 presidential candidates have made it a priority to talk about student debt.

According to the study, 19% of the 44 million student loan borrowers receive help from family and friends. The problem is said to be so bad that “families are spending more on student loans than key categories of basic necessities,” the report said. It’s affecting everyone, but hurts lower income families the most.

The report revealed that lower class people between the ages of 18-24 are spending a large portion of their budget on paying back student loans. This is forcing them to make a lot of tough decisions, even as they try to earn a living with their degree. They spend as much as 17% of their annual budget on student loans on average.

Families with Student Debt Feeling the Pressure

Of course, families are there to help each other. You want your child and/or grandchild to succeed, which is why they went to college in the first place. But many people sign on that dotted line to take out loans to do it. After they graduate, they’re forced to spend the next 10-20 years paying it off.

“By understanding the relationship between these student loan payments and other financial outcomes, we hope to provide policymakers, lenders and other stakeholders with valuable information that can help shape policies to ease this burden for America’s families,” Diana Farrell, President and CEO of JPMorgan Chase Institute, said in a previous statement.

The average amount Americans pay back each month toward their loans is $179. That’s only 5.5% of their monthly income, but many pay 11%. When you add on the increasing cost of rent and food, moreover the entire cost of living is going up, then you can see how this recurring debt is a problem. You don’t get a break from it until it’s completely paid off.

The report has revealed that only 44% of low-income people are able to keep up with their monthly bills. This is causing a massive crisis for many Americans who are just getting started out in life. Now we know that the burden is spreading to other family members who go out of their way to help.

Medical debt is one of the fastest growing categories of debt in this country. Next to student loans, medical debt is ballooning at a record pace. It’s often medical emergencies that throw more people into debt and it’s often involuntary. Something happens and the costs of medical care are so astronomical that most people cannot afford to pay it off.

Bernie Sanders has been outspoken about helping Americans get rid of their debt. He’s famous for making promises to wipe out student debt. He’s now on the bandwagon for forgiving nearly $81 billion in overdue medical debt. This is a major step beyond anything any of his Democratic rivals have proposed. The furthest anyone else would go is wanting a completely government-run health care and insurance system.

“In America today, it is unacceptable that one out of every six Americans have past-due medical bills on their credit report, totaling $81 billion,” Sen. Sanders, I-Vt., said in a statement, adding: “It is immoral and unconscionable that families across the country are being evicted, having their heat disconnected, or having their already-inadequate wages garnished because of crippling medical debt while the health care industry made more than $100 billion in profits last year.”

Paying Off Medical Debt

People with medical debt are often the most vulnerable. They’ve had a horrible accident or contracted a disease. They have no choice but to seek medical care they know they cannot afford. When that happens, the person also loses out on valuable time at work. If they receive any money at all, it’s less than their usual salary. Throw in tons of medical debt, it’s a recipe for disaster.

Sanders wants the government to step in and help people negotiate down their debts. After the negotiation is completed, they will effectively pay off the debt. That includes any collection agency the debt has been referred to. It would also remove the debt from their credit score and allow people a chance to not be buried any further.

In announcing this new plan, Sanders didn’t say how he would get the money to pay the $81 billion. Like his plan to wipe out $1.53 trillion in student debt, many wonder how he’ll afford any of his promises. He also wants to make college free and offer free healthcare to every American. It seems as if the campaign that offers the most free stuff is likely to win the Democratic nomination.

Sanders acknowledged that $81 billion is “a lot of money,” but he added, “Compared to what? Compared to the $1.5 trillion that Trump gave in tax breaks to the one percent and large corporations. Compared to the billions of dollars that we spent bailing out the crooks on Wall Street 11 years ago. It is a lot of money but I think it’s the right thing to do.”

Divorces, for the most part, are emotional and messy. Both sides fight about joint money, possessions, and debt. It can be hard for two people, who bought and invested together, to suddenly decide what goes where. Money is especially hard to divide. There are many concerns and obstacles that go with that, including debt.

