Many families could be looking at more money than they’ve ever seen at once when you add stimulus cash of up to $1,400 a person on top of a healthy income tax refund.
So — if you haven’t already spent it — what’s a solid plan of attack to save it?
“If someone has credit card debt, I think the best use of any money would be to pay it off,” according to George Papadopoulos, a certified public accountant and financial adviser in Novi.
The average rate that consumers are paying on credit card debt is 16.15%, according to CreditCards.com.
The rate on your cards could be much higher if you have bad credit or built up debt on a credit card issued by some retailers. The average rate for those with bad credit is 25.3%, according to CreditCards.com.
“Credit card debt must go,” Papadopoulos said. “The sooner the better. It is impossible to build wealth when you carry credit card debt paying egregious interest rates on it.”
Families with credit card debt had around $6,300 in such debt on average, according to the 2019 Federal Reserve Survey of Consumer Finances. More than 45% of families reported a credit card balance after their last payment.
A stimulus payout — and a tax refund — could make an enormous difference in dealing with one’s bills.
A family of four, for example, could be looking at up to $5,600 in stimulus cash as part of the latest round of payments.
Once you pay off credit card debt, many financial advisers suggest that consumers of all ages take a hard look at emergency cash on hand. Having enough money set aside can shore up your mental well being — and cover many bills — if you lose a job or face a stock market meltdown.
“It allows people to let the long term investment portfolio do its thing — which is fluctuate, sometimes wildly — without having to sell at inopportune times to survive,” Papadopoulos said.
“It is very important to have a fat emergency fund account,” he said.
In general, experts say people should consider having three to six months in savings to cover their everyday bills in case of a job loss or other emergency.
The temptation to spend instead of save in 2021 is clearly out there.
The latest round of stimulus cash has many turning on the “spending faucet,” according to Anand Talwar, deposits and consumer strategy executive for Ally Bank.
By contrast, the first round of stimulus checks in the spring of 2020 prompted one of the most extraordinary periods of personal savings in recent history.
“People were certainly hunkering down,” Talwar said.
Now, he noted that data from Ally’s customers indicated a 43% spending surge among customers who received the stimulus checks in March. Much of the big spending involved airline travel and clothing. People were twice as likely to spend that stimulus money than to spend a tax refund, based on Ally’s data.
As more people are vaccinated and see a light at the end of the tunnel, more are willing to book a trip or spend on work clothes, as some expect to head back into the office soon. Increasingly, Talwar said, many consumers are more confident about the future than they were a year ago when the pandemic began.
The third round of stimulus by its nature was more likely to be spent, Talwar said, because it was a bit more targeted by income thresholds than the first two programs to reach those who really needed the money.
The full $1,400 goes to single people earning up to $75,000. But it phases out quickly after that and is completely phased out for those earning more than $80,000.
A full payment of $2,800 goes to a married couple filing a joint federal income tax return earning up to $150,000. The phaseout begins after that and ends at $160,000. Families with children also received more money in the third program.
Right now, Talwar said, people aren’t giving up long term savings goals. He’s hopeful that many people maintain healthy savings habits and avoid “revenge spending” — where people make up for lost time in 2020 by spending lavishly or carelessly, take your pick, in 2021.
Diane Swonk, chief economist for Grant Thornton, noted in an April report that the saving rate hit 27.6% — more than $6 trillion — which is below the peak of 33.7% reached in April 2020. “Most of the stimulus checks were saved or used to pay off bills that accumulated late last year,” she wrote.
She added, though, that more consumers are likely to tap into that money as “more vaccinations ramp up and warmer temperatures reopen outdoor venues.”
She wrote: “The key to getting the bang for the buck on stimulus checks is herd immunity, which would allow a fuller reopening of the economy.”
Here’s what to consider if you want to save some money, instead of spending it all:
What to do in your 20s or 30s?
While it might be tempting to put some extra stimmy cash on a hot stock, many financial planners warn this isn’t a sure bet.
“I would definitely not advise trading individual stocks using apps like Robinhood,” Papadopoulos said.
“If they decide to go for it, they must go in with the mindset that it is all gambling (which it definitely is) and they must be OK to lose it all. If they are indeed OK with that, go ahead and good luck, they will need it.”
