Building a Strong Credit Score

There are so many financial magazines and blogs out there with all different types of advice to save/make money.  Cut down on your lattes!  Get this stock for 2014!  Find cool rocks and give them to people as gifts!  But not everyone drinks lattes, is into the stock market or collects pretty pebbles.  Certain things works for certain people.  But one thing that can time and time again save you the most money possible throughout your entire life is having a good credit score.

The importance of having a good credit score is sometimes overlooked because of two main reasons.  One, it can be boring as heck to read about.  Just hearing the word “credit” can male people eyes glaze over.  Then they wonder what a credit score is, the difference between a credit report and a credit score, followed by the “No way, I have to pay for my score??!!”.  The other reason credit scores can be overlooked is because it takes time to get a credit score.  We’re talking about months to years.  People want results NOW, not a few years from now.

I previously wrote about how quickly a credit score can be ruined.  It is usually harder to build good things than it is to destroy them.  So this post will be for those who have little to no credit history and want to build a nice solid credit score.  For people whose credit is a mess and are on the edge of bankruptcy, this post is not for you.  It’s for those who have a blank credit slate and would like to take the smart move and have a good credit score that will serve them during their whole life.

FICO, the company that determines your credit score, has a neat little chart on their website that tells you what effects your score the most.  Being a credit newbie, the factor that is most against you is your length of credit history.  The longer you have a history of good credit practices, the better your score will be.  But this only makes up 15% of your score, so you still have an opportunity to get yourself a good score rather quickly.  The two major factors, payment history and amounts owed, are something you can work on right away.

The best way to start?  Get a good credit card.  Not one of those secured or student ones with $250 credit limits.  Just do a simple search with Chase or Citi, for example, and find a good solid rewards card to use.  Some rewards cards are usually reserved for high rollers, but if you opt for a simple cash back card with no annual fee like the Chase Freedom or Citibank Dividend, you should have no problem getting approved for one.  Plus you’ll get some cash back for your trouble.  Your credit limit will probably not be that high, but that’s okay.

Once you get approved for the card, just make some everyday purchases like gas and groceries, but watching that you don’t get too close to your credit limit.  You want to keep your “amounts owed” well below 50% of your credit line.  If you have a $1,000 credit line for instance, try not to charge more than $300, or 30% of your total credit.  Now when the bill comes due, make the full payment before the due date.  Rinse, lather and repeat for the next months.  After a while, most companies increase your credit limit.  If you have had 6 months of on time payments and haven’t seen a credit increase, just call and ask for one.

While that pie chart is good as far as telling you what constitutes your credit score, everything else is kind of muddled.  Should you wait 6 months before applying for your next card?  Or a year?  Exactly how many points does a credit inquiry cost you?  It’s almost impossible to find the exact answers to these questions, but if you’re just starting to build your credit, I would err on the side of caution.  Maybe wait 9 months before applying for a new card instead of 6.  Keep that credit utilization ratio at 20% instead of 30%.  A credit score is something that will help you for a lifetime, so it’s worth taking your time with it.

And that’s pretty much it.  Keep making on time payments (and full payments to avoid credit card interest), and you will be on your way to a great credit score.  A final note, there is a little 10% piece of that chart that is for types of credit used.  Essentially, they are saying the more varied types of credit you have (credit cards, mortgages, car loans, student loans etc.), the better your score will be.  This does NOT mean you should go out and finance a car if you can’t afford to.  This is only 10% of your score, so it won’t affect it that much.

The most important thing is to look at the big picture.  Pretty much everyone will have a mortgage or car loan at some point.  They’re not going anywhere anytime soon.  But to get the best rates for a mortgage, you need a good credit score!  So after years of paying your bills on time, check your credit score.  If it’s in the category that will get you the best rate for your mortgage, and if you can afford the mortgage of course, that may be a good time to get one.  The difference in interest paid between an average credit score and a great one can be tens of thousands of dollars!  That is real savings.  So if you keep that credit utilization ratio low and don’t miss any payments, you will be on your way to a great score.

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Big Tax Refunds are Great! Right?

