10 Latest Blogs

Why so many young adults accidentally destroy their credit

2016-03-02T00:00:00

Good credit is a little like insurance – you don’t really think much about it until you need it. Which is probably at least part of the reason why young adults tend to do so much damage to their credit without even knowing it.

According to a survey and data analysis from Credit Karma, over two-third of Americans admit to making some sort of significant, credit-related mistake before the age of 30. This includes overspending on credit cards, missing payments, and defaulting on accounts.

Undereducated and unprepared

These kinds of damaging mistakes can really set young adults back just at the moment they would most benefit from a strong credit history. Many personal and household goals can be derailed by damaged credit. In fact, three out of four respondents to the survey felt that the financial mistakes they had made as a young adult negatively impacted the quality of their life.

Probably not coincidentally, less than 30 percent of those surveyed stated that they had had any form of financial education prior to college, with 73 percent believing that financial education could have helped them avoid their financial missteps. Additionally, 69 percent claimed they didn’t even know what credit scores were at the time they received their first credit card.

Future consequences

Whether or not they’ve gone to college, and whether or not they’re carrying massive amounts of student loan debts, young adults leaving home and managing their own finances are going to face a series of difficult choices. They’re also going to be required to take on responsibilities they may not be prepared for.

Taken together, those two factors lead many young adults to make decisions that seem to suit their immediate needs, but put their future needs at risk, such as:

Living without a clearly defined budget
Prioritizing wants over needs
Failing to create an adequate student loan repayment strategy
Signing up for services or utility packages they cannot afford
Failing to make regular, timely bill payments

Planting the seed

Financial education doesn’t need to be time-consuming or complex, but it is absolutely essential that young adults receive at least a basic education in managing their funds and utilizing credit. We make teenagers take driver’s education courses before they’re allowed to drive because no one expects them to be able to drive safely and confidently without some amount of instruction. Similarly, we shouldn’t expect young adults to make smart money choices if we don’t first show them how it’s done.

As it stands right now, when it comes to financial know-how, we’re often forced to learn as we go. And that can certainly be an effective way to learn. But a lot of lasting damage can happen on the way to figuring out how to get organized, how to set our priorities, and how to separate the right choice from the easy choice.

If you have children, make sure personal finance is part of their curriculum; if not at school, then at least at home. You don’t need to be an expert to share the lessons you’ve picked up over the years. Besides, teaching them how to read a credit report can’t be anywhere near as frightening as teaching them to drive.

Managing an unexpected loss of income

2016-02-29T00:00:00

There are few financial obstacles harder to manage than a sudden and unexpected loss or reduction of income. Things won’t be easy, but the key to surviving such a significant setback is to create a plan and take proactive steps to protect yourself and adjust your financial behavior appropriately.

Stop and assess

Losing a job or having your salary slashed is scary and stressful. You may start to feel panicked, but it’s important that you keep a clear head and make a thorough assessment of the situation.

How much income do you still have?
How much do you have in savings?
What are all of your fixed and variable expenses?
Is this a temporary or permanent situation?

Take the time to account for all of your assets and liabilities. You need to know what you have and what you owe in order to create a plan.

Set priorities

You won’t be able to do all the things you were doing before your income was reduced. There will likely to a lot of change by subtraction, so it’s crucial to understand your personal and household priorities from the outset. Money will be limited, so what gets paid first? There isn’t necessarily a right or wrong answer, but understanding your priorities will help take some of the pressure off those difficult decisions you’ll soon be making.

Get help

If you’re eligible for unemployment benefits, begin that process immediately. Visit your local food bank to help defray grocery costs. Contact your creditors and utility providers and ask about available hardship programs. See what help is available and don’t be afraid to take it. With a reduced income you’re going to have to find ways to reduce your spending, which isn’t easy. So use every available resource.

Replace lost income

Finding a new job takes time, which is why your initial focus will be on reducing your spending to match your reduced income. But as you cut spending and look for supplemental aid, you should also be working on finding additional income, either in the form of a new job, a second job, or through alternative means, such as selling unnecessary possessions. In a worst case scenario you may also be able to borrow against certain retirement funds, but this isn’t advisable if it can be avoided.

