Smart Change

SMART

CHANGE YOUR FINANCIAL FUTURE INSIDE Vanquish phantom debt for good: Know your options when facing off against fraud. PAGE S3 Avoid youthful money mistakes: Know what you have, and think about what you’ll need. PAGE S8 Be open, honest with adviser: Trust is crucial when getting monetary advice. PAGE S12 Debt-free lifestyle isn’t all roses: It’s a worthy goal, but don’t get trapped or go overboard. PAGE S15

WEDNESDAY, JULY 25, 2018

SMART CHANGE | HOW TO HANDLE FINANCIAL SURPRISES

Expect the unexpected with expenses Car repairs, bills don’t have to shock your bottom line LIZ WESTON

NerdWallet‌

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S2 | Wednesday, July 25, 2018 | Lee Central Coast Newspapers

t doesn’t take much to upend many Americans’ finances. A car that won’t start, a furnace that dies or a trip to the hospital can leave households struggling to make ends meet.

According to the Federal Reserve, 44 percent of U.S. adults say they would have trouble coming up with $400 to cover an unexpected expense. Even families who have more in the bank can flounder. Surveys by The Pew Charitable Trusts found that 51 percent of families with at least $2,000 in savings reported trouble paying the bills after a financial shock.

Yet it is hardly a shock if an appliance wears out or a car breaks down.

It’s time to rethink what we mean by unexpected expenses. Some bills may be unpredictable in their amount or their timing, but they’re still inevitable. In other words: If you have a car, or a home, or a body, sooner or later it’s going to cost you.

A better approach, especially for households currently living paycheck to paycheck, is to save for the most likely costs and have some kind of Plan B to handle the truly unexpected.

Here’s how that might work with three of the most common unexpected expenses Pew found: Repairing or replacing a car (experienced by one out of three households that faced a financial shock) A major home repair (experienced by one out of five) An injury or illness that results in a trip to a hospital (also experienced by one out of five)

Car repairs

U.S. households spent an average $837 on vehicle maintenance and repairs in 2015, according to the U.S. Bureau of Labor Statistics. Most spent between 1.4 percent and 1.8 percent of their incomes on these costs.

Tuck aside $500 to $1,000 to cover a typical repair, and add to that cache as you can. Once you pay off your current car, redirect the payments into your repair fund. You can use any money you don’t spend on repairs as a down payment on your next car.

As a Plan B, keep space available on a

Ways to borrow money in an emergency The table below compares the cost of a three-year, $1,000 loan for someone with average credit. How much you pay in interest and fees will depend largely on your credit profile.

Type of lender

APR

Total repayments Time to funding

Federal credit union

9.6%

$1,155

A week or more

Online personal loan

19.84%

$1,335

1 to 5 days

Credit card cash advance

25%

$1,431

Immediate

Payday loan

391%

$11,730

Immediate

Source: NerdWallet

credit card or consider a personal loan if repair costs outstrip your savings. For homeowners, a home equity line of credit may be a lower-cost option.

Home maintenance and repairs

Maintaining your home can reduce, but not eliminate, the cost and frequency of repairs. Typical monthly maintenance costs vary from a low of $25 a month in Phoenix to a high of $83 in Boston, according to an Angie’s List analysis of Census Bureau figures. Generally, the harsher an area’s weather and the higher its labor costs, the more homeowners pay for preventive care.

That’s true for repairs as well, although how much you spend depends on what

breaks and how badly. The usual rule of thumb is to set aside 1 percent of your home’s purchase price each year for repairs. Some years you’ll have money left over, but eventually you’ll face a cost like a new roof that overwhelms your savings.

When that’s the case, that home equity line of credit can be a low-cost way to pick up the slack.

Medical bills

If you think health care costs are predictable, you’ve never faced a surprise bill from an out-of-network anesthesiologist at an in-network hospital — or any of the other ways that medical pricing defies sense and logic.

Ideally people would save enough to

cover their annual deductibles, but that can total thousands of dollars. (The average deductible under a “silver” Obamacare plan is $3,609 this year, and it’s $6,105 for a bronze plan, according to the Kaiser Family Foundation.)

Save what you can, but your Plan B shouldn’t involve credit. Most medical providers offer interest-free payment plans, and many also have some kind of discount for struggling families. They may not offer unless you ask, and they almost certainly won’t if you whip out a credit card.

Isn’t this an emergency fund?

The unexpected wouldn’t present such a big problem if we all followed financial planners’ advice to stow at least three months’ worth of expenses in an emergency fund . The average household spends $4,688 each month, according to the Bureau of Labor Statistics, so such a fund would total about $14,000.

That’s a good goal, but the most important thing is to tuck away something — anything — every paycheck. The best way to deal with the unpredictable is to predictably set aside money every month.

Make savings an automatic habit, and you’ll be better able to cope with whatever surprises life offers.

SMART CHANGE | HOW TO HANDLE MISTAKES, SCAMS

Vanquish phantom debt for good Know your options when facing off against fraud

Get it in writing You don’t want to pay something you don’t owe or accidentally revive a so-called zombie debt, which is an old debt that might be past the statute of limitations. And you don’t want to fall victim to a debt collection scam. You can protect yourself by requesting a debt validation letter:

SEAN PYLES

NerdWallet

The phone rings. You don’t recognize the number, but you answer anyway. It’s a debt collector demanding immediate payment on a debt that doesn’t belong to you, or one you’ve already paid. Suddenly you’re facing a phantom — a phantom debt, that is.

That debt might not belong to you — but telling that to the collector won’t earn you a reprieve. Here’s how to do away with phantom debt.

What’s in the letter?

 The amount owed.  The name of the creditor

seeking payment.

 A statement that the debt

How it happens

provide answers — it’s to get you to pay.

Even a legitimate collector might not be very helpful. And scammers will “deceive and intimidate and harass people into paying debts they don’t owe,” Miranda says.

Don’t make any rash decisions, such as sending a payment to appease the collector.

“When you get a call like that, just stop,” Miranda says. “Think about what your legal rights are and what you can do to assess if it’s a real debt or not.”

Vanquish phantom debt in three steps

Your consumer rights under the Fair Debt Collection Practices Act give you tools to fight back against collectors hounding you for a debt you don’t owe.

1

Get the details

2

Round up evidence

Send a written request that the collector stop contacting you for payment on the debt. The FDCPA says collectors must comply.

If you’re dealing with a misinformed collector, use this time to gather proof you paid.

Then notify the collector; consider sending a copy of proof

of payment and using certified mail to ensure receipt.

Finally, check your credit reports to verify the debt is listed as paid. If not, dispute the credit reports that have the error.

If you’re dealing with a persistent scammer who wasn’t scared off, cite your FDCPA rights and demand no further contact.

That might be enough to make scammers move on to an easier mark.

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Call in the big guns

If the collector won’t back down or respect your consumer rights, file complaints with authorities who have the power to investigate: the Federal Trade Commission, the CFPB and your state attorney general’s office.

“Be very proactive in regard to any debt that a collector is asking you to pay, especially if you don’t recognize it,” says Vivian Padua, a certified financial coach in San Francisco. “Take care of these accounts (so) you can move on with your life.”

Consumer Financial Protection Bureau Collectors are required by Fair Debt Collection Practices Act to send you a written debt validation notice with information about the debt they’re trying to collect.

It must be sent within five days of first contact.

If you encounter a scam or mistake, you can file a complaint with the Consumer Financial Protection Bureau at consumerfinance.gov. The CFPB website also has sample letters you can use to inquire collectors about your debts: http://bit.ly/2sH5vtZ If the debt isn’t yours Write a letter to the debt collection company disputing the debt. You should also check your credit score to see if the debt is marked there. If so, you’ll want to dispute that with the credit agencies.