One part of the couple makes a lot more than other. Kids, and who gets custody, also helps determine where the money goes. Retirement investments, shared bank accounts, assets like the home, cars, and pets. Even debts you’ve accumulated play a role. So, how is debt handled during a divorce? Let’s take a look at it:

1) The Laws on Debt Responsibility Vary by Area

If you live in a community property state, like Texas, Nevada, New Mexico, Wisconsin, and others, the both parties are responsible for their debt under the law. Debt responsibilities cannot be shifted by one spouse to the other. There may be a few exceptions to the rule here, but for the most part, debts will have to be paid off together.

Equitable distribution states, which are most of the states in the U.S., looks to what is fair. What’s a fair breakdown of the debts? Both parties get to decide to claim what they think is right and legal under the law, include both assets and debts. Here, one individual can decide the other party took out most of the debt and should be the one who pays it off. That would be a reasonable argument they could make in court.

2) Who Signed the Contract?

In the case of your lender, they don’t care you’re separating. If you signed the contract, the place is yours and in your name. If both of you sign it, both of you are responsible for it. You got the loan to borrow the money and the obligation you made, putting your name on the dotted line, is what is binding. Moving out, changing your name, getting a new address, etc., doesn’t matter either.

3) You Still May Be Hounded

If your spouse is getting behind on paying some of the bills, the creditors can come after you. That’s true even after a divorce. Your name doesn’t even have to be on the account and you can be legally divorced. They will still come after you. There are some ways out of it. For example, if you live in a community property state, you can put a clause in the divorce settlement. That lets anyone know you are not responsible for the debt.

4) Student Loans aren’t Shared

The person responsible for paying back their student loans is the one who took them out. This is not a case in which the loan will fall on both of your shoulders. Your ex’s student debt won’t follow you into a divorce. But, it might if you agree to help pay for the debt as part of the prenuptial agreement.

If you’re one of millions of Americans who struggle with debt, you might be frustrated. Money seems to be going out the door at a fast pace. You just want to finish paying down your debts so you can enjoy life. At the same time, you also have to save for retirement. This is extra money leaving your account. It leaves many people to wonder if they should stop paying retirement until their debt is paid off.

You only have so much money. After paying all your bills, there might not be much extra to go around. Are you expected to both save for retirement and pay your debts? Well, yes. You borrowed money for whatever reason. Saving for your golden years is crucial. You don’t know how long you’re going to live and shortchanging that now can be devastating later. This is where you sit down and do an accounting of your assets and money.

On top of this, you’re also expected to put money into your savings account. Having a rainy-day fund for emergencies is also crucial. You never want to be caught in a bad situation with no money. What would happen if you lost your job, the economy turned sour, or you got injured? Having extra money saved up for these times can save you big time.

Let’s take a look at a few things you can do:

1) Determine Your Retirement Priorities

Seeing that you have debts to pay off, retirement to save for, and an emergency fund to add to, you might have to decide which of these is most important. Do you choose to aggressively pay off debts first? How do you balance that with saving money? In reality, saving money for an emergency is your number one priority. You may not agree with that, but an emergency can happen at any time. If you were to lose your job or had a major breakdown that cost big money, where would you be? Then you’d have nothing for your debts or retirement.

You also wouldn’t have money for rent and food. Financial emergencies can strike at any time. Be prepared for those first. Once you have 3-6 months’ worth of expenses saved up, you can shift to other priorities.

2) Make Sure You’re Insured

Along with building up an emergency fund, having good insurance to fill in the gaps is also important. Most people are underinsured. They want to save money so they get the cheapest policies possible. Yet, if something were to happen, like a natural disaster, they would lose out so much more in the long run.

It’s these types of emergencies that put most people in debt. Their health insurance doesn’t cover a needed procedure or surgery. Without being covered, you risk bankrupting yourself and your family.

3) Look at Your Debts

Once you’re financially safe and secure, it’s time to look at your debts. More importantly, some debts are more dangerous than others. A car loan, a high-interest credit card, payday loans, etc. These often have high interest and drain you financially. Focus on paying these debts off as soon as possible. Low interest debts can wait a bit. They aren’t a major risk to you financially.

4) Now You Focus on Retirement

High risk debts should take priority over retirement savings. When you have those paid off, you will start saving thousands of dollars. That’s extra money you can make up for towards your retirement goals. Yet, retirement saving should take priority over low interest debts. You should start saving for retirement as early as possible. If not, you might end up having to work for years longer than you anticipated.