There are all sorts of unending debates in the world of personal finance, with rabid followers on each side.  Rent versus buy?  Emergency fund or no emergency fund?  Paper or plastic?  Yes, some personal finance writers will go into a strange amount of detail about that last one.  One other burning question:  Tax refund or no tax refund?  Or big tax refund?  Or little tax refund?  There are actually more than one answer and as with many things in personal finance, it can depend on your situation.  But let’s talk about it and find out who the winner is anyway shall we?

The 2014 tax season (for the 2013 financial year of course) is in full swing.  People are waiting for the steady stream of tax papers in the mailbox (luckily you can download a decent amount of them nowadays) and deciding how they want their taxes done.  You can go to a local accountant, a big box one like H&R Block or just do it yourself with tax prep software like TurboTax.  I usually use a local accountant but am heavily leaning towards doing it on my own this time since computers make everything so easy.  There are lots of choices to make during tax season.  And there are two main things Americans want to accomplish after doing their taxes:  make sure the IRS will not be breathing down their neck in the future and to get the highest refund possible.

You can see it in advertising everywhere.  “We will get you your highest possible refund!”  There are promises of getting you your refund the quickest.  There are even some less than reputable establishments that will give you money even before receiving your actual refund, as long as you pay them back with your actual tax refund money.  Along with a big fat interest rate.  The fact is, getting a nice big refund and getting it fast seems to be the ideal situation according to the ads.  The average tax refund for 2013 was around $3,000.  That’s nothing to sneeze at.  I mean, who doesn’t want a big wad of cash delivered to them all at once?  That just sounds awesome.  But it’s not THAT awesome if you look at it objectively.

Getting a tax refund is nice, but it just means the government is giving you back money you rightfully earned in the previous year.  They thank you for the free loan.  Getting an average refund of $3.000 means that you could’ve gotten that money throughout the year.  That averages to $250 a month.  This can be helpful in paying down debt, especially high interest debt such as credit cards or student loans.  This is the main benefit of not getting a large refund.  If you can funnel that $250 every month towards debt or even just an online savings account, you will be ahead, maybe even far ahead, compared to just having that money held by the government until it’s time for your refund.

What about the case for getting a large refund?  Is there even a case?  There might be when psychology comes into play.  Emotions and psychology SHOULDN’T interfere with personal finance decision, but they do.  Some people are savers, and some people are spenders.  If you don’t do anything positive with that extra $250 a month and just let it sit in your checking account and increase your spending, then maybe allowing yourself to get a nice refund will be a kind of “forced” savings (though an automatic contribution to an online savings account would work just as well).  In any case, if you’re the type that might spend $250 a month without thinking about it but will be sure to spend your $3,000 refund on reducing debt or increasing savings or investments, then getting a big refund might be for you.  Ramit Sethi wrote a pretty good post a few years ago about this.  Though he assumes a tax refund of $600, well below the average.

My take?  I would opt for a refund as close to zero as I can get, but that’s because I have student loans to pay and it’s easy to tack on that extra $250 to my highest interest loan.  I would much rather use that increased monthly income to cut down on the amount of lifetime interest I pay on those loans.  But I won’t shout down those people who like big refunds and spend it on positive financial actions such as paying off debt or increasing savings.  I will, however, shout at those people who spend that big refund on a vacation or consumer goods.  If that vacation was something you wanted to do anyway, just stash that money into an online savings account.  You’ll at least earn some interest on it and will be able to use it in case an emergency happens.

As usual, this discussion on a hot personal finance topic ends…inconclusively.  Though I would lean towards having a smaller refund so you can use that money on something positive throughout the year, it’s not a HUGE deal if you go the other way.  People can do stupid things with large amounts of money, so be very careful when you do get that nice refund.

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Say hello to the HSA

Healthcare in America is controlled by all sorts of levers and dials.  From insurance premiums, doctor co-pays, hospital visits and costs of medicine, there can be a lot to remember.  There are also different types of accounts which the IRS allows us to fund tax free for our healthcare expenses.  Previously, I wrote about the Flexible Spending Account (FSA), which allows you to set aside a certain amount of money before taxes towards your healthcare expenses.  This is a great benefit for people who usually pay a lot for doctor visits and medications or have a planned procedure in the upcoming year.  These funds are gone at the end of the year, so you definitely have to plan accordingly.