Evolve with the situation

Taking all of the available information – your present income, your savings, your bills, your debts, any available aid or assistance, and your priorities – you should create a spending plan and stick to it. But, as the situation evolves, so should you. If you find additional income, update your plan accordingly. If a creditor offers you a hardship plan, review your plan once more and update where necessary.

With any significant financial disruption it can be very difficult to get back to “normal.” But you can find level ground much sooner if you simply act fast and face the situation head on.

Would you pay a stranger to negotiate your cable bill?

2016-02-24T00:00:00

My internet bill just tripled. Funnily enough, no matter how many times this has happened in my life I’m still caught off guard.

The “new customer” package I signed up for a year ago finally ran out. Somehow this means that my internet – which appears to be just as slow and unreliable as it has always been – is now three times as valuable as it was a month ago.

The reality, of course, is that the “value” of the internet I’m provided is almost completely subjective. There are employee salaries involved, along with some other forms of overhead (probably some wires and switches I presume), but internet and cable and similar services are not the same as most physical goods. Oil prices rise and fall in direct relation to the overall availability of oil. When my internet bill triples, it isn’t because there’s suddenly that much less internet out there.

So while you probably won’t get anywhere haggling at the gas station, you’ve got some ground to stand on if you want to negotiate with your service providers. In fact, it turns out you’ve got so much ground to stand on that it can actually support an entire industry dedicated to negotiating price reductions on your behalf.

Calling in the professionals

These types of bill negotiation companies are becoming increasingly prevalent. The New York Times recently profiled BillFixers, a company founded by two brothers, dedicated to negotiating down client bills. Whatever savings they manage to conjure up for their clients, they keep half.

BillFixers claims a success rate of nearly 95 percent, so there’s clearly ample room for negotiation in many bills. And given how rapidly rates for services like internet and cable are climbing, those successes can equal big money. But does that mean it’s actually in your best interest to bring in a professional? Especially when they’re keeping half of what you save?

Mastering the methods

You may assume that when you hire professional bill negotiators like those at BillFixers, they bring with them some level of authority that you do not possess yourself. In truth, when you agree to allow BillFixers to represent you, you actually grant them permission to pretend to be you. When negotiating on your behalf, an agent from BillFixers will not identify themselves as calling from BillFixers – they identify themselves as you.

From there, their methods – as detailed in the New York Times article – are fairly pedestrian. They call and ask for discounts. They’re patient and polite, and often have to make multiple phone calls, but there isn’t much in the way of tricks being used. It helps to know what other offers are available (for leverage) and it speeds up the process immensely to choose the “cancel service” option as soon as you begin the call (which puts you in touch with a retention agent, who is much more likely to make you a better offer). But that’s about it. Call, call, and call again.

Do it yourself

The benefit, therefore, of using a bill negotiation service is negligible unless you either don’t have the time or simply cannot bring yourself to make the calls yourself. At the very least, you should make an honest effort to reduce your bills on your own before you turn to a paid professional.

For my part, I contacted my internet provider and was able to reinstate the “new customer” price without much fuss. Personally, I still think I’m overpaying for service, but given that there isn’t really a viable alternative in my area, I’m happy with the outcome.

If you’re not comfortable picking up the phone and asking for better rates, ask a friend to help out. And if there’s no one who can help, then maybe you can consider turning to a professional negotiator. Because until you at least ask for a better deal, you’re almost certainly paying too much.

Ultimate Guide to Saving Money

2016-02-22T00:00:00

America Saves Week has returned. Every year in late February, one week is declared America Saves Week with the goal of helping Americans understand the importance of building their savings while also providing tools and education on how best to reach those savings goals.

In honor of America Saves Week – and with an eye toward maximizing your saving potential – here are our top tips for spending less and saving more money.

Leave no coupon behind

Clipping coupons may seem like a throwback to a simpler time, but – though they may have evolved over the years – coupons are timeless. And everywhere! There are coupons in your newspaper, coupons in your mailbox, and coupons online. Take the time to sift through all those offers to see what’s available, but make sure you’re never buying something just because there’s a coupon.