— Nerdwallet

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You have the right to demand information from debt collectors, including

their agency’s name, physical address and phone number.

The first time a collector calls about an unfamiliar debt, ask for a validation letter confirming details. If the debt is legitimate but already paid, these details will help you identify the account. And scammers might be scared off by the request.

Communication should be a one-way street, with information flowing to — not from — you. Safeguard personal data, such as your bank account details and Social Security number, no matter how hard a collector presses you to “confirm” them.

Lee Central Coast Newspapers | Wednesday, July 25, 2018 |

Last year, 41 percent of the debt collection complaints received by the Consumer Financial Protection Bureau concerned repeated attempts to collect a debt the consumer didn’t owe — more than any other type of collection complaint.

Phantom debts have two main sources:  Misinformed debt collectors: Debt files can be sold from one collector to another, and over time errors and incomplete information can build up.

This might lead a collector to contact you about a debt you’ve already paid or one that was never yours in the first place.  Scam debt collectors: If you receive a call from a collector demanding immediate payment on a debt you don’t recognize, you might be talking with a scammer. The same goes for a call about a debt you recognize, but with an incorrect balance.

High-pressure tactics and references to a debt you don’t recognize are red flags.

“What makes phantom debt so tricky is that there are a lot of unknowns around the debt,” says Cristina Miranda, project manager at the Federal Trade Commission’s division of consumer and business education. And a collector’s goal isn’t generally to

is assumed valid by the collector unless you dispute it within 30 days of first contact.  A statement that if you write to dispute the debt or request more info within 30 days, the debt collector will verify the debt by mail.  A statement that if you request information about the original creditor within 30 days, the collector must provide it.

SMART CHANGE | FINDING A ‘FOREVER’ HOME

Your house should stand test of time Keep these tips top of mind before making a purchase LIZ WESTON

NerdWallet

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“You don’t need to create an institutional-looking home.

You just need to think about your future needs.”

Rodney Harrell, director of liveability thought leadership at AARP Public Policy Institute

y husband and I bought what we thought was a starter home 20 years ago. Now we think of it as our “forever” home, where we plan to

retire and live out the rest of our days.

We got lucky, because most of the features that make our place good for “aging in place” — the single-story layout, open design, wide doorways — weren’t on our must-have list when we were newlyweds.

We’re not the only people who didn’t think far enough into our future. The vast majority of homebuyers and remodelers don’t consider what it might be like to grow old in their homes, says Richard Duncan, executive director of the Ronald L. Mace Universal Design Institute, a nonprofit in Asheville, North Carolina, that promotes accessible design for housing, public buildings and parks.

“We think aging is what happens to other people,” Duncan said. “Nobody puts away money to save for that goodlooking ramp they’ve always wanted.”

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Concerns for everyone

Consider these figures:  Only about 1 percent of the national housing stock can be considered truly accessible, according to the Joint Center for Housing Studies of Harvard University, with basic design features such as no-step entry, single-floor living, wide hallways and doorways, electrical controls reachable from a wheelchair and lever-style handles on faucets and doors.  Homeowners ages 55 and over account for half of the nation’s home improvement expenditures, but fewer than one in 10 older remodelers tackled a project that would make their homes more accessible, the center found.  Eight out of 10 people 65 and older want to remain in their current homes as they age, but the lack of accessible features means many will have to leave those houses or risk a worse quality of life, said Rodney Harrell, director of liveability thought leadership at AARP Public Policy Institute.

And it’s not just the elderly who are affected. Ask anyone who worries about aging parents tumbling down steps or

becoming increasingly isolated in family homes that are hard to navigate.

“If you can’t get in and out easily, it’s a huge barrier to staying connected in the community,” Harrell said.

These concerns are more than just professional for Duncan, since he and his wife are currently renovating a home to make it more accessible after moving from Chapel Hill to Asheville, North Carolina, to be closer to their daughter.

The Duncans had renovated their previous home to allow his disabled father to visit, but finding a new home that had even some of the features they wanted proved a challenge, Duncan said.

What to seek in your last home

Since truly accessible dwellings are rare, people can focus instead of finding one that can be easily adapted to their needs as they age, Duncan said, such as a home with at least one bedroom on the same level as the kitchen, a full bathroom and the laundry room.

The couple ultimately found a firstfloor condo and are remodeling it to widen the master bedroom doorway, replace the thick carpeting with solidsurface floors and add a Wi-Fi-enabled thermostat that is easier to adjust. Future projects will include making the front entrance and back porch “step-free” (they now have 2-inch and 3-inch rises,

respectively) and creating a “curbless” or step-free shower.

No-step entries are good for people in wheelchairs, of course, but they also make life easier for people with walkers, teenagers in casts or anyone wheeling a bigscreen TV through the door, Harrell said.

Other important features to look for include:  Open floor plans that minimize the number of hallways and doorways older people have to navigate.  Hallways in main living areas that are at least 42 inches wide and bedroom and bathroom doors that are 32 inches wide for wheelchair access.  Baths and kitchens that can be made more accessible.

For example, standard wheelchairs require a 5-foot turning radius and showers without steps. People can help their future selves by choosing a home with a bathroom that’s spacious enough to maneuver a walker (or a person plus a caregiver) and a shower that’s large enough to include a chair or seat. If homeowners aren’t ready to add more supports — and you should know that “stylish grab bars” are no longer an oxymoron — they can at least reinforce walls during a remodel so that adding bars later is an option.

“You don’t need to create an institutional-looking home,” Harrell said.

“You just need to think about your future needs.”

Home improvement tips Modifications and repairs can help older adults maintain their independence and prevent accidents.

The Administration on Aging offers these tips: Evaluating your needs Before any changes are made to the home, evaluate your home room by room and make a list of potential problems and solutions.

When hiring a contractor

 Make sure the contractor is licensed,

bonded, and insured.

 Check with your local Better

Business Bureau and Chamber of Commerce to see whether complaints against the contractor are on file.  Talk with family and friends to get recommendations. Contractors with good reputations can usually be counted on to do a good job again.  Ask for a written agreement that specifies the tasks and timeline.  Your agreement should outline the total estimated cost and require only a small down payment. The terms should require balance payment when the job is completed.

Source: www.eldercare.gov

SMART CHANGE | WHAT TO KNOW ABOUT POINT-OF-SALE LOANS

New way to pay comes at a price Borrowing options are tempting, but be mindful of pitfalls

Shopping tips The Federal Trade Commission, the nation’s consumer protection agency, has some tips to help you get the most for your money.

AMRITA JAYAKUMAR

NerdWallet‌

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ill that be cash, credit card or personal

Convenience at a price

Behind the scenes, technology startups introducing point-ofsale loans are trying to shake up

WILFREDO LEE, ASSOCIATED PRESS

The next time you shop online, you may be offered a new way to pay: a personal loan with fixed monthly payments.

Instead of using plastic at checkout, you would provide some personal information and get a loan in minutes. the old concept of store financing.

Targeting millennial shoppers in particular, these lenders tout fast loan applications, no hidden fees and credit approval for those who don’t usually qualify.

The loans suit consumers who cannot get traditional credit or who like the simplicity of fixed monthly payments over the potential of accumulating credit card interest, said Philip Bruno, a partner at consulting firm McKinsey.

But access to credit comes at a price. While some retailers may offer zero-interest promotional rates, annual percentage rates from Affirm and Bread, for example, can be as high as 30 percent. A $345 handbag at Rebecca Minkoff will wind up costing you $385 if you pay for it with a 12-month loan from Affirm at an APR of 21 percent — the average rate for its borrowers, Affirm said.