Instead, experts say that younger consumers should tackle their rainy day fund — and pay down some debt.
Savers, Papadopoulos said, should consider looking for higher rates offered by online savings banks, which are “many times over what the regular banks will pay.” Ally Bank, for example, has no monthly maintenance fees and no minimum deposit requirement. The annual percentage yield on savings is 0.5% for the digital account.
Rates for regular savings accounts at some major banks are just 0.01% in this low-rate environment.
Some credit unions pay 0.1% on regular savings. Some banks pay higher rates, such as 0.15%, if you have more than $10,000 in savings.
Many millennials might consider setting aside extra cash toward a specific goal, such as a down payment on a home.
Talwar said some people stay better focused on their savings goals if they visualize why they’re saving that money, such as a honeymoon or a kitchen renovation. You also want to look at what big bills you have hanging over your head already — and see how some extra cash can give you some breathing room.
“If you’re mired in debt, stimulus money can really feel like a lifeline,” said Melissa Joy, president of Pearl Planning, a wealth adviser in Dexter.
“First, make sure that you have some cash on hand for when things go wrong,” she said.
But take time to understand what debt makes sense to pay down now — and what doesn’t. Do you have some credit card rates that are relatively low? Pay off the debt that carries the highest interest rate first.
Should you try to pay down student loans with stimulus cash?
Joy said you also want to evaluate whether any of your student loan debt can be forgiven — think public service loan forgiveness — and consider what loans might never be forgiven, including private student loans.
Unlike federal student loans, private student loans don’t qualify for federal student loan forgiveness programs.
It might not be the best idea right now for many student loan borrowers.
Remember that we could see some broad student loan forgiveness later this year, said Mark Kantrowitz, author of “How to Appeal for More College Financial Aid.”
President Joe Biden has said that he supports $10,000 in student loan forgiveness.
But others — including U.S. Sen. Elizabeth Warren, D-Massachusetts — are calling for $50,000 in student loan forgiveness.
“Given that the amount of forgiveness and eligibility criteria are unknown at this point in time, borrowers should not take any actions that might make them ineligible for loan forgiveness, such as paying off their debt or refinancing federal loans into private student loans,” Kantrowitz said.
In general, if someone already is looking at more than $50,000 in student loan debt, he said, there’s unlikely to be any harm in making extra payments on their loans, even when it’s not required.
As part of financial relief offered during the COVID-19 emergency, there is a pause on repayment, a temporary 0% student loan interest rate, and a pause on collections for borrowers with federal student loans held by the Department of Education through Sept. 30.
Any borrower who expects to receive loan forgiveness in the future should not make extra payments when they are not required to do so, Kantrowitz warned, as that just reduces the amount of forgiveness they will eventually receive.
“Borrowers who still have jobs and are able to continue making payments on their student loans should bank the money or pay down higher-interest debt first. It’s a good opportunity to build or bulk up your emergency fund,” Kantrowitz said.
After the details of student loan forgiveness are announced, he said, borrowers can use the banked money to pay down student loan debt as appropriate. Pay down the loans with the highest interest rates first.
What about your 30s or 40s?
“When you’re in your 40s with kids, you are likely feeling the tug-of-war between competing money priorities,” Joy said.
“You need a bigger emergency reserve as expenses can pop up anywhere.”
After taking care of an emergency fund, she said, try to bulk up savings in retirement plans or IRA plans if they are options.
Or you may want to add more money to a 529 plan for college savings.
“Your 40s can be game-changing accumulation years,” she said.
“While it can feel comfortable to pay off a mortgage,” Joy said, “I typically encourage people to first look at other debt, savings and investment. Interest rates are so low now that if you have a reasonable interest rate (on a mortgage) other financial decisions may make sense to come first.”
Now could be a good time to boost your contributions into your 401(k) plan or set up a Roth IRA.
Talk to your 401(k) provider about bumping up your savings rate out of your regular paychecks.
Look into opening a Roth IRA or contributing more money into one.
A key point: The money you’ve saved into the Roth — your own contributions — can be taken out at any time without paying a penalty or taxes.
You’d often face a 10% penalty if you withdraw Roth IRA earnings before age 59½. So if you’ve set aside $5,000 and have $1,000 in earnings, you’d pay a $100 penalty or 10% on the $1,000 in earnings if you withdrew the entire $6,000.