Understand and maximize your membership benefits

You probably don’t know half of the perks that are currently available to you. Your various memberships and club cards entitle you to all kinds of discounts and free stuff. From your AAA membership to your credit cards to your loyalty rewards card at the pet store – they all come with free perks just waiting to be accessed. Gas discounts, hotel discounts, free museum tickets, etc. Find out what’s available and take advantage!

Buy bulk (the right way)

There are clear advantages to buying in bulk. Generally speaking, the more you buy of certain items, the less it costs on a per-unit basis. But that doesn’t mean you should just start buying everything in massive quantities. Buying bulk only works in your favor if you have the space and you actually use the entire quantity in a timely manner. Consider what you use the most and how frequently you replace it before committing to bulk purchases.

Learn to do it yourself

To loosely paraphrase the old adage, a man who knows how to fish is probably going to spend a lot less money on fish over the years. You can’t do everything (and shouldn’t try to), but there plenty of small tasks you can learn to do yourself, which may not seem significant at first, but can add up over time. For example, my mom learned how to cut hair by paying close attention whenever she took my sister and me to the hair salon. This little bit of self-teaching saved my family ten-plus years’ worth of haircuts for three people (she never quite mastered the art of cutting her own hair).

Teach yourself to spend a little less

We’re big fans of the step-down spending method for one big reason – radically changing your spending habits all at once almost never works. It’s very difficult to alter everything about how you budget and spend. Instead, step-down spending allows you to tweak your current habits, reducing incrementally, rather than trying to force a big, drastic change that may not stick.

Plan ahead and execute

One of the easier ways to avoid wasting money is simply making a plan and following through. Don’t want to waste food? Plan your meals, shop accordingly, and then follow the food plan. That holds true for every line item on your budget – the better you plan and execute, the less money you’ll waste and easier it will be to reach your savings goals.

Know thyself

If you’re thinking of overhauling your finances and implementing a plan to ratchet up your savings, pause for a moment to consider your own tendencies. Think about the goals you’ve set that you reached and one that you didn’t reach. This sort of self-inventory is important because we all have strengths and weaknesses when it comes to managing money. A money-saving strategy may sound appealing, but it doesn’t make sense to create and follow a plan that plays against your strengths. Be yourself and find a path that suits you.

Know when to let go

Part of saving money involves getting the most out of what you already have. You could get new shoes, but those ones are still good enough for now. However, there’s often a cost associated with maintaining what you already have. When the refrigerator stops working, you can either fix it or buy a new one. The money smart option might seem to be fixing the refrigerator, but that’s not always what’s best in the long run. Pouring money into a lost cause won’t help your savings goals. It can be hard to find the right balance, but it’s crucial that you learn how and when to let go.

Weighing your debt consolidation options

2016-02-18T00:00:00

I have credit card debt totaling around 15K. I would like to consolidate it by using a loan. Is it best to go through a bank, a credit counselor, or to leave it as is on separate cards? –Heather

Hi Heather –

It’s pretty much impossible for me to tell you which option is the best for you without knowing more about your situation, and even then it really comes down to your preferences and goals. Hopefully, by understanding the options you’re considering you’ll be able to decide which course of action makes the most sense for you.

Consolidation loan

A debt consolidation loan is a new loan where the funds are used for the purpose of paying off existing unsecured debts. Traditionally, this comes in the form of an unsecured loan used to pay off one or more credit card debts. You can also refinance a mortgage or add a second mortgage on your home, using the new funds to pay off those unsecured debts.

PROS:

If you can get a loan with a low interest rate, you can potentially save a good deal of money using this method.
You also consolidate payments this way – just one payment a month, instead of individual payments for each account.

CONS:

Most lenders will require you to close the accounts being paid off by the loan. This may potentially have a negative impact on your credit score as the age of your active accounts decreases.
It’s dangerous to convert unsecured debt (credit cards) into secured debt (mortgage). If you refinance your home with an eye toward reducing credit card debt, but then find yourself struggling to manage the new mortgage payment, you could put your house at risk.
There may be fees associated with the loan.