Lenders use homegrown algorithms to check creditworthiness, paying less attention to traditional data such as your credit score and history. Not all shoppers get approved. Borrowers on the cusp of qualifying may get only a partial loan and have to

pay some of the purchase price upfront.

How the loans work

The process is similar to selecting a store credit card at checkout. The loan option might appear next to the purchase price or in your shopping cart. In the online experience, selecting the loan option will direct you to the lender’s website or a smartphone app. You enter a few pieces of personal information — typically your name, date of birth and last four digits of your Social Security number, or in some cases, just your phone number.

If you’re approved, the lender displays multiple loans with varying interest rates, monthly payment amounts and terms.

You pick a loan, sign the agreement and finish checking out.

Just like using a store credit card, the whole process takes anywhere from a few seconds to a few minutes.

What you should know

Convenience aside, consumers need to know what they’re getting into, said Carole Reyn-

olds, senior attorney at the Federal Trade Commission.

She recommends asking these questions before signing an agreement: What kind of financial product is it, and what are the terms? Many companies offer installment loans, which have fixed rates and payoff periods. Others offer leases, lines of credit or zero-percent financing for a limited time period. Each type comes with certain legal rights for consumers, Reynolds said.

How does the loan impact your credit? Every time you apply for a loan, your credit information gets pulled, and the loan will appear on your credit report. However, some lenders will report your loan payments to a credit reporting agency, which could positively affect your credit score, Reynolds said.

What’s the return policy? In case you have a problem with the item, find out if the retailer or the lender will be handling it, Reynolds said.

Also, check for a procedure for disputes if you get charged incorrectly or have other issues.

Read sale ads carefully Some may say “quantities limited,” “no rain checks” or “not available at all stores.”

Before you step out the door, call ahead to make sure the merchant has the item in stock. If you’re shopping for a popular or hard-to-find item, ask the merchant if they’re willing to hold the item until you can get to the store.

Take time and travel costs into consideration If an item is on sale, but it’s way across town, how much are you really saving once you factor in your time, your transportation and parking?

Look for price-matching policies Some merchants will match, or even beat, a competitor’s prices — at least for a limited time. A price-match policy might not apply to all items.

Go online Check out websites that compare prices for items offered online. If you decide to buy online, keep shipping costs and delivery time in mind.

Calculate bargain offers that are based on purchases of additional merchandise For example, “buy one, get one free,” “free gift with purchase” or “free shipping with minimum purchase” may sound enticing. If you don’t really want or need the item, it’s not a deal.

Source: www.consumer.ftc.gov/

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loan?”

The next time you shop online, you may be offered a new way to pay — a personal loan with fixed monthly payments.

Instead of using cash or plastic at checkout, you would provide some personal information and get a loan in minutes.

Got your eye on a new living room set at Wayfair? Or maybe you’re booking your honeymoon on Expedia. Increasingly, shoppers at these sites and others are encountering payment options from third-party lending companies like Affirm, Bread, Klarna and Acima Credit.

Currently, such “point-ofsale” loans appear mostly on websites for big-ticket purchases, like mattresses, furniture, electronics or musical instruments. But they’re expanding into other retail areas — and loan providers plan to partner with brick-and-mortar stores.

Lyst, an online clothing store carrying brands such as Burberry, Marc Jacobs and J. Crew, offers loans through Klarna. And Walmart is considering checkout loans from Affirm for items above $200, according to a report by the Wall Street Journal.

The loans are enticing, with low payments and a checkout process that’s as quick as applying for a store credit card.

But there are downsides, such as high interest rates for people new to credit and the temptation to overspend, said Byrke Sestok, a certified financial planner at New York-based Rightirement Wealth Partners.

Shop around A “sale” price isn’t always the “best” price. Having an item’s manufacturer, model number and other identifying information can help you get the best price.

SMART CHANGE | BANKING SECURITY

Accounts at risk? Better act fast Here’s how you can protect yourself against potential fraudulent activity MARGARETTE BURNETTE

NerdWallet‌

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aybe you saw a suspicious charge on your bank statement. Or your debit card is missing from your wallet. If you believe your account is at risk, you need to act fast. Your money could be in jeopardy.

According to a 2015 American Bankers Association survey, banks lost nearly $2 billion to deposit account fraud the year before. The recent Equifax data breach highlights how consumer information is vulnerable and how that could put your financial accounts in danger. When faced with a compromised account, consumers can protect themselves by acting quickly in the short term and diligently in the long term.

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Report possible fraud within two business days

The clock starts ticking as soon as you realize there’s a problem. If you report a possibly stolen debit card within two business days of discovering it missing, the most you could be responsible for if someone makes unauthorized transactions is $50, according to the Consumer Financial Protection Bureau.

But if you procrastinate beyond two days, you could lose up to $500 of your money.

If you see unauthorized transactions on your bank statement, the window for reporting it to your bank is 60 days after the statement is sent to you. After that, you could lose all that was stolen from your main account and any linked accounts, with no reimbursement from your bank.

Debit card protections aren’t as strong as those covering credit cards, where potential losses are capped at $50.

Contact authorities, close your accounts if money is stolen

File a police report, and then contact your financial institution to shut down the compromised account. Your bank or credit union can help you transfer remaining funds into a new bank account with a different account number and debit card. Be sure to keep records for your old account in a safe place.

ELISE AMENDOLA, ASSOCIATED PRESS

Check your credit report for new accounts Checking account activity doesn’t typically show up on a credit report, but an identity thief could try to open a new account in your name. The crook could then overdraw the account, leaving behind debts that eventually are reported to credit bureaus.

To help counter this, check your credit reports at AnnualCreditReport.com and resolve to monitor them at least once a year.

If you see evidence of fraud, such as an account opened in your name without your permission, notify the credit bureau and the financial institutions involved, said David Pommerehn, senior counsel at the Consumer Bankers Association in Washington, D.C.

Learn how to protect future account information After an account breach, your financial institution should restore your lost money quickly. But getting your money back and a new debit card, or even closing your compromised account, doesn’t mean your financial safety is assured.

There may be long-term issues. A

Should you freeze your credit?

A credit freeze prevents lenders from accessing your credit report without your authorization. To freeze your credit, you will need to contact each of the three credit bureaus and pay a small fee to each.

PROS: Freezing your credit can lend peace of mind. No one will be able to open credit accounts in your name, which can save you the hassle and cost that comes along with having your identity stolen. Identity-theft victims won’t have to pay freezing fees, and putting a freeze on your credit won’t hurt your credit score.

CONS: The problem with freezing your credit is cost and inconvenience. You have to pay each credit bureau to impose the freeze and to lift it temporarily when you need a credit approval. Also, you may still be susceptible to credit fraud, because a credit freeze won’t affect your current accounts.

HOW TO FREEZE YOUR CREDIT Contact each of the bureaus below. Once set, you will be given a PIN or password to use for authorizing access to your credit. If you misplace your PIN or password, you won’t be able to undo the freeze.

Equifax: Call 800-349-9960 or visit freeze.equifax.com Experian: Call 888‑397‑3742 or visit www.experian.com/freeze TransUnion: Call 888-909-8872 or visit freeze.transunion.com Source: NerdWallet.com

thief could share your personal identifiable information with other criminals who might try to access your accounts or open new ones. Take these steps to protect your information: When using mobile apps, guard

against hackers by keeping devices up to date.

Monitor bank statements monthly for unauthorized charges.

Don’t send personal financial information by email.