A Roth IRA provides tax-free growth and tax-free withdrawals in retirement. Once you’ve owned your account for five years and if you’re age 59½ or older, you can withdraw any money you’ve earned when you want to and you won’t owe any federal taxes or face penalties.
And there are some specific situations where you can avoid the penalty, too, such as if you’re permanently disabled or you use the money in the Roth for qualified education expenses, such as college tuition for a child.
For the 2020 and 2021 tax years, you could contribute up to $6,000 a year, or up to $7,000 if you are 50 or older. Contributions for 2020 must be made by May 17. You are allowed until April 15, 2022, to make contributions to your 2021 Roth IRA.
What if you’re in your 50s or 60s or already retired?
“My goal with clients is to have them debt free before retirement,” Papadopoulos said.
“In my career, no client has ever complained about paying off their mortgage early.”
Or you might want to set aside cash for future medical bills.
Joy said if you are pre-Medicare age and participating in a high deductible health plan, she suggests contributing to a health savings account.
Consider putting extra money into a Health Savings Account, which lets you set aside money on a pre-tax basis to pay for qualified medical expenses.
“Do you have access to a health savings account? That’s another great savings and investing vehicle which can get you a tax break as well as access to tax-free funds when earmarked for health care,” Joy said.
“Medical expenses are high in retirement and HSA funds can really help out,” she said.
If you have adequate cash on hand to pay current medical bills, she said, a health savings account can be a great investment for future medical needs.
“Withdrawals from your HSA are tax-free as long as they go for medical expenses,” she said.
“So your Medicare premiums, prescription payments and a whole host of medical expenses in retirement can be tax-advantaged when taken from your HSA.”
But once you’re already using Medicare, she said, you cannot put aside more money into an HSA.
Then, she said, savers can consider taxable investments or bulking up emergency reserves to pre-fund early retirement expenses for one or two years so that you limit the need to withdraw money — and drive up taxes — out of a regular 401(k) or taxable retirement account.
Read or Share this story: https://www.freep.com/story/money/personal-finance/susan-tompor/2021/05/05/stimulus-checks-student-loans-debt/7349554002/
Is There a Difference Between No Credit and Bad Credit?
The short answer is yes, and understanding the difference could be instrumental in getting better credit.
No credit and bad credit often get grouped together. It’s understandable why, as they both sound similar enough. And if you have either, the next step forward is to focus on improving your credit.
The two situations aren’t the same, though. It’s important to know the difference, because the right way to build your credit often depends on whether you have no credit history or bad credit.
Start your journey to financial success with a bang
Get free access to the select products we use to help us conquer our money goals. These fully-vetted picks could be the solution to help increase your credit score, to invest more profitably, to build an emergency fund, and much more.
By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time.
Please read our Privacy Statement and Terms & Conditions.
The difference between no credit and bad credit
Having no credit means that there’s not enough information on your credit file to calculate a credit score for you. It’s also known as being credit invisible. Sadly, this is an issue that affects millions of Americans.
There aren’t any problems on your credit file; the credit bureaus just don’t have enough data on you. That means when a lender or any other third party checks your credit, there’s nothing to go on.
Meanwhile, “bad credit” is a common term used to describe a low credit score. That low score is because of negative items on your credit file, such as not paying your credit card bill.
When you have no credit, the solution is to build your credit. When you have a low credit score, the solution is to rebuild your credit. Now, let’s look at how you can do each one.
How to build credit for the first time
Here’s the simplest way to build credit:
- Open a credit card.
- Use the credit card for at least one purchase per month.
- Always pay your credit card bill on time and in full.
It’s that easy; that’s all you need to do to get a good credit score. When you use a credit card and pay the bill on time, you establish a positive payment history. That’s the biggest credit scoring criteria.
The tricky part when you have no credit is finding a credit card you can qualify for. Secured credit cards are one of the most common options for consumers in this situation. You pay a security deposit for this type of card, so it’s possible to open a secured card even if you have no credit.
If you’re in college, credit cards for students are available. These are often an option for applicants without any credit history.