FINAL VERDICT: A debt consolidation loan can be a great option if you’re overburdened with credit card debt, but have good credit. Just be sure to shop around for the best deal and don’t be shocked if your credit score drops a bit after your old accounts are closed.

Debt Management Plan

A Debt Management Plan, or DMP, is usually provided and serviced by a credit counseling agency. Following an assessment of your financial situation, you may be offered the opportunity to consolidate your unsecured debts into a structured repayment program. This is not a loan. You would make a single payment to the credit counseling agency, which would then disburse the funds to your creditors on your behalf.

PROS:

You receive ongoing counseling and education on managing and eliminating debt.
Most creditors will offer significantly reduced interest rates for accounts being paid through a DMP.
Clients only make one payment each month.
DMPs are designed to fit into your existing budget.
Many creditors agree to bring delinquent accounts current after a set number of DMP payments.

CONS:

As with consolidation loans, the accounts included on a DMP will be closed, which could have an adverse impact on your credit score.
Secured debts are generally not allowed on DMPs.

FINAL VERDICT: A Debt Management Plan is a good solution for consumers who have begun to miss payments due to an unbalanced budget, those looking to rebuild their credit, and anyone attempting to recover from a financial crisis.

You also suggested leaving your credit cards open and paying them as they are. That’s the best option if your priority is your credit score. If you’re struggling to manage the debt or don’t feel like you’re making much progress, consider contacting the creditor first to see if they can potentially lower the interest rate. If that doesn’t work then maybe move on to one of the consolidation options listed above.

Thanks for the question!

How to handle an unexpected tax bill

2016-02-16T00:00:00

This article is presented for informational purposes only. If you have tax questions please consult with a qualified tax professional.

There’s a reason they call it “refund season.” The vast majority of income tax filers – upwards of 80 percent –receive some amount of refund from the federal government each year.

For most of us, our tax return is essentially an official request to have our own money returned to us. But not everyone gets a refund.

Most filers who owe taxes are aware that this will be the case, and if they’re wise, they plan for it by saving the necessary amount of money ahead of time. Sometimes, however, filers are expecting a refund, only to find out that they actually owe tax money instead.

That’s a pretty unpleasant surprise. And it can be a deeply distressing one, too, if you were counting on a refund and don’t have the funds to pay a tax bill you weren’t expecting.

So what do you do if you suddenly realize you owe the IRS money that you can’t possibly pay?

File your return on time

Even if you can’t pay, it’s vitally important that you still file your return on time. Not paying the amount due will result in a failure-to-pay penalty, but not filing your return at all will result in a failure-to-file penalty, which is usually 4.5 percent of the unpaid balance every month – significantly more than the failure-to-pay penalty, which is 0.5 percent.

Pay as much as you can comfortably pay

You only pay penalties on the unpaid amount, so it’s in your best interests to pay whatever you can, even if it’s not the full amount. The more you pay on time, the less it will cost you in future fees.

Those fees can really add up

You most certainly don’t want to just ignore the IRS, but if you do there is a cap on fees. The failure-to-file fee stops accruing after five months, but the failure-to-pay penalty will continue to accrue for up to 50 months. That means that your fees could end up being as much 47.5 percent of unpaid debt. Just another reason why you can’t afford to ignore the problem.

You can file an extension, but…

A timely extension will buy you more time to complete your tax return and save you from a failure-to-file penalty, but it won’t prevent a failure-to-pay penalty from accruing. In order to avoid a failure-to-pay penalty you would need to pay at least 90 percent of the due tax at the time you file for an extension. The rest needs to be paid by the extended due date.

You have repayment options

The IRS does offer installment plans to help manage the repayment process. Those repayment plans can run from 120 days to 6 years, depending on what you’re able to pay. Contact the IRS immediately if you discover that you owe taxes and aren’t able to pay. Depending on how much you owe, you may be eligible to apply for a repayment plan online.