SMART CHANGE | HOW TO HANDLE PERSONAL DEBT

Avoid being a ‘yo-yo’ debtor Here’s how you can stop falling into same traps time and again

Create a budget A budget is not magic, but it represents more financial freedom and a life with much less stress. Find a budget that works with your debt repayment plans.

LIZ WESTON

NerdWallet

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mericans’ debt loads, like our waistlines, tend to expand as we approach middle age and then gradually

Look beyond debt

Shed debt slowly, steadily

Careening back into debt can be deeply discouraging and stressful. That’s why debt experts, like weight-loss experts, recommend a slower, steadier approach to vanquishing debt.

Among the most important principles:  Don’t be in a rush to pay off low-rate mortgages and student loans. Focus first on toxic debt, such as credit cards, that erodes your financial security.  Make saving a priority even as you’re repaying debt.

That means having at least a $500 emergency fund and contributing enough to get the full company match for any workplace retirement accounts.  Aim to make lasting changes in the way you spend instead of trying quick fixes. 

Lifestyle changes matter

Browning and his wife, Vina Gainer, 29, tackled their debt from both ends: by cutting their spending and increasing their $60,000 household income.

Browning found a job that paid $1,200 more a month and

experimented with a few side gigs, such as selling stuff on eBay and delivering food for DoorDash. Gainer, a college student who works in her mother’s day care center, started doing her own hair and shopping at thrift stores rather than the mall. The couple also devoted time to planning — and discussing — how they spent money.

“We weren’t really talking about what we were spending.

We just spent it,” Browning said.

Both say the lifestyle changes were hard at first, and Browning said it helped him to seek out other people who were paying off debt, in person and online, for support.

“I think you can forgive yourself a little more when you realize that you are not the only one that has made mistakes and that there are others who have accomplished what you hope to,” Browning said.

The couple paid off their last credit card bill in February, and they are on track to have a sixmonth emergency fund by the end of the year.

Being in debt “was just too stressful,” Browning said. “I don’t ever want to go back to that place.”

Choose a budgeting plan. Any budget must cover all of your needs, some of your wants and — this is key — savings for emergencies and the future.

2

Track your progress. Record your spending or use online budgeting and savings tools.

3

Set yourself up for success. Automate as much as possible so the money you’ve allocated for a specific purpose gets there with minimal effort on your part.

An accountability partner or online support group can help so that you’re held accountable for choices that blow the budget. Leave a little room in your budget for fun, too.

4

Revisit your budget and tweak it as needed. Your income, expenses and priorities will change over time. Adjust your budget accordingly, but always have one.

5

— NerdWallet

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The vast majority of American households — roughly eight out of 10 — carry at least some debt during their working years, according to the Federal Reserve’s Survey of Consumer Finances.

The median amount owed peaks when the head of household is between the ages of 45 and 54 and diminishes after-

ward. The mix tends to change, with younger households more likely to have student loans and older households more likely to have mortgages and credit card balances. More than a third of households headed by people under 55 also have auto loans.

Owing money isn’t necessarily a crisis unless you consistently live beyond your means, putting you at risk of bankruptcy or a lower standard of living. Signs you’re doing that include:  Your debt payments, including mortgage or rent, eat up more than 40 percent of your gross income.  You’re struggling to make minimum payments.  Your net worth — what you own versus what you owe — is shrinking rather than growing over time.  Your debt prevents you from saving for important goals, including retirement and emergencies.

Not having savings also can contribute to the yo-yo phenomenon, where people pay off debt only to face a big unexpected expense or job loss that causes them to reach for credit cards again.

Lee Central Coast Newspapers | Wednesday, July 25, 2018 |

diminish as we get older.

Some people, though, are yoyo debtors, fighting an ongoing up-and-down battle with debt.

They pay it off, or come close, only to find themselves battling bills once again. But there are ways to break that cycle.

By age 21, Chris Browning of Long Beach, California, had accumulated $5,000 in credit card debt — mostly from eating out and trying to impress his thengirlfriend, who is now his wife.

“I guess it worked,” said Browning, an accountant.

After several failed attempts, Browning, 30, made and stuck to a budget. He cut back on expensive meals, looked for free entertainment and slowly paid down the balances until he was debt-free four years later in April 2012.

That didn’t last. As the couple prepared for their wedding that November, debt crept back in.

“By October 2012, we had over $14,000 in credit card debt.

Then from there things just snowballed,” Browning said.

“Between finding a new place to live, school costs, medical bills and just poor decisions, our debt grew to just under $27,000

by November of 2014.”

Figure out your after-tax income. If you get a regular paycheck, the amount you receive is probably it, but if you have automatic deductions for a 401(k), savings, and health and life insurance, add those back in to give yourself a true picture of your savings and expenditures. If you have other types of income, subtract anything that reduces it, such as taxes and business expenses.

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SMART CHANGE | YOUR FINANCIAL FUTURE

Avoid youthful money mistakes Know what you have, and think about what you’ll need BRIANNA MCGURRAN

NerdWallet

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ou’re not supposed to know everything. Those of us who survived our 20s tend to forget that when we’re anxiously peddling advice to young adults. Growing up is mostly about learning, and, yes, sometimes making mistakes along the way.

It’s good to be aware of some of the more egregious errors, though — especially in an area like finance, where a few solid habits and strategies will pay off again and again. These are the five most common mistakes 20-somethings make; post them on your fridge and do your best to sidestep them.

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John Gajkowski, co-founder of Money Managers Financial Group in Oak Brook, Illinois.

Ignoring your cash flow

At your first job, and whenever you get a new one, it will take a few paychecks to notice how much money actually hits your bank account after taxes and deductions like health insurance. And your earnings can easily evaporate if you don’t pay attention.

“It’s not what you make; it’s what you get to keep that counts,” says John Gajkowski, co-founder of Money Managers Financial Group in Oak Brook, Illinois.

Use a budgeting app or choose one way to make all your purchases — a debit card or a credit card that you pay off each month — so you can easily track spending.

Say you notice you’re really going to town on Lyft and Uber. Designate one weekend a month when you can hail a cab to your heart’s content and use public transportation or other means the rest of the time.

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‘It’s not what you make; it’s what you get to keep that counts.’

Not realizing time is on your side

Yes, you will probably make more money in the future. That doesn’t mean you should wait until then to save in your company’s 401(k). Do it now and you’ll build a habit; wait too long and saving will feel like cutting back.

“It’s a lot easier to start right at the beginning, because it only hurts for the first couple of weeks, and then you’re used to it,” Gajkowski says.

You’ll be richer if you start now. Save $200 a month starting at age 23, and at a 6 percent rate of return you could have about $425,000 at 65; start at 33 and you’d have about half that.

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Letting friends set the agenda

You’ll need serious willpower to avoid trying to keep up with friends who make more money than you, and who want to go out for drinks or dinner at places you can’t afford. When you make plans, get in the habit of being the one to suggest where you’ll meet, and be honest; a brief, “I’m on a budget, so let’s check out that free Friday night event at the museum” will suffice.

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Jumping on quick student loan fixes

In the first quarter of this year, 2.6 million federal student loan borrowers paused their monthly payments through forbearance, according to government data.

In forbearance, payments are halted but interest accrues. You’re in the hole a little deeper every day. That’s why it should be a last-ditch option for borrowers who’ve hit rough times.

Instead, ask your student loan servicer if you qualify for deferment first, since subsidized federal loans won’t accrue interest in the meantime. If not, in most cases, opt for an income-driven repayment plan, says Kevin Fudge, director of consumer advocacy at the nonprofit research and counseling organization American Student Assistance. Your bill will be in proportion to your income, and if you need a lower payment indefinitely, your balance will be forgiven after 20 or 25 years.