Another type of account is the Health Savings Account (HSA), which is similar to the FSA in that you set aside some money before taxes for healthcare costs, but it is different because that money is yours for life because the account belongs to you, not to your company.  There are some other differences between the two accounts that are worth noting.  My company started offering HSA’s in 2013, but I didn’t sign up for it then because I didn’t fully understand it.  I signed up for it this year (specifically, I signed up for the health plan that ALLOWS me to sign up for an HSA), and am pretty excited about the possible benefits.

HSA’s are accounts you can sign up for in conjunction with so called “High Deductible Health Plans” (HDHP’s).    These insurance plans are being offered more and more lately and will probably become the norm in a few years.  These plans don’t pay for pretty much anything until you meet the deductible amount, which is higher than most other plans.  Hence the name.  For 2014, a plan with a deductible of at least $1,250 for single and $2,500 for family will qualify as an HDHP.  The plans promote and fully cover most annual visits, like your yearly physical and recommended exams for kids.  By promoting yearly “maintenance” exams, the hope is to bring healthcare costs down in the long term.  Time will tell if this works or not.

Once you sign up for one of these plans, which I recently did, you are eligible to sign up for an HSA.  Most companies have a certain bank’s HSA they are associated with and some will even contribute some money into your HSA if you decide to sign up with them.  If your company offers that, definitely sign up with them.  They will take care of setting aside your pre-tax money into the account along with depositing their portion.

For 2014, you can contribute a maximum of $3,330 for an individual and $6,550 for a family.  The portion your company may contribute counts towards this portion, which is different from a 401k company match as only YOUR contributions count towards the maximum.  You can contribute as little as you’d like or up to the maximum.  This money is yours and yours alone to use.  There is no “use it or lose it” rule and some accounts offer investment options or a small amount of interest paid.  This is a huge difference from FSA’s as you actually stand to benefit by leaving your money in the account to grow, rather than scrambling to spend it all in December.

HSA’s are very tax friendly.  They offer a triple whammy when it comes to tax advantages.  First, your money is set aside pre-tax, so you don’t pay any taxes on the money you contribute.  Second, as I mentioned before, some accounts have investment options or pay some interest.  Any gains from this grow tax free inside of your account.  Third, any money you decide to withdraw and use for eligible healthcare expenses is not taxed either.  As a bonus, if you have money in this account when you turn 65, you can use HSA money for ANYTHING, but you will have to pay income tax on it.  But no 20% penalty (ouch!) which you would get if you used the money for non eligible expenses before 65.  In a way, your HSA can serve as a kind of retirement account once you turn 65.

What’s an eligible expense with an HSA?  Doctor visits, surgeries and prescription medications.  You can also use it for glasses, contact lenses and dental work.  You can click on the IRS website for specifics.    You would want to use HSA for those expenses which count against your deductible, like doctor visits and medications.  Once you meet your deductible amount, your insurance plan will start to cover almost everything.

Many young people are hesitant to sign up for High deductible plans and HSA’s because of the perceived high cost of doctor visits.  True, you will probably pay more for a doctor visit on the new plan, but you will probably go to the doctor more when you get in your 50’s or 60’s than you will now.  So it’s a good idea to contribute as much as you can to your HSA while you’re young so you have the money later when you or a family member inevitably need more care.

HSA’s in conjunction with HDHP’s are definitely something to consider, as they are becoming more and more commonplace.  A lot of the plans under the Affordable Care Act are HDHP’s, so you will probably see private companies following suit.  Talk to your human resources department and weigh the benefits of your different plans to see if an HSA would be right for you.

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How to Save 10-20% on Almost Everything

This post is going to be short and sweet (which is what most good financial advice should be).  No one wants to pay more than they have to for anything.  If you had a choice between $20 for some jeans versus $12 for the same jeans, I’m pretty sure most people would prefer to pay $12.  The fact is, that choice is there for us.  And it’s in the form of glorious gift cards.