Paying sooner is better

There are definite benefits to paying off your debt within 120 days. Where most repayment plans involve a set-up fee and a set monthly payment, if you can repay your debt within 120 days you may qualify for a Short Term Payment Agreement, which has no set-up fee and no set monthly payments. Essentially, 120 days’ worth of fees are added to your balance and then you are responsible for paying in full before the 4 months are up. You can then pay in as many or as few payments as you like.

There are penalties for defaulting on a payment plan

If you don’t follow through on all of the stipulations of the payment agreement, you may go into default. In order to get out of default, you will likely have to pay a fee (usually around $50).

Follow the plan

Stick to the payment plan and keep in contact with the IRS. The IRS has the ability to seize your property or rights to property in order to repay the outstanding tax bill. In this case, property includes:

Wages and other income
Bank accounts
Business assets
Personal assets (including your car and home)
Social Security benefits

In other words, they will get their money, so it’s in your best interests to work with the IRS and make the process as close to painless as is possible.

Exceptions exist

Finally, you can be excused from paying failure-to-file and failure-to-pay fees if you can show reasonable cause for why you did not file or pay on time. The penalty relief protocols for the IRS are, unsurprisingly, a bit complicated, so if you believe you may have reasonable cause for not filing or paying on time (think more “My home is in the natural disaster area” and less “Wow, I just totally forgot all about it”) contact the IRS directly, or speak with a certified tax professional for assistance.

Being stuck with a tax bill you weren’t expecting can be scary and disruptive, but it’s important that you keep a clear head and face the issue head-on. Taking immediate and proactive steps will go a long way towards getting you past that debt and on to better things as quickly as possible. Good luck!

Debt Success Stories: The 100 Year Old House

2016-02-10T00:00:00

The following is a real client success story. The client's name has been changed, per their request. If you've got a debt success story that you'd like to share, please send us an email at Success@MoneyManagement.org and your story could be featured here in coming months!

For Kara, the trouble all started with her house.

“I loved the house, but it had a lot of problems, not the least of which was a leaking roof.”

The house was over a hundred years old. As much as she loved it, Kara knew she needed to get out. The problem was finding someone willing to pay what it was worth. “It took me five years to find a buyer who would pay what I needed to get.”

Faced with an exceedingly unfriendly housing market, Kara was stuck and quickly found herself pouring money into repairs. Eventually she had maxed out a pair of credit cards. That created a new problem. “The credit card payments had gotten so large that, despite my best efforts, I could no longer make ends meet.”

Debt happens

Kara’s story is by no means unique. As much as we like to believe that unmanageable debt is always the by-product of irresponsible spending or bad money management, the truth is that debt is often a consequence of circumstances beyond your control. You get sick. There’s an accident. The national housing market collapses.

Things happen that we can’t anticipate or properly plan for. And while we can’t undo what’s already happened, we can take steps to find a solution and push past our setbacks.

In Kara’s case that meant proactively seeking a way to reduce the strain of her crushing monthly credit card bills. She asked her creditors if they could lower her interest rates, but didn’t find much traction until a representative from USAA pointed her towards Money Management International.

“It was a very positive experience for me,” says Kara. “The people I dealt with at MMI were friendly, knowledgeable, and nonjudgmental. They were able to significantly lower my credit card interest rates. I only had to make one monthly payment, rather than two, which I liked. The amount I had to pay was manageable. I get paid between the first and the third of every month. I set up an automatic withdrawal for the fifth. For me that was very important. I knew the money would be there. My mortgage and MMI were the first bills I paid each month.”

Find a plan and stick with it

Meanwhile, Kara continued to maintain a trim budget. “I live my life trying to cut back in all areas. My financial resources have always been extremely limited. I can be pretty frugal with food and entertainment.”

Two years later, Kara was finally able to sell her 100 year old house and managed to pay off both credit cards at closing. “The amount I had to pay was a lot less than it would have been had I not contacted MMI. More than that, I wouldn't have been able to pay my bills during those two years because those credit card payments had gotten too high. I might very well have lost my house and all the equity I had put into it.”