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Digging deeper in debt for grad school

Going to graduate school is more and more common: In 2015, 12 percent of adults age 25 and older had a graduate degree compared with 8 percent in 1995, according to the Urban Institute. But grad school is not always a sure way to have more financial flexibility in the future, especially if you need to take out more loans to go.

Exhaust other ways to pay first, like attending part time and taking advantage of tuition assistance from work. Adding to existing student loan debt isn’t something you should do lightly; use a student loan calculator to see what you’ll pay after you’re settled in your shiny new job after graduation. It may shock you.

SMART CHANGE | HOW TO HELP CHILDREN UNDERSTAND FINANCIAL ISSUES

Teach your kids about money early, often Money management for youth Here are some ways parents can begin teaching their children money management skills, even from a very young age:

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Start early

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Focus on savings

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Share your own financial missteps

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Encourage careful credit use

Teaching kids good financial habits can begin when children are around 5 years old, or when they typically begin asking for an allowance, according to a guide for parents published by the National Endowment for Financial Education (NEFE), a nonprofit focused on financial literacy.

Parents can expect their child to spend their allowance all at once but should use that as an opportunity to discuss how to treat the next week’s allowance, for example.

“There are many things at actually quite a young age that children will understand,” said Ted Beck, the NEFE’s president and CEO. As children hit their preteen years, NEFE’s guide also suggests parents explain how budgets work, as well as the basic principles of investing. The lesson could include playing at being an investor by identifying a company their child knows and encourage them to track the stock’s gains or losses.

ASSOCIATED PRESS

Volunteer Kurt Kern, lower right, a financial adviser, explains different options for savings and investments to a group of high school seniors April 5 during the Eau Claire Area Chamber of Commerce’s Real Life Academy at the Lismore Hotel in Eau Claire, Wis.

ALEX VEIGA

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countries, concluded that one in five American teens lack basiclevel skills, more than in Russia, China or Poland.

“Financial literacy is a key component to understanding general money management and credit basics, but a majority of American teens are not financially literate,” said Heather Battison, vice president at credit reporting company TransUnion.

“This is why it’s imperative for parents to have conversations with their teens about money in order to start a good foundation for financial literacy and help prepare teens for financial independence.”

Parents should be open to discussing their own financial mistakes with their kids, as long as the concepts in the lesson would be something their children are old enough to understand, Beck said. “It’s OK to show you’ve made some mistakes and what you learned, but do it as a discussion, not a lecture,” he said.

Kids under 18 are not allowed to open a credit card account on their own. Use of prepaid gift cards in high school can help establish good credit use habits. Parents with kids going away to college may want to add the student to their card to cover books or emergency expenses. A shared card account also can help parents keep tabs on their kids’ spending and payment habits.

Either way, parents should make sure their teen knows that credit cards are loans and that there is a cost to not paying off balances right away.

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International Student Assessment. part-time summer job The organization, which evalcan teach teens the value uated financial literacy among of earning a paycheck, but thousands of 15-year-olds in 14 not necessarily how to manage their money wisely.

That’s a job parents should take on, and the earlier the better, experts say.

Teaching teens the basics of saving, following a budget and the principles behind responsibly managing checking and credit accounts can instill healthy financial habits that will serve them well as adults.

But many U.S. teens aren’t being taught these skills, according to a report released this summer by the Programme for Associated Press

Lee Central Coast Newspapers | Wednesday, July 25, 2018 |

Lifelong skills can be learned at a young age

Encourage kids to set aside money they get for doing chores or presents in their own savings account.

This will help show them the importance of saving up for a big purchase and how bank savings accounts work.

“Putting some money away reinforces that they have to make decisions and be responsible,” Beck said.

When a child is between 5 and 10 years old, it’s an ideal time to take them to set them up with a savings account, which can help them learn the value of saving and compounding interest, even at today’s low interest rates. Many banks offer savings accounts tailored for young children as well as teens. Ally Bank has an online savings account that doesn’t have a minimum balance requirement and currently offers a 1.05 percent annual percentage yield. Capital One Financial offers a savings account for kids with no fees or minimum balance and currently offers a 0.75 percent annual percentage yield.

SMART CHANGE | YOUR FINANCIAL FUTURE

Don’t let retirement funds fade Follow these tips to avoid running out of money LIZ WESTON

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S10 | Wednesday, July 25, 2018 | Lee Central Coast Newspapers

NerdWallet‌

mericans aren’t terrific at saving for retirement. Many are even worse when it comes to figuring out how much to spend once they get there.

An actuary who has studied the issue for three decades recently proposed a relatively straightforward strategy that can help. In its simplest form, the “Spend Safely in Retirement” plan suggests waiting until age 70 to claim Social Security and using the IRS’ required minimum distribution table to determine how much to withdraw from savings each year.

Even those who stop work earlier can use the strategy, or a version of it, to figure out when they can afford to retire and how much they can spend, says Steve Vernon, a research scholar at the nonprofit Stanford Center on Longevity in Stanford, California. Vernon worked with the Society of Actuaries to study nearly 300 different retirement income approaches. The strategy was the best way for middle-income people with $100,000 to $1 million saved to create an income stream, Vernon says.

Most people nearing retirement don’t consult a financial adviser, and only about half try to calculate how much money they’ll need to retire comfortably, according to surveys by the Employee Benefit Research Institute. Instead, retirees typically take one of two approaches, Vernon says: They try to minimize withdrawals, viewing their retirement savings as an emergency fund that must be conserved.

They wing it, using retirement savings as a checking account to pay their current living expenses without much thought for the future.

“These approaches really aren’t ideal,” says Vernon, author of several books on retirement. The winging-it crowd often burns through their money too fast, while the conservers may spend too little.

Traditionally, financial planners have recommend the “4 percent rule” — withdrawing 4 percent of retirement savings in the first year and increasing the amount each year by the rate of

inflation. Recently, some researchers have questioned that approach, saying it may not be safe enough for retirees who could be facing a lower-return environment than previous generations.

Another way to set up a retirement income is to buy an immediate annuity, which offers a stream of payments in exchange for lump sum, from an insurance company. Many retirees, however, don’t want to give up a chunk of money that they won’t be able to access in an emergency or leave to heirs.

Social Security, on the other hand, is a kind of annuity that can be a solid foundation for most people’s retirements, Vernon says. Benefits increase with inflation, don’t fluctuate with the market and can’t be outlived.

If people can delay claiming benefits until they are 70, they’ll get the largest possible check. For married couples, only the higher earner needs to wait until 70, Vernon says. The other spouse

can begin Social Security checks at full retirement age, which is currently 66.

Once maximized, Social Security benefits likely will make up 75 percent or more of the typical retiree’s income, Vernon says. With the bulk of their income guaranteed, retirees can keep their savings invested in stocks to reap inflation-beating growth. A balanced index fund or a target-date fund can be an easy, low-cost way for them to invest, he says.

Those who want to quit work earlier, say at age 65, can use some of their savings as a “transition fund” to replace Social Security checks.

“There’s some judgment involved in the size of the transition fund,” Vernon says, since carving out too much could leave too little to live on later. People may need to reduce their living expenses and consider working part-time.

Withdrawals can start at age 65, using an initial 3.5 percent withdrawal rate.

At age 70, people can switch to the IRS’

required minimum distribution table, which dictates how much people must take from most retirement accounts at that age.

The withdrawal rate at 70 is 3.65 percent and it increases slightly every year after that; by age 90, for example, it’s 8.7 percent.