Most people associate gift cards with things people gives us when they don’t know what gift to get.  How about buying gift cards for yourself?  And getting them at a pretty good discount?  It’s all possible through gift card portals, the best of which is giftcardgranny.com.  GCG is an aggregate site that lists all the gift cards available for almost any company from many different gift card purchasing websites.  Depending on the company, you can easily find gift cards from 5-20% off.  For example, a recent search for Starbucks gift cards shows that there are $75 gift cards which are selling for $63.30.  That’s a 15% discount!  For people who frequent Starbucks, you’re not going to find savings like that anywhere else.  Don’t like to spend that much at Starbucks?  There are $10 gift cards selling for $8.45, about 15% off once again.  Hate Starbucks?  Dunkin Donuts has a decent selection of gift cards also.

There are many, many locations that have gift cards for sale.  Dining places usually have better discounts (like Starbucks in the previous example), but there are usually some pretty good discounts for other places like Home Depot and Target.  It is unfortunately hard finding grocery store gift cards, so you’ll have to stick with any number of awesome cash back cards for groceries.  It’s also important to not go crazy buying gift cards.  It’s easy to see all those discounts and start buying up stuff like crazy.  The solution?  Only get gift cards for those places you go to all the time.  Check your credit card statements from the last few months and note the places you go to more often than not.  Then get a gift card with a good discount to those places and voila!  You just saved a good amount of money by not doing much work at all.

Gift cards don’t usually provide return or purchase protection on products like most credit cards do.  So any big purchases should probably still be made with cash or a credit card.  But for little things you buy here and there that can add up, getting some gift cards can be very helpful.  Just remember to use them and make sure they don’t end up in the bottom of some drawer like most gift cards do.

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In and outs of the FSA

2014 is upon us and it brings with it a sea of change in the US healthcare system.  There are new plans and acronyms being thrown all over the place.  From the ACA (Affordable Care Act), HDHP’s (High Deductible Health Plans) to healthcare.gov (website that didn’t work), there are plenty of new terms to confuse even the most literate of people.  Some people got brand new health plans because their original one was cancelled.  Some stayed with their original plan only to see higher premiums.  Pretty much everyone’s health insurance situation changed a little bit this year so it’s vital to at least have a general understanding of the new landscape.

One healthcare acronym that I’d like to focus on that has been around for a few years is the FSA (Flexible Spending Account or Arrangement).  The FSA is an employer sponsored account which is not for everybody, but has some pretty cool benefits if it fits your situation.  It is completely voluntary, and it allows a predetermined (by you) amount of your money to be taken from each paycheck and contributed to the account.  The funds in the account are tax free, which is the main benefit of this account.  If you happen to be in the 33% tax bracket, that essentially gives you a 33% discount on healthcare expenses paid from your FSA.  Very hard to beat savings of that level.

There are, of course, plenty of catches and rules to look for.  There are only certain things that are eligible to be paid for by an FSA.  A complete list can be found on irs.gov, but the most common expenses are doctor or hospital co-pays, medications and dental visits.  Some other helpful things which are right up my alley include the costs of contact lenses, glasses and eye surgeries (including LASIK).  Certain over the counter medications can be covered as well as long as you have a prescription for them from your doctor.  There can be some paperwork needed to verify certain purchases, but that usually just involves emailing or faxing an itemized receipt.  As long as you stick to the list from the IRS, you should find plenty of eligible items.

A major limitation of the FSA is the “use it or lose it” nature of the account.  That is, if you choose to elect $2,500 (which is the maximum amount for 2014) to be contributed to your account but only end up spending $1,500 for the year, you lose that remaining $1,000.  It just disappears.  Probably into some government entities’ account.  Some employers now allow you to carry up to $500 into the next year, but you still lose it if you don’t spend it all by the specified period.  Not all employees offer this, so let’s just assume you have a year to spend everything.

This means if you decide to max out your FSA, you really need to plan ahead.  If you have a big family that spends a lot every year on glasses, contacts, the dentist etc, maxing out your FSA makes a lot of sense.  If you’re a single guy who is relatively healthy and doesn’t go to the doctor much, maxing out your FSA may not be the best use of your money.  Some other situations where it would make sense to go all in on your FSA would be if you have any planned upcoming medical procedures or events, such as the birth of a child or LASIK surgery.  These procedures can easily go into the thousands of dollars, so using $2,500 of FSA money for that would be a great move.  Assess your situation and see how much FSA money would be right for you.