There is of course no one solution that works for everyone, and if you’re struggling with debt, a debt management plan may or may not be the right option for you. The key for everyone, however, is to take that first step and ask for help. See what solutions are available. Speak to a close friend. Speak to your creditors. Speak to a certified budget counselor. Just take action.

For Kara’s part, she’s happy to report that she’s since purchased a lovely townhouse and provides advice to friends who are dealing with their own debt troubles.

“I have recommended MMI to other people who are struggling with credit card debt. I've suggested to people that they write down everything they spend money on for one month in order to see where their money is going. I've also suggested that people get all their credit card statements together and add up the balances.”

Debt isn’t a judgment. It has very little to say about your intelligence or shrewdness. It’s just a thing that happens – sometimes as a result of our choices and sometimes completely independent of anything we do. What you do about debt, however, says a lot.

This article was written by a Money Management International employee who believes in MMI’s mission to improve lives through financial education. The results described may not be typical and are the result of Kara’s dedication to taking control of her debt.

Seven free ways to say "I love you" this Valentines' Day

2016-02-08T00:00:00

However you may feel about Valentine’s Day, you have to admit that love is a concept worth celebrating. Even Valentine’s Day detractors are usually less against the idea of the day and more against its extreme commercialization. Valentine’s Day is, after all, the second most expensive holiday of the year, full of expensive jewelry, fancy dinners, grand romantic gestures, and flowers. So. Many. Flowers.

Buying something for a loved one is fine, but love doesn’t require a massive display of your awesome purchasing power. You can very easily show how much you care without ever opening your wallet. In fact, there are probably an infinite number of free ways to say “I love you”, but for the sake of writing an article that eventually ends, here are seven simple, absolutely free ways to show that special someone how much you care.

Just say it

The simplest method of all, but one we’ve all been guilty of undervaluing – just say, “I love you.” They may already know how you feel, but say it anyway. Then say it again for good measure.

Don’t make them ask

When your partner is feeling a bit overextended, there may be chores or tasks that they just can’t get to. There may be things they would normally do on their own, but now they need help. Don’t wait until they ask for that help – just step forward and give it. Even the smallest gesture can make it clear that you’re paying attention and you have their back.

Ask questions and listen to the answers

Part of supporting the person you love is simply giving them a sounding board. Let them share. Let them vent. And make it clear that you’re hearing them. It only takes a small amount of time and a small amount of effort, but when someone feels heard, they feel valued.

Take an interest

You don’t have to like everything your partner like, but there’s something to be said for making an effort to at least understand your partner’s passions. From the causes they champion to the TV shows they never miss, you don’t have to share in everything, but it never hurts to take the time and give those things a chance. And who knows, you may find something you do love, which just brings you closer.

Disconnect together

Go for a walk and leave your cell phones behind. It’s increasingly difficult to simply be present in any individual moment. So show you care by making that effort. Step away from the WiFi and give all of your focus and attention to your partner. Our time and our energy are some of the most precious commodities we have to share, so it says a lot about how much we care when we share them with someone freely.

Set mutual goals

Where do you want to be as a unit and how do you plan to get there? A great way to show that you love someone and want to be together is to make plans. By creating mutual goals and laying out a plan to get there, you reaffirm your commitment to each other, while also giving yourselves something to work towards.

Clean out the refrigerator

Look, it needs to be done. Nobody wants to do it, but some of those Tupperware containers in the back…You just need to bite the bullet and take one for the team, okay? It won’t be pleasant, but at the end you’ll have a clean refrigerator and a partner who knows just how much you care. Which is a lot. Because that refrigerator…

But like I said, those are just a few free ways to say “I love you.” What are yours? How do you show your partner you care? Leave a comment below!

These college majors will leave you drowning in debt

2016-02-03T00:00:00

A college education is an investment. You spend all that money on tuition because a college degree is essentially a necessity in today’s job market. And no matter what route you take – private university or state college, local or out-of-state, 2 year program or 4 year program, etc. – there’s a very good chance you’re going to have to finance all or at least some of your education.