The spend safely strategy won’t make up for inadequate savings, and some people may need to supplement their income by tapping their home equity, either through a reverse mortgage or by selling their house, Vernon says.

How much people withdraw can vary considerably every year with the rising and falling of the stock market. But the method allows people to squeeze as much income as possible from the savings they have without running out, he says.

“We really didn’t set out to find a simple solution,” Vernon says. “But compared to the others, this is the best.”

SMART CHANGE | HOW TO BORROW FROM RETIREMENT ACCOUNTS

When you should tap your Roth IRA early ARIELLE O’SHEA

NerdWallet

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ost retirement accounts are for one purpose: The money goes in and stays in until retirement — specifically, until the investor turns 59 1/2. Pull it out early and you’ll

Other cash sources

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In an ideal world, you’d have it all — a savings account for short-term goals, another that holds your emergency fund and a Roth IRA for retirement. In the real world, it takes time to build that kind of financial security. In the meantime, it’s OK to use, but not abuse, the Roth IRA’s multitasking skills.

“What we do with younger clients is set up a liquidity pecking order,” explains John Gajkowski, a certified financial planner and founder of Money

About Roth IRA early withdrawals

Lee Central Coast Newspapers | Wednesday, July 25, 2018 |

have to pay taxes and penalties.

Understandably, that lengthy lockdown doesn’t always sit well with younger investors. Sure, you may not need that money now, but there could be plenty of future circumstances in which you might. Having thousands of dollars stashed behind bars won’t bail you out of a job loss, get you out of debt or unlock the door to your first home.

Enter the Roth individual retirement account.

Roth IRA contributions are made with after-tax dollars, so its distributions in retirement are tax-free. That’s a good perk, but there’s more: Because you’ve already made Uncle Sam whole, you can pull out your contributions at any time without tax or penalty.

The word “contributions” is important here; the IRS has different rules for withdrawing the investment’s earnings, which may be taxed or penalized if the distribution isn’t qualified .

You can use a Roth IRA to save for retirement while knowing that your savings can take a detour, should you need or want it to. But not every detour is worthy. Here’s how to decide when it’s OK to tap your Roth IRA early.

the expense you’re facing could be charged to a zero-percent balance-transfer credit card — one you could pay off in full before the interest rate goes up — that’s often a better option than tapping your Roth IRA contributions.

“If you can get a free loan without impacting your contribution limit or retirement savings, it’s better to keep the money in the Roth IRA,” says Doug Amis, a certified financial planner and president of Cardinal Retirement Planning in Cary, North Carolina.

Other expenses for which “We position the Roth as you can borrow, like education or a home purchase, should be both a retirement account weighed similarly. and an emergency fund, Consider the cost of a student but we really stress the loan or mortgage interest rates against the cost of raiding Roth idea of emergency.”

IRA investments, and you might find — especially in today’s stillJohn Gajkowski, low interest rate environment — Founder of Money Managers that it’s better to borrow.

Financial Group Roth IRAs rules offer an extra dose of flexibility in certain ASSOCIATED PRESS circumstances if you need more A retired couple walks through the Erie Art Museum in 2014 in Erie, Pa. Most retirement accounts are for one than what you’ve contributed. purpose: The money goes in and stays in until retirement. Understandably, that lengthy lockdown doesn’t First-time homebuyers can always sit well with younger investors. The Roth IRA has extra flexibility: Contributions are made with afterwithdraw up to $10,000 of earntax dollars, so the IRS lets you take them out at any time without additional taxes or penalties. ings tax- and penalty-free, as long as they’ve owned the Roth Managers Financial Group in for at least five years.

Oak Brook, Illinois. “Checking Earnings also can be tapped accounts come first, then money for qualified education expenses Before making extra payments on any debt, you should have a market or savings accounts. We such as graduate school without game plan that makes sense. position the Roth as both a repenalty, though you will have to tirement account and an emerpay income taxes on the withIf you want to withdraw contributions: After-tax gency fund, but we really stress drawal. contributions — commonly called “basis” — can be the idea of emergency.” withdrawn at any time, for any reason, with no taxes or However, Roth IRAs have anpenalties.

It isn’t a free lunch nual contribution limits — curIf you want to withdraw earnings: You must satisfy two The flexibility of a Roth IRA rently $5,500 for those under requirements for a qualified distribution to avoid taxes makes it a tempting dangling age 50 and $6,500 for those 50 and a 10 percent penalty. First, you must have held a Roth carrot, so it’s important to reand older — so you can’t easily IRA account for at least five years, a clock that starts ticking at the member the end goal. The tax replenish any money you take beginning of the year of your first contribution. Second, you must perk that gives you full access out. That means your savings be at least 59½, disabled, dead (the distribution is taken by heirs) to your contributions also turns goals should include a separate or using up to $10,000 toward a first-home purchase. If you don’t them into a powerful pot of taxemergency fund, even if it has a satisfy both points, a withdrawal of earnings is likely to come with free money come retirement — if lean start. income taxes and penalties. Some exceptions allow you to avoid those contributions are left inthe 10 percent penalty — but not taxes — on certain early vested. distributions that aren’t qualified.

Let interest rates “The younger you are, the — Nerdwallet better a Roth IRA is because of be your guide the ability to take a little acorn The decision to pay down debt or invest generally comes vestment return — 6 percent off making minimum payments. and turn it into a very big oak The decision in another ex- tree,” Gajkowski says. “You end down to a rate showdown: If is a good threshold — focus on ample falls along the same lines: up paying taxes on the acorn, the interest rate on the debt is paying down that debt. If the higher than a reasonable in- rate is lower, you may be better Absent other sources of cash, if not the oak tree.”

SMART CHANGE | YOUR FINANCIAL FUTURE

Be open, honest with adviser Trust is crucial when getting monetary advice

How to choose a financial adviser

BARBARA MARQUAND

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NerdWallet‌

Never make the mistake of assuming all financial advisers are the same.

ou found a good financial planner to help you manage money and achieve your goals. Congratulations, that’s a big step. Now comes a leap — opening up about money. There’s a reason it’s called “personal” finance. Almost everything about your life can influence your financial decisions, so get ready to talk about more than dollars and cents.

“The more open our clients can be, the better the planning we can do for them,” says Emilie Schaffer, a certified financial planner and associate wealth adviser with Buckingham Strategic Wealth in St. Louis.

Working with an adviser goes beyond handing off financial documents. Here’s what you can and should share when meeting with a financial adviser.

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All the facts, please

Your financial adviser will request documents as you start working together.

That can include anything from account statements and tax returns to how much you make and how much you owe. The list might be broader than you expect. Be prepared to share more than your 401(k) statement even if you think you only need retirement advice.

“The best result is when a client is willing to share all the relevant information.” says Carl Goodin, a certified financial planner and president of Financial Planning Associates Inc. in Ellisville, Missouri.

That includes even those investment accounts the planner won’t manage, Goodin says. Knowing the full scope will help an adviser create a properly diversified plan.

Mistakes matter

Don’t shy away from sharing embarrassing details, such neglecting to save for retirement or running up credit card debt.

Financial planners have seen it all before.

Schaffer tells of one client who needlessly kept $50,000 of credit card debt secret for years.“Our role is not to look backwards, but to set realistic expectations going forward and to plan for the best outcomes possible.”

Therese Nicklas, a certified financial planner and owner of The Wealth Coach for Women in Rockland, Massachusetts, says: “Bad news doesn’t get better with age. When you hang onto guilt, the only one who is paying for that is you.”

Not only do a host of different qualifications and levels of expertise exist, but financial advisers often specialize in working with certain client demographics as well.