How to rebuild a low credit score
It’s a little more complicated to rebuild your credit. First, you need to find out what negative items are affecting your credit score. Here’s how to start:
- Use an online credit score tool to check your score and learn about any items damaging your credit. If you have a credit card, there may be a credit score tool in your online account. If not, there are plenty of free ways to get your credit score.
- Request your credit report from the three consumer credit bureaus (Equifax, Experian, and TransUnion). You can pull a free annual credit report from each bureau, and through April 2022, you can get free weekly credit reports. Your credit report will show you exactly what’s affecting your credit.
Once you know what’s affecting your credit, you can work on correcting it. Below are a few of the most common issues and how to fix them.
Problems with your payment history
This includes anything related to not paying a bill on time, from late payments to having accounts go to collections.
The first step is catching up on your payments. If you can’t pay in full, contact your creditors and see if you can set up a payment plan with them. They may be willing to work with you if that means you’ll be making regular payments.
Next is rebuilding your payment history. The easiest option is to use a credit card at least once per month and pay in full by the due date. Why do you need to use a credit card? Credit card companies report on-time payments to the credit bureaus, which helps your credit score. With other types of bills, your on-time payments typically don’t get reported to the credit bureaus. That means you may not be able to improve your payment history with rent, utilities, or other monthly bills.
If you already have credit cards, you can continue using them to rebuild your payment history. If you don’t, look for secured credit cards and apply for one you like.
Using too much of your credit
A big factor in your credit score is your credit utilization ratio — your credit card balances divided by your credit limits. If this number gets too high, it can lower your credit score. The standard recommendation is a credit utilization ratio of under 30%.
Let’s say you have one credit card with a $4,000 balance and a $5,000 credit limit. That would put your credit utilization at 80% ($4,000 divided by $5,000 is 80%), a very high number that would decrease your credit score.
Fortunately, only your current credit utilization matters. Once you pay down your credit card balance, your credit score will bounce back.
Errors on your credit history
A low credit score may be due to an error and not any action on your part. This is why it’s so important to pull your credit reports from each credit bureau. By reviewing those, you can see if there are any mistakes.
If there are errors on your credit report, you can go to the credit bureau’s website to dispute them online and get them removed.
A low credit score and a nonexistent credit score are both things you can change. After you determine exactly what the issue is, you’ll be able to choose the best solution to fix it.
‘There is no new normal’: Worcester small business owner pivoted during COVID-19 and expects only more change after pandemic
It took about eight minutes for the bank to reject Natalie Rodriguez’s application for a loan through the Small Business Administration.
Rodriguez opened Nuestra, a Puerto Rican inspired restaurant in Worcester, in January of 2020. When COVID-19 arrived months later she discovered Nuestra wasn’t eligible for the federal or state funding that thousands of other establishments received.
To qualify, restaurants were required to show payroll and salary for years before 2020. Those figures didn’t exist for a restaurant that weren’t open in 2019.
“[I was] determined and knew that ‘no’ is not an OK answer,” Rodriguez said. “A door may close but you may need to kick down another door.”
Rodriguez then applied for conventional loans only to be led to more closed doors. Less than 10 minutes after applying for an Economic Injury Disaster Loan, she received notice that her poor credit score resulted in her application being denied.
Rodriguez used the dead end with the SBA to create a new path for herself and Nuestra.
She not only learned how to improve her credit but wanted to ensure others didn’t have to follow her journey as an entrepreneur.
Rodriguez extended the “Nuestra” brand to include financial advising. She started Nuestra Financial in April of 2020.
“Now I’m helping others. I’ve been able to restore my credit,” Rodriguez said. “I’ve been able to help others restore their credit and be able to help them make a business themselves if they so choose. I’ve been able to survive.”
Without grants and other funding, Rodriguez managed to keep her restaurant open through funds generated from Nuestra Financial.
“I was very quiet about it in the beginning. I didn’t want people to be like, ‘Oh look at this girl, she just opened a restaurant in the middle of a pandemic,’ and talk smack,” Rodriguez said. “About a month or two later, a light bulb hit and I was like, nobody pays my bills but me. I needed to mind my own business and not worry about what other people thought.”
In creating Nuestra Financial, Rodriguez said she’s helped Worcester residents restore their credit and purchase new vehicles and homes.
