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When in Debt or on a Budget, Travel is the First to Go

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Total consumer debt rose 7.6 percent in the past year, totaling $3,898 trillion in 2018. This high debt forces some people to make sacrifices to make ends meet. We found in a previous survey that one in three Americans take out short-term loans to cover debt, even though it leads to more debt and interest payments in the long run. 

Since we know the extremes people will go to, we surveyed 1,000 Americans to see what non-essential expenses they might be willing to give up. While respondents were quick to give up fun activities and products for convenient expenses like food delivery and subscription services, travel actually topped the list.

Below, we’ll dive into the data to uncover why subscription services take precedence over traveling and eating out.

survey results of when in debt or on a budget

Key Findings:

  • One in five Americans would first give up traveling when in debt or on a budget
  • Less than 10 percent of Americans are willing to give up subscription services when in debt or on a budget
  • Americans would rather give up going out to have fun than give up buying new clothes 
  • Technology is among the top three things Americans would give up when on a budget

Travel is the Last Priority for Americans

The votes are in and travel is the first to go for Americans in debt. Americans likely prioritize travel last since associated costs, like flights and accommodations, can quickly add up.

A 2019 Bankrate study found that, of the Americans who weren’t planning a summer vacation, 60 percent of them said it was because they couldn’t afford it. That same study also found that Americans expect to spend an average of $1,979 on their vacations.

Unfortunately, limiting travel and vacation time throughout the year takes a bigger toll on people than they realize—even if they save money in the short term. Psychology Today cites the following mental health benefits for travelers:

  • Broadens our horizons
  • Teaches us about the world
  • Strengthens relationships
  • Boosts happiness
  • Enhances creativity
  • Relieves stress
benefits of traveling

Relieving stress is a major factor that should pique Americans’ interests. A 2019 study by Syracuse University found that vacations and time away from work can reduce metabolic symptoms, therefore reducing the risk of cardiovascular disease.

Additionally, a study by the European Society of Cardiology found that those who had shorter vacations slept less compared to those who took longer vacations. The resulting stressful lifestyles of those with shorter vacations negated the effects of the health benefits participants received during the study.

These are all signs that Americans should think twice about the long-term consequences they’ll likely face when making choices for the short term, like skipping out on travel and vacation to save some money.

What About Travel-Crazed Millennials?

Young Americans ages 18 to 34 all agree that travel should be first to go. This is surprising as millennials are known for their love of travel

younger americans would first give up travel when in debt

A 2018 study by travel technology company Travelport found that more than one in three millennials planned to spend over $5,000 on future vacations. The same study also found that Americans with more education and income are more likely to take vacations.

This possibly suggests that travel is a distant dream for millennials with high debt and/or lower income. 

American’s Can’t Give up Netflix, Even When They’re in Debt or on a Budget

Nothing seems to beat subscription services for Americans, even when they are on a budget. 

Lexington Law found that one in four Americans prefer streaming subscriptions more than any other type. This includes Netflix and other popular options like Spotify and Hulu. The price of these services can range from $6 to $45 or more a month.

Other types of subscription services, like box subscriptions and premium access accounts, can also end up costing a lot. A recent Finder study discovered that, although Americans tend to order subscription boxes the least in comparison to other conveniences like rideshare services and home services, they still pay a combined $37 billion alone on these boxes.

Could you guess how much you pay for subscriptions alone? Most people can’t.

comparing the cost of a netflix subscription

A recent study found that 84 percent of people underestimate how much they spend each month on recurring monthly expenses. Chief Science Officer of Syntonic, Alain Smason, Ph.D., said that people psychologically choose subscription services (and similar payment plans) for reasons like avoiding the pain of paying a large sum upfront.

Whether it’s because it’s seemingly the cheapest or most convenient type of expense, Americans need to think twice about how much subscription services actually suck out of their budgets.

Clothes Never Go out of Style When Facing Debt

Americans prioritize fashion over going out to have fun. Clothing affects our daily lives more than going out to have fun, and it comes into play more than most people might think.

A 2019 paper on the psychology of clothing explains that our clothing choices affect how we perceive ourselves. Overall, the study found that clothing and appearance communicate a lot to other people and affect how we socialize.

Clothing may also be a higher priority because it’s more affordable compared to “going out.” Fast fashion, in particular, makes trendy clothes accessible and affordable, though it may end up costing more in the long term.

textiles in landfills by weight

Source: EPA

Fast fashion is normally made from cheaper fabrics that quickly wear out. This prompts shoppers to toss their clothes more often than if they shopped for higher-quality pieces. As a result, Americans buy more clothes to replace old pieces and the cycle continues. The Ellen Macarthur Foundation looked at the textile industry in 2017 and found the following:

  • The average number of times a piece of clothing is worn before people stop using it has decreased 36 percent compared to 15 years ago.
  • People miss out on $460 billion of value each year by throwing away clothes that they could continue to wear.
  • Some pieces of clothing are estimated to be tossed after being worn seven to 10 times.

Americans should take account of how much cheap fashion choices are costing them. Investing in higher-quality, longer-lasting clothes could be the best financial choice for some, but may not be accessible to everyone.  