Many segments of the population may have different financial, legal and tax situations than the general population, such as: Small business owners and the

self-employed

Divorcing couples Recent widows and widowers Military and ex-military personnel Same-sex partners

Decisions, big and small

Some things are out of a financial adviser’s scope. Typically they’re not therapists or attorneys, so they can’t treat emotional issues or give legal advice. And they don’t need to hear every grisly detail of your divorce or whom you voted for in the last election.

But almost no financial matter is too big or small to discuss, says Angela Furubotten-LaRosee, a certified financial planner with Avea Financial Planning in

Richland, Washington.

Should I buy or lease a car? Should I loan money to my adult child? How should I plan for retirement if I fear getting Alzheimer’s disease?

“I hope to have the kind of relationship with clients they feel they can trust and share almost anything with me,” Furubotten-LaRosee says. “I don’t think there’s a danger in oversharing. Your life and finances are intertwined.”

Your goals, values

This goes deeper than generalities such as “I want to save more” or “I want to have a comfortable retirement.”

“It’s not just looking at numbers,” Nicklas says.“You want to know what those numbers are for.”

Be prepared to think through such questions as: What and who is most important to you? What do you want to do with the rest of your life? What keeps you up at night?

Clients often pause when asked these questions, Schaffer says.

“They often come in thinking they’re just going to talk about retirement goals and planning.”

Your values give a financial picture color and shape. “The purpose is to get to know clients as individuals, as human beings,” Schaffer says. “There’s nothing off the table.”

Past experiences with money

Attitudes about money get established early, so don’t be surprised if a planner asks about your earliest money memories.

Knowing about your background can help your planner understand your perspective — and can also bring biases to the surface.

“A client will say, ‘Don’t talk to me

about real estate. I bought a rental property one time, and I took a big loss.’ Or, ‘Don’t talk to me about stocks. I bought a stock one time, and it went down and I took a loss.’ Or, ‘Don’t talk to me about bonds,’” Goodin says.

“This allows me to address misunderstandings that may occur. My job is largely one of education.”

Other advisers specialize in working with groups that may not technically have different needs, but instead have a different philosophy on financial advising, career trajectories or unusual income levels, such as: Ultra-high net worth individuals Young professionals Engineers or scientists Entertainment industry, athletic or creative professionals What’s the benefit of getting a specialized planner?

One part of finding the right financial adviser is making sure you are working with someone who can understand your holistic financial planning needs and be able to guide you through the different financial challenges of your life. Many financial advisers pick a population to specialize in because they are a part of that population themselves.

It’s clear financial advisers aren’t “one size fits all.” Even if every adviser had the same level of knowledge and skill on the technical aspects of their profession, it wouldn’t matter if you could not have good communication about your overall goals and situation.

It’s important to think about what kind of person you want to be sitting across the table from and want to trust with your savings, goals and financial security.

— NerdWallet

SMART CHANGE | HOW TO PAY YOUR STUDENT LOAN DEBT

Looking for forgiveness? Avoid these mistakes Program rules are nuanced, so be sure to avoid traps TEDDY NYKIEL

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NerdWallet

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The wrong type of loans

Graduating students fill the Columbia University campus during a graduation ceremony May 17 in New York. Having college debt disappear is something many student loan holders can only dream of. But it’s possible for some of the 44 million people in the U.S. with education loans.

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Knowing ‘qualifying payments’

To be eligible, borrowers must work full time while making 120 qualifying monthly payments, meaning the payments were made:  After Oct. 1, 2007.  Through a qualifying repayment plan (generally an income-driven plan).  For the full payment amount due.  No later than 15 days after the due date.  While the borrower was employed full time by a qualifying organization.

To benefit from PSLF, borrowers must make at least some payments on an income-driven plan, a federal repayment plan that caps borrowers’ payments at a percentage of their income.

If federal loan borrowers stay on the standard 10-year plan,

they’ll fully repay their loans by the time they qualify for forgiveness.

Only one qualifying payment counts per month, which means paying extra each billing cycle won’t help borrowers achieve forgiveness faster.

The payments don’t need to be consecutive. They don’t count if they’re made while the borrower is in school, during the loan grace period or while the loan is in deferment or forbearance.

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The wrong type of employer

Federal direct loan holders who work full time for the government, a 501©(3) nonprofit or an organization providing a qualifying public service may be eligible for PSLF, regardless of their job title. For instance, a full-time janitor at a public school could qualify.

“It’s not about what you do,”

says Betsy Mayotte, director of consumer outreach and compliance for the Center for Consumer Advocacy at the Bostonbased nonprofit American Student Assistance. “It’s about who you work for.”

Borrowers who are on the job hunt and considering PSLF should check that the employer qualifies before accepting an offer.

Until borrowers have made their 120 qualifying payments, they should submit employment certification forms to the Department of Education to confirm that their work qualifies.

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False promises

Dozens of companies use false claims to con borrowers, a NerdWallet investigation found. They promise to reduce or eliminate loans and charge high fees to enroll people

in free federal programs.

For instance, “Obama student loan forgiveness” is a popular scam. The term gets more than 18,000 online searches per month, but no such program exists.

Beware of companies that collect high upfront fees or charge recurring monthly amounts, two signs that an offer is likely too good to be true.

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Forgiveness future

Education Secretary Betsy DeVos has proposed cutting PSLF, which started in 2007 during the Bush administration. Critics of the program argue it’s too expensive and disproportionately benefits graduate and professional school students, many of whom have six-figure debt loads. If the proposed cuts go into effect, loans made before July 1, 2018, would be still be eligible for the program.

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Borrowers’ loans must be in the federal Direct Loan Program to qualify for PSLF, which is not the case for nearly 19 million people — or 44 percent of federal student loan borrowers — who have loans in other federal programs, according to 2017 Department of Education data.

Those borrowers’ nondirect loans are ineligible for PSLF unless they first join the Direct Loan Program by consolidating their debt.

And, in that case, payments won’t count toward PSLF until those borrowers consolidate into direct loans.

ASSOCIATED PRESS

Lee Central Coast Newspapers | Wednesday, July 25, 2018 |

aving college debt disappear is something many student loan holders can only dream of.

But it’s possible for some of the 44 million people in the U.S. with education loans.

Through the Public Service Loan Forgiveness Program, people with federal student loans can get their loans erased tax-free if they first make loan payments for 10 years while working for the government or a nonprofit.

That’s the gist of it, at least.

The program rules are more nuanced.

Unaware of the complexities, many loan holders inadvertently make decisions that render them ineligible.

Only a few hundred people are on track to get forgiveness this fall — the soonest borrowers can receive forgiveness through the program — according to data the U.S. Department of Education presented to financial aid professionals last year.

Borrowers can look out for these PSLF missteps to ensure they stay on track for loan forgiveness.

SMART CHANGE | YOUR FINANCIAL FUTURE

When to ignore credit advice

Getting finances in order isn’t a one-size-fits-all venture, experts say GREGORY KARP

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NerdWallet‌

onventional wisdom about credit cards is often black and white, from whether you should use cards at all to which types deserve a slot in your wallet.

But personal finance is just that — personal, experts say.

“Financial advice is best when it is not one-size-fits-all,” said Bruce McClary, spokesman for the National Foundation for Credit Counseling. “Everybody is different in the way they set priorities and manage budget decisions, so it makes sense that some advice may not be a perfect fit for all people.”

Credit card tips might be easier to understand when they’re binary — do this, don’t do that — but that advice usually doesn’t apply to everybody. In fact, some advice could hurt more than help.

Here’s a sampling of conventional wisdom on credit cards and why it might not apply to you.