Rodriguez said financial literacy is rarely taught to children in school and wasn’t something she learned. When a situation arises like a rejection notice for an economic disaster loan, many don’t know how to respond or where to find answers.
Rodriguez said she’s helped young and old people, along with those who have bad credit or no credit.
“We lack the confidence, including myself, because we weren’t taught,” Rodriguez said. “So if you don’t know something, you weren’t taught, you’re not going to be confident about it.”
Coming out of the pandemic, Rodriguez remains confident about both her businesses. Nuestra, the restaurant, while closed for daily service continues to provide catering services. Rodriguez is still preparing what the future holds for the restaurant but plans to announce an update soon.
As masks start to become less a part of daily routines, Rodriguez, as a small business owner, doesn’t envision many differences from this year to last.
So many aspects of life remain uncertain from rising food costs to a potential third booster for vaccines and whether the country will ever reach herd immunity for COVID-19.
The pandemic arrived with Rodriguez immediately pivoting. As it approaches its potential end, Rodriguez will continue to do what helped her to navigate it.
“I feel like there is no new normal just yet,” Rodriguez said. “I think we’re all just trying to adjust and pivot at the same time and getting creative. I think it’s where we all are.”
Columbus Mattress Wholesale moves to newer, larger Gahanna store
More than four years back, Cathryn Clark’s boyfriend, Christopher Robbins, was on the hunt for a new mattress. He just couldn’t find one at an affordable price.
Clark, 29, and Robbins, 34, who are now engaged, were living in Franklinton, where they still live today.
They had no experience owning or operating a small business; Robbins worked as a retail assistant for SAS Retail Services while Clark worked as the communications director for two Methodist churches.
But in 2017, Robbins, with Clark at his side, took the leap and opened Columbus Mattress Wholesale on the West Side, with the goal of helping low-income consumers secure mattresses and other bedtime products.
“We really wanted to bring a store to people that, you know, they weren’t paying an arm and leg, but they still could get a good night’s sleep,” Clark said.
Customers at Columbus Mattress Wholesale can pay cash or credit, for example, but the business also works with financing companies that serve people without credit scores, with bad credit or who are lower income.
Last month, the business made a big move. It expanded from its original location on Harrisburg Pike to a store double the size at 435 Agler Road in Gahanna.
Clark said she and Robbins saw a need in the broader area, with many of their customers coming from outside the Hilltop, such as Linden.
Nestled between Dollar Tree and the Ohio BMV in Gahanna, the new storefront opened Memorial Day weekend and sells mattresses, bed bases, bed frames and pillows. Mattress prices range from under $100 to more than $1,000, depending on the size and brand, which includes some well-known names such as Serta, Beautyrest and Casper.
Clark said while she and Robbins originally sold solely Ohio-based brands, they’ve branched out to national brands as business has grown.
Columbus Mattress Wholesale also offers free same-day delivery on most orders from customers living in Columbus.
Clark does a little bit of everything for the business, from running communications, to working on the sales floor, to managing the sales team, to ordering what they sell.
She said a big mission for herself and Robbins, beyond doing business, is aiding the community.
“We’ve seen a lot of people struggle,” Clark said.
Clark said she and Robbins work to mentor other people who are hoping to open or currently own a small business. She added that the store starts employees at $17 per hour.
She and Robbins haven’t decided yet what they will do with the original location — which is currently closed — but said they might shift it into an accessory store.
- Bad Credit1 year ago
All you Need To Know about Bad Credit Scores in 2020
- News11 months ago
Financial Complaints Soared During Pandemic, Reports Say
- Bad Credit1 year ago
The General Car Insurance Review 2020
- Credit Repair Companies1 year ago
How to improve your credit score
- Bad Credit1 year ago
How to Get an SBA Coronavirus Disaster Loan
- News1 year ago
Global Credit Repair Services Market Demand and Status, Forecast 2025 | • CreditRepair.com • MyCreditGroup • The Credit People • Veracity Credit Consultants • TransUnion • MSI Credit Solutions • Lexington Law • USA Credit Repair
- Bad Credit1 year ago
Bad Credit? Best Bad Credit Mortgage Refinance Companies • Benzinga
- Bad Credit1 year ago
Bad Credit Payday Loans Online