Another limitation with the FSA is that it can only pay for things which were done in that same year.  So if you elect to start an FSA for 2014, you can’t use that money to pay for a hospital visit which was on December 31,2013.  I learned this the hard way as my son decided to be born in late 2012 rather than early 2013.  In any case, this is worth considering as some people believe that you can use FSA money to pay for last year’s medical bills.  You can’t.

Finally, there is a sort of new account on the block called a Health Savings Account (HSA).  It is pretty similar to the FSA in that you contribute your pre-tax money to be used for eligible healthcare expenses.  The biggest difference is that the HSA money is your property, so you can keep it even if you switch employers or don’t touch your funds at all.  It rolls over year after year.  Some even allow you to invest those funds or at least earn some interest on them, which is not a feature of the FSA.  Also, the maximum contribution is much higher ($6,550 for 2014) than the FSA.  Many employers offer both, so you should take your time deciding which one is right for you.  Be on the lookout for a future post detailing HSA’s.

Those are essentially the main features of the FSA.  It’s pretty easy to sign up for, and can be very helpful as it uses pre-tax money for stuff you would have paid for anyway with your after-tax money.  Leave any questions in the comments below.

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Dining out: Not as convenient as we think

Fruits and VegetablesEnjoying a good meal with friends and family is one of the greatest joys life has to offer.  Not many better times can be had than eating a good hearty meal with loved ones and discussing the latest news or just having a good laugh.  Eating with friends and family is a pastime that is enjoyed among all cultures and generations.  With the rising costs of food and transportation, however, people should become more cost conscious about where and what they eat.  Essentially, the choices boil down to dining out, carry out (or delivery) and cooking at home.  And despite the general perception that dining out is more “convenient” or “easier”, that just doesn’t seem to be the case.

Dining out has become the norm nowadays in America.  With the proliferation of long work hours, two income households and extra-curricular activities for the kids, it is becoming increasingly difficult for families to prepare a meal at home.  This shift in dynamics has led to a sharp increase in the number of fast food joints and restaurants, here to satiate humans and make a good amount of money in the process.  Dining out usually costs two to four times more than it would cost to make the same meal at home.  Add on top of that tips and transportation, dining out regularly can definitely cost you.  Not only does it cost you in money, it can also cost you two important things that you won’t see the effects of until it’s too late:  your health and your family.

Fast food and restaurants are not exactly known for their healthy selections.  Meat is usually highly processed, sodium levels can be through the roof and many places give portions that can be enough to feed a small army.  Eating at home can greatly increase the healthiness of your meal, as you can decide how much salt and oil to add and what quantity of food you want to serve.  Using fresh ingredients will increase the taste and nutrition of your food as well.  It’s no coincidence that the obesity epidemic started just around the time that fast food became the norm.

When we do decide to occasionally dine out, there are ways we can minimize the hit to our health.  Eating vegetarian once in a while is great for your health, as we don’t get many vegetables nowadays as it is.  Your body will definitely thank you later for choosing the light veggie sub rather than the same overstuffed cheesesteak.  Moderation is the key when it comes to meat consumption.  (Here is a great post about the savings you can expect from going vegetarian)  Another way to save your health AND some money is to ask to have half of your order to be put in a take-out box right away.  This will save you from eating too much and will give you another meal to have at a later time.  Also, forget the appetizer and dessert by eating a little bit at home before you leave and getting a delicious dessert from the grocery store for about half the price as a restaurant would charge.  These are just a couple of common sense ways to stay healthy even when eating out.

As mentioned earlier, with most families having two full time incomes and not much time to enjoy their hard earned money, eating meals as a family affair has become a rare, if not, impossible activity for some.  This is truly a loss for society because if the family unit is not cohesive, society will be negatively affected.  According to the Archives of Pediatrics and Archives of Medicine, frequent family meals are associated with lower risks of smoking, drinking, drug use and depression.  It is also associated with better grades in school.  This is probably the single most important reason to try to stay home and eat as a family as much as possible.  There was once a time when eating out was associated with very special occasions, and this would actually make those meals out more memorable and enjoyable.  With eating out being the norm nowadays, families are being affected in a negative way.  Even if you are able to eat as a family just once a week, it is much better than not being around the dinner table at all.

