It is always so fun and rewarding for us to be able to help our community feel more financially confident. Today, we have a chance to answer some of YOUR most frequently asked questions. A few weeks ago, we asked you to share what was on your mind – your frustrations, your concerns, your financial questions. We’re excited to be able to answer some of those for you today because, at the end of the day, we are here for YOU – to empower you, to support you, to encourage you. You’re WORTH it!
Question #1: What do you do when your credit score is too low for a loan or consolidation services?
Having a low credit score is frustrating, certainly, but you are not without options. We recommend following the steps listed in this post to help you make improvements in your score, but did want to share this helpful article to demonstrate what you might be able to do to consolidate your loans even with a low credit score.
Question #2: How can I save in order to pay off credit cards or any other type of debt?
According to a recent study by Northwestern Mutual, the average American has $38,000 in personal debt. So, while you might feel like you’re drowning in debt, keep in mind that you’re not alone, and that there are great tips you can use to help address this challenge.
The first key to debt management is getting organized. It may seem trivial, but you would be surprised at how helpful it is to take a moment to document and track all of your debt obligations in one place. In order for you to ensure you are staying on top of your obligations, you’ll want to make sure you know your balances, your due dates, interest rates, credit limits, and other important information. Then, you’ll want to gather all of your loan documents and keep it in a safe space along with your organization tracker.
The next key to debt management is deciding how you’ll begin paying off the balances. There are two main approaches to paying off your debt. The first popular method is called the snowball method.
The snowball method is based on the idea of building momentum little by little in order to achieve a powerful force that snowballs accordingly. This method involves organizing your debts smallest to largest and prioritizing those with the smallest balances first. This method assumes that if you can tackle and eliminate even one small debt, you will feel more motivated to continue and therefore will be more likely and able to focus on the next hurdle.
The other method is the high-interest approach. This method again requires that you organize all of your debts, but this time doing so with regard to their associated interest rates. Given that interest charges can add up over time (which increases your overall financial liability), this method requires you to prioritize the debt with the highest interest rates first. Once you have been able to eliminate your highest interest debt, you then turn your attention to the debt with the next highest interest rate. Many financial experts advocate for this approach because it will reduce your overall amount owed over time. However, when it comes to tackling your debt, you know your personality best and can determine the method that would work best for you. If you know you’re more likely to stick with something if you feel a sense of satisfaction earlier on, then the snowball method might be for you. However, if you’re more concerned about reducing your liability and overall amount of interest owed, then the high-interest might be best for you and your situation. Again, choose the approach that works best for you and that you’ll actually stick with.
When it comes to consumer debt, or credit card debt, another option is to execute a balance transfer. Essentially, a balance transfer is when you choose to transfer your full credit card balance to a different credit card that charges less (or no) interest in order to reduce or eliminate your interest expense. This can be a great option for those carrying a high balance, but keep in mind, you’ll want to ensure you understand the fine print and do your research before making the switch. Most cards that allow balance transfers do charge a particular percentage of the transfer balance (often times this is 3%), so this is something you’ll want to take note of. If your current interest liability on your current card is higher than this balance transfer fee, then it may make sense to transfer your balance. However, prior to doing so, it is always prudent to meet with or seek the advice of an experienced financial professional who can assist with this. If, however, you do feel this would be a good option for your situation, we recommend visiting bankrate.com to explore and compare different credit card options.
Finally, if your debt feels like it is out of your control, it may make sense to meet with a financial professional who can assist you by building a plan, or who can assist you in making the decision as to whether or not to consolidate or refinance your loans.
Question #3: What is your advice on Indexed Universal Life Insurance (IULs)?
Indexed Universal Life Insurance can be a great option, provided you fully understand the different pieces and parts and have done your homework to make sure that the plan would work well for you. The benefit of an IUL is that you can get a guaranteed minimum rate on part of your policy and then the potential return available through the other part of the policy: a variable indexed account. IULs are appealing to many who want life insurance because it is a way to at least get a bit more for the premium’s you’re paying (as opposed to term policies, which only last for a specific time period and your premiums are not invested or returned to you). However, be mindful that IULs can be incredibly complex. They can seem too good to be true and, at times, that may be the case. *Note, in most IULs, the insured individual only gets a portion of the percentage gain experienced by the underlying index. Be careful to understand what index your policy is tied to as well as the percentage of that index’s performance/gain that you’ll be able to benefit from.
These types of policies are still worth considering as long as you do your research, have at least 10 to 15 years to invest in the policy, are already maxing out your contributions in qualified retirement plans and other tax-advantaged accounts, and fully understand the risks involved.
Question #4: Are robo-advisors a good way to start investing?
If you’re wondering what robo-advisors are, don’t fret. Robo-advisors are a relatively new innovation that allows you, the client, to place your investments yourself digitally via an automated app or website. Essentially, this is a way to invest with as little human interaction as possible. These tools can provide financial advice largely based on algorithms and mathematical equations and tend to employ a passive investment management style. They can be very cost-effective and typically allow investors to open accounts with very either no or very low minimum balances. That said, we do think there’s a tremendous amount of value in working with an actual advisor who can get to know you and your situation personally, but if you do choose to look into a robo-advisor, some of the best options are outlined here.
Question #5: Can you explain what ETFs are?
Exchange Traded Funds, commonly referred to as ETFs, are funds that are traded on the stock market (just like a stock) and often track an index or hold a basket of stocks/funds/etc. ETFs offer a fairly low cost (and tax-efficient) way to invest a specific sum of money and achieve diversification and potential for gains. If you only have a small amount to invest, investing in ETFs can be a great first step and way to make your money work a little harder for you. To learn more about these funds, visit our earlier post on them here.
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