New Tech Falls Short for Americans

Electronics also fell into the top three things Americans choose to give up when in debt.

average age of an iphone trade in

Source: Hyla Mobile as reported by the Wall Street Journal

Remember when everyone rushed to get the latest iPhone? Nowadays, people are waiting much longer to upgrade.

A 2018 study by NPD found that the average smartphone upgrade cycle in the U.S. is 32 months, up from 25 months in 2017. NPD attributes this lag to tightened upgrade policies. More carriers require customers to fully pay-off their devices before they can trade them in.

Others attribute the slowdown to consumers having fewer reasons to upgrade their phones. Consumers aren’t interested in getting new phones if their current phone still works and the new devices available don’t offer much additional value. 

The lesson here? Most Americans are content with slightly outdated technology, especially if it saves them money.

Taking Care of Debt and Your Own Well-Being

It’s important to prioritize your well-being, even when facing stressful situations like paying down debt. A healthy lifestyle can keep you sharp and more prepared to face these difficulties than if you are burnt out or sleep-deprived. Reaching out for help from friends, family and finance professionals can also alleviate the stress of tackling debt.

It’s also important to consider alternative options like debt consolidation if you find your debt is overwhelming. If you’re in the middle of tackling debt but find that your credit report isn’t reflecting those changes, you should learn more about our credit repair services to see how we can help you challenge errors on credit reports. 

Methodology

This study was conducted using Google Surveys. The sample consists of no less than 1,000 completed answers. Post-stratification weighting has been applied to ensure accurate and reliable representation of the total U.S. population ages 18 and older. The survey ran online during July 2019.

Learn more about Google Surveys’ methodology.

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Does Getting Joint Credit Cards Have an Impact on Both Spouses’ Credit?

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couples credit history

While marriage can help you improve your financial situation, it does not automatically mean that you and your spouse will share a credit report. Your credit records will remain separate, and any joint accounts or joint loans that you open will appear on both of your reports. While this can be advantageous, it’s critical to remember that joint account activity can effect both of your credit scores positively or negatively, just as separate accounts do.

Users Who Are Authorized

An authorized user is a user who has been added to an existing credit account and has been granted the authority to make purchases. Authorized users are typically issued a card bearing their name, and any purchases made by them will appear on your statement. The primary distinction between an authorized user and a shared account owner is that the account’s original owner is solely responsible for debt repayment. Authorized users, on the other hand, can always opt-out of their authorized status, although the principal joint account owner cannot.

If your credit score is better than your spouse’s as an authorized user, he or she may benefit from a credit score raise upon account addition. This is contingent upon your creditor notifying the credit bureaus of permitted user activity. If your lender does report authorized users, the activity on your account may have an effect on both you and your spouse. However, some lenders report only positive authorized user information, which means that late payment or poor usage may not have a negative effect on someone else’s credit. Consult your lender to determine how authorized users on your account are treated.

Joint Credit Cards Have an Impact on Your Credit Score

Opening a joint credit account or obtaining joint financing binds both of you legally to the debt’s repayment. This is critical to remember if you divorce or separate and your spouse refuses to make payments, even if previously agreed upon. It makes no difference who is “responsible,” the shared duty will result in both partners’ credit histories being badly impacted by late payments. Regardless of changes in relationship status or divorce order, the creditor considers both parties to be liable for the debt until the account is paid in full.

Accounts Individuals

Whether you’re happily married or divorced, you and your spouse may decide to open separate credit accounts. Most creditors will enable you to transfer an account that was previously joint to one of your names if both of you agree. However, if there is a debt on the account, your lender may refuse to remove your spouse’s name unless you can qualify for the same credit on your own. Depending on your financial status, qualifying for financing and credit on a single income may be tough.

Considerations

While creating the majority of your accounts jointly with your spouse may make it easier to obtain financing (two salaries are preferable to one), reestablishing credit independently following a divorce or separation is not always straightforward. To make matters worse, your spouse may wind up causing significant damage to your credit rating following the separation, either intentionally or through irresponsibility – making the financial situation much more difficult.

Before you rush in and open accounts with your spouse, take some time to discuss the shared responsibility of these accounts and what you and your husband would do in the event of a worst-case situation. These types of financial discussions can be difficult, especially when you rely on items lasting a long time, but a mutual understanding and respect for each other’s credit can go a long way toward keeping your score when sharing an account.

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Should you pay down debt or save for retirement?

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rebuilding credit

While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.

Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.

If you have high-interest debt, pay it down

When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).

In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.

High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.

To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.

If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.

Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.

If you’re nearing retirement, start to save

The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).

Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.

Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.

Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.

Aim for both goals by improving income

As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.

The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.

If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.

For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.

While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.



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How does a loan default affect my credit?

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loan default

Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.

Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.

30 days late

Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.

The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.

More than 30 days late

Payments that are more than 30 days past due can trigger increasingly serious consequences:

  • The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
  • You may receive phone calls and letters from creditors demanding payment.
  • If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.

Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.

Other ways a default can hurt you

Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:

  • If you default on a car loan, the creditor can repossess your car.
  • If you default on a mortgage, you could be forced to foreclose on your home.
  • In some cases, you could be sued for payment and have a court judgment entered against you.
  • You could face bankruptcy.

Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.

How to avoid a loan default

Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:

  • For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
  • For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.

Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.

Clean up your credit

The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.

Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.



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