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Always use credit cards

For those who regularly incur credit card debt or know they can’t trust themselves not to overspend with plastic, credit cards can be a lousy idea. Instead, cash and debit cards can help to curb spending.

Besides, not everyone can qualify for credit cards.

Never use credit cards

Cardholders can get in trouble by charging too much, then paying finance charges.

That downside is real and important, but this advice ignores many cardholders who pay off balances monthly. Credit cards have many benefits, including convenience, building credit, rewards and fraud protections.

“There is a stigma associated with credit cards, but they can be effective money-management tools as long as you use them correctly,” said Paul Golden, spokesman for the National Endowment for Financial Education.

“Much of the bad reputation originates from irresponsible use, overspending and using a product that isn’t quite right for you.”

Reasons to get a credit card SIGN-UP BONUSES. The bonus could

A 0% INTRODUCTORY APR PERIOD: help you start an emergency fund (in This lets you avoid interest on purthe case of a cash back card) or take chases or balance transfers for a period. a trip.

FLEXIBILITY: Though it’s best to always pay your balance in full, a credit ONGOING REWARDS: Rewards give card allows you to pay for things over you back some of the money you spend. time, which helps when you have a BUILDING CREDIT: Establishing a good major purchase to make or a financial payment history can help you borrow emergency. money in the future at lower rates.

Always pay your bill in full

You should pay off your credit card bill monthly to avoid paying finance charges.

An exception might be during times of hardship, when paying for a necessity, such as rent or food, trumps paying the credit card bill in full. Or you might be within a zero percent interest period on your card and decide to use cash to address a different financial priority.

“Carrying a balance can be a costly proposition, so if it becomes difficult to manage the debt you owe, it is best to have a conversation with your creditor and consider getting help from a nonprofit credit counseling agency before things get worse,” McClary said.

Never pay an annual fee

Cards with annual fees typically offer rewards and benefits. They might include sign-up bonuses, airport lounge access or travel credits. “Not paying an annual fee is good advice in general, but there are some circumstances when the value of earned rewards might outweigh the cost of using the card,” McClary said.

Always use a rewards card

If you use a card as a payment tool and pay the balance in full every month, a rewards card is ideal. But for those who carry balances and pay finance charges, the interest would be more than the rewards. A low-interest card or one with an introductory zero percent offer is better for those cardholders.

Never close an account

Closing an account can hurt your credit rating, because scoring formulas like to see that you aren’t using more than 30 percent of your available credit (less is better) and a lengthy credit history, both of which suffer with a closure.

Still, you might want to cancel an unwanted card to avoid paying an annual fee — if the issuer won’t let you downgrade to a no-fee card.

“If you’ve had an account for a few years and it has a decent limit and is in good standing, then keep it,” Golden said.

“However, if you’re paying a hefty annual fee, you will have to decide if it’s worth the credit-score hit to close the account.”

Don’t transfer balances

The idea behind this is that moving debt to different cards doesn’t address the problem of paying it off. In fact, it could add to debt because balancetransfer cards often charge a fee of 3 to 5 percent of the amount transferred.

But the upside is that balance-transfer cards can provide breathing room for carrying balances without finance charges — often more than a year. That’s useful when you can’t pay now but likely could pay later.

SMART CHANGE | HOW TO GET RID OF DEBT THE RIGHT WAY

Debt-free lifestyle isn’t all roses It’s a worthy goal, but don’t get trapped or go overboard LIZ WESTON

S

NerdWallet

tories about how ordinary people pay off debt quickly can be amazing, inspiring — and somewhat deceptive.

These tales often mention the sacrifices debtors made but may gloss over the cost to their quality of life or the misguided choices they made. Becoming debt-free can be a worthy goal, but understanding the pitfalls can keep you from repeating others’ mistakes.

There’s more to life

ASSOCIATED PRESS

Client specialist Felipe A. Perdomo, left, closes a deal with customer John Tsialas on April 26 at a car dealership in Miami. Want to pay your car loan off early, or live a debt-free life? It’s a noble goal, but watch out for the potential pitfalls.

You have options

Make a plan for lowering your debts Before making extra payments on any debt, you should have a game plan that makes sense.

First, determine whether repaying your debt is realistic. If you’re struggling to pay the minimums or it would take you five years or more to pay off most of your unsecured debt — primarily credit cards, medical bills and personal loans — consider debt relief instead. A nonprofit credit counselor can advise you about debt management plans, but you also should talk with an experienced bankruptcy attorney.

Next, prioritize toxic debt. It doesn’t make sense to pay off low-rate, potentially deductible student loans or mortgage debt ahead of nondeductible, variable-rate credit cards.

Don’t forget to save. You may be tempted to throw every dollar at your debt, but that can be an expensive mistake.

You can’t get back the company matches, tax breaks or compounding you miss by not contributing to retirement plans.

You’d also be smart to keep at least a small emergency fund to avoid adding to your debt; $500 is enough to start.

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Debt settlement can have other pitfalls. Bankruptcy attorney Ed Boltz of Durham, North Carolina, has had clients who paid $5,000 to $10,000 to debt

settlement companies without getting the relief they were promised. Some creditors refused to compromise, and some debt settlement companies were

fraudulent outfits that vanished without a trace.

“People think they’re doing the right thing, but their credit scores are trashed, they’re out all that money,” says Boltz, a past president of the National Association of Consumer Bankruptcy Attorneys.

Not at all costs

Another mistake people frequently make is using their retirement funds or home equity in a vain attempt to pay off overwhelming debt.

Retirement fund raids typically trigger income taxes and penalties, while home equity loans put the borrower’s home at risk of foreclosure. The worst part, Boltz says, is that people are using up assets that would have been protected in a bankruptcy filing.

Ultimately, your financial health is worth more than setting any speed record for paying off debt.

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Aja McClanahan of Chicago, who with her husband, Kelvin, paid off $120,000 in debt, wishes she’d understood more about old debts and statutes of limitations.

“There were some bills we could have negotiated down and others we actually didn’t have to pay because of how old they were,” McClanahan says.

For example, she settled one defaulted private student loan for $3,600 — the original principal — after interest and fees had ballooned the bill to $12,000.

She found out later the debt was well past the state statute of limitations, which limits how long creditors can sue after someone stops paying a debt. While creditors can continue trying to collect out-of-statute debts, the McClanahans wouldn’t have faced the potential lawsuits, wage garnishment or bank account liens that can come from ignoring in-statute debt.

Lee Central Coast Newspapers | Wednesday, July 25, 2018 |

Zina Kumok wishes she hadn’t been in such a frenzy to pay off $28,000 of student loans.

She did so in three years on an average annual salary of around $30,000.

“I was so focused on getting rid of debt that I didn’t spring for things that could have really helped me, like going to a therapist or even attending networking conferences,” says Kumok, a Denver resident who blogs at DebtFreeAfterThree.com.

Financial planners consider most student loans to be the kind of “good debt” that needn’t be paid off in a hurry. Federal student loans offer relatively low, fixed interest rates, deductible interest and numerous repayment options, including several years of deferral or forbearance plus the possibility of forgiveness.

While Kumok is happy her loans are paid off, she advises others not to go overboard in their debt repayment zeal.

At one point, she debated with herself for 20 minutes about whether to spend $1 on a Redbox video rental. That was taking frugality to the point of obsession, she says.

“I think I could have improved my life a lot if I had let go a bit,” Kumok says. “Spending an extra $50 a month wouldn’t have killed me.”

Did your checking account pay you $315 last year?

If not, consider making the switch.

S16 | Wednesday, July 25, 2018 | Lee Central Coast Newspapers

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