Eating out frequently as a result of our fast paced lives seems to be a convenient option, but it is only convenient to the executives of the fast food companies who are making billions of dollars at the expense of hard working people and their families.  A community is simply made up of a group of families, and there is not better act to bring a family together than having a nice meal as a unit.  It is in these family dinners that issues can be brought up, questions can be asked or a light hearted joke can be told.  This is one step that we can do that will bring our families together, save some money and help our health in the long term.  Eating together in the comfort of one’s home is sure to cultivate affection and concern for each other, much more than eating an unhealthy meal in a faceless fast food place.

 

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Down with student loan debt!

This article appeared in a slightly different version as a guest post on frugaling.org, another great website for financial info.

 

I’m an optometrist and I love my job.  Like many professional jobs in the medical field it has a good starting income and great potential, especially if you become a successful business owner.  As much as I love my job, there is one thing I hate about the process of becoming an eye doctor: student loan debt.  And we graduated with a lot of it.  I graduated with around $150,000 in debt myself.  I have colleagues who are in well over $200,000 in debt.  The story is similar for graduates of medical, dental, pharmacy and law schools.  According to a report by the American Association of Medical Colleges, the median level of debt for graduates in 2013 was $175,000!

The main problem is of course continuously rising tuition prices which probably won’t be going down any time soon because there is too much money to be made for the banks.  Just to get a glimpse on the current status of medical school tuition, here is a US News report on the 10 most expensive medical schools.  Looking at these numbers makes it easy to see how students can routinely graduate with well over $200,000 in debt!  Rising tuition rates are a highly charged political issue which probably won’t be resolved anytime soon.  But there is something we can control, and that is how fast and how strong we decide to attack our debt.  Most lenders put you in a 25 year payoff plan.  This is a ludicrously long time and will lead to hundreds of thousands of dollars in interest that can certainly be avoided.  Here are five quick and relatively painless ways to cut your expenses. These methods have personally helped me to attack my student loan debt and greatly reduce my lifetime interest:

1.  Ditch the gym membership:  Like most people, I thought getting a gym membership was the responsible and healthy thing to do.  With the rows and rows of treadmills and dumbbells, getting in shape was an inevitability.  But after a while I found myself not enjoying the workouts and then making up any and all excuses not to go to the gym.  There was the whole process of getting ready, driving to the gym, finding a parking spot and finding the least sweaty machine to use.  This was going on for a few months until I decided to sit down and evaluate my gym usage.  I realized the workout I enjoyed doing at the gym the most was playing basketball.  I cancelled the membership and focused on playing outdoor basketball and running outside, two almost free activities that I actually have fun doing.  Savings: $80/month

2.  Look at your wireless plan:  I’ve been with Verizon Wireless for a while now and have been happy with their service.  Calls are rarely dropped and their customer service is pretty good (as good as you’re going to get with a cell phone company anyway).  When they changed to their limited data program, I was defaulted into the 4 GB data tier, mainly because it didn’t really change my wireless bill.  After a few months I decided to check how much data we were using, and it was well under half a GB!  I get a WiFi connection both at home and work, so I’m not really using cellular data all too much.  I switched us into the lowest 1GB tier plan and haven’t felt a data pinch even once.  Easy savings.  It can pay to check the current status of your wireless plan.  Savings: $30/month

3.   Run that car into the ground:  For most Americans getting a new car every 3-5 years is normal.  It is almost a rite of passage.  It is also one of the worst financial decisions you can make.  A car is NOT an investment, yet people are content with paying tens of thousands of dollars or getting a high interest loan on a product that will give you a guaranteed negative return.  Yes, cars are definitely needed to get you to and from work.  But there are other alternatives such as public transportation or not buying an expensive new car.

I currently drive a Chevy Cobalt, which is a relatively fuel efficient car. It is paid for and has not given me any major problems.  I get regular maintenance in it according to the recommendations in the manual.  Luckily, my commute to work is less than 10 minutes each way so I don’t forsee anything MAJOR happening to the car as long as I get regular maintenance.  And I plan on using it until I can’t drive it anymore.  This is because I don’t want another car that can do the same thing my car does but has a monthly payment.  I don’t want higher insurance premiums.  And I don’t want to go through the hassle of getting a new car.  These are reasons enough for me to keep my current vehicle and avoid future monthly payments for as long as I can.  Savings: At least $200/month

4.  Shop around for auto insurance:  The only thing good about auto insurance companies is their commercials.  Most of the auto insurance companies are pretty much the same when it comes to customer service.  If you look at reviews online, pretty much all the companies have as many decent reviews as bad ones.  Sure some people have had terrible experiences with one company or another, but as a whole customer service is pretty much the same across he board.  This means that price is the overriding factor in choosing auto insurance, and in my experience it really is worth it to shop around.

I was with Nationwide for around 4 years.  I originally signed up with them because a family friend worked for them (probably my first mistake).  I pretty much accepted their rate (a little over $200/month) and was relatively happy with their service (except for the fact they charged a fee to pay by credit card).  In any case, I didn’t think much about switching until a few months ago, when I decided to get a quote from GEICO.  It was $120 less per month than my current rate.  That’s over 50%!  It seemed too good to be true so I got quotes with other companies and was consistently getting much lower rates than my current one.  And most of the quotes were for even more coverage than I was getting at the time.  I knew I needed to switch and after all the numbers were crunched, I ended up saving a little over $100/month.  Plus it’s cool to have that little gecko on my side now.  Savings:  $100/month

5.  Get a credit card that pays:  Optimizing credit card use is a mini-obsession of mine.  I enjoy finding ways of getting credit card rewards on stuff I already spend my money on.  Which is why I get flabbergasted when I see people paying for stuff with cash when a perfectly good rewards card would give them some money back.  The most rudimentary rewards cards give 1% cash back, which is $10 back on $1000 worth of purchases.  Not amazing but better than nothing.  The key is finding cards with higher rates for certain categories like groceries or gas stations and cards with sign up bonuses for certain levels of spending.  This can easily get you a few $100 a month here and there.  Plus it’s nice to get something from the big banks.  You do need to be careful not to increase your spending just to get some rewards, as this would wipe out any benefit from the card.  Savings: $10-$100/month

These 5 easy savings tips produced over $400 in monthly savings.  Applying that directly to your highest interest rate student loan payment can make a world of difference.  For example, a student loan balance of $30,000 with a 6% interest rate and $200 monthly payment would take 23 years to pay off with just the minimum payment.  Applying that $400 on top of the minimum payment, the loan would now take just 5 years to pay off!  (Calculations done on unbury.me)  Truly astounding numbers and proof that making extra payments can drastically reduce the length of the loan and interest paid.

The other, and potentially more lucrative, side of debt repayment is making more money.  You can only save a finite amount of money but earning potential can be endless.  Making money can be more difficult and usually requires more work upfront, but the rewards can be well worth it.  To go along with the theme of this post, however, here are a few painless ways to make more money that have worked for me and helped me pay down my debt faster:

-Work more:  This is kind of a no-brainer but it is an option that is overlooked a lot of times.  It really depends on the type of work you do and how much you get paid, but working just a few more hours a week can really help boost your monthly income.  Some people recommend getting a second job to make more money, but that can have more costs associated with it such as a new commute, wardrobe etc.  This should only be a temporary solution though as maintaining a good work-life balance is essential.

-Sell stuff:  This can be a great way to make some extra money as most people have a bunch of things lying around the house that can fetch some money.  Old cell phones, video games, TV’s and furniture can make some decent money when sold on eBay or Craigslist.  It takes some time to find what sells and what doesn’t, but it can be some nice bonus income once done right.  De-cluttering your living space is a nice side effect to this option.

-Use your current skills:  Making more money usually involves gaining new skills.  But there is money to be had using the skills you already have.  Have you always been really good at math or any other school subject?  Find out if you can join a tutoring service or advertise on your own.  Do you enjoy writing about sports or any other particular subject?  Scour Craigslist for opportunities to write articles or reviews.  All you have to do is think about what you’re really good at and find a way to make some money off of it.  This can take some creativity but opportunities can range from consulting to tutoring a friends son.

Combining pain free ways to save and make money and applying that extra money to student loans can make all the difference in the world.  It’s also important to know that getting rid of loans frees up even more money to attack more loans (my preferred choice) or for anything else you want to do.

Please leave a comment and share your saving and money making tips that can help pay off debt!

 

 

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