This means that when you leave school and enter the job market you won’t go alone – you’ll be bringing a healthy amount of student loan debt with you.

If your college education was merely an investment, you’d look for the degree with the best return on investment. Real life doesn’t really work that way, though. We each have unique skills and interests which make us qualified for certain careers, and slightly less qualified for others. That’s a good thing, because it turns out that a functioning society requires a lot of different people doing different jobs.

There is a pretty significant divide, however, between the earning potential for some degrees, versus the earning potential for others. Similarly, some degrees cost more to complete than others. That begs the question: which degrees give you the highest earning potential for the money, and which give you the worst?

Student debt vs. your budget

Credible is a student loan refinancing company. Using data from over 11,000 loan applications, they were able to put together a list of debt-to-income ratios for applicants, sorted by degrees. These are the degrees with the five highest debt-to-income ratios:

Veterinary science: 14.62 percent
Psychology (undergraduate): 13.23 percent
Law (graduate): 12.67 percent
Education (undergraduate): 12.06 percent
History: 11.82 percent

This means that if you went to school to become a veterinarian, you could expect your student loan payments alone to eat up nearly 15 percent of your income.

By contrast, these are the degrees with the best debt-to-income ratios:

Economics (undergraduate): 6.70 percent
Engineering: 6.88 percent
Nutrition (undergraduate) 7.37 percent
Accounting (graduate): 7.91 percent
Medicine (graduate): 8.78 percent

Everything is relative

Ideally, your total debt-to-income ratio should be approximately 36 percent. The higher the ratio climbs, the greater a percentage of your income is dedicated to debt repayment and the less you have available to manage other costs or achieve certain financial goals. So while 12 percent, for example, doesn’t seem like a lot, that’s a third of the recommended 36 percent, which doesn’t leave a lot of room for car loans, mortgages, or credit card bills.

Also, keep in mind that an inexpensive degree that results in a low paying career may yield a similar debt-to-income as an expensive degree that results in a high paying career, but that difference in earning potential can have a major impact on your overall debt-to-income ratio.

The best example is a lawyer and a teacher. Comparing only student loans, those two careers have very similar debt-to-income ratios because law school is expensive and teachers are (unfortunately) paid rather poorly. But when mortgages, car payments, and credit card debt are factored in, the debt-to-income for those with a law degree is just a shade over 36 percent, while those with a degree in education have a debt-to-income of nearly 70 percent – the highest of any career.

The right path for you

Of course, just because a certain field of study has a high ratio of student debt to potential income doesn’t mean it’s not a career worth pursuing. We need teachers! We need vets! But it is important to keep in mind that certain careers will most likely put you in a more difficult financial position, which just means that you have to be even smarter about how you spend your money. If you're struggling to manage your student loan debt, consider speaking with a trained student loan counselor. They can help you understand your options and create a repayment plan that works for your budget.

Is this wage garnishment bad for my credit?

2016-02-01T00:00:00

The following article is presented for informational purposes only and is not intended as credit repair advice or instruction.

Ask the Experts: Is it a bad idea to keep this garnishment?

My wages are being garnished by the Department of the Treasury. I actually have the money to pay the debt but only obtained it recently, and the garnishment was already in place. Is it a bad idea to let the garnishment continue? It's quite convenient. –Maryann

Hi Maryann,

From a credit perspective, the damage has more or less been done. The fact that an old debt, either a credit debt or a tax debt, is being paid through a garnishment does not usually show up on most credit reports. What does show up is the fact that the debt was delinquent and that there is a judgment against you for the unpaid debt.

Like with most negative marks on your credit history, the delinquency and the judgment will eventually fall off your report after seven years. There’s nothing you can do to speed up that process. Paid or unpaid, that judgment will stay there for the full seven years and unfortunately it will have a negative impact on your score until then.

So should you just let the garnishment ride since it’s so handy? You could, but it may be in your best interests to simply pay off the debt and be done with it.

There are two reasons why you may want to consider ridding yourself of the garnishment. The first is in the event that you need to apply for a loan. While your credit report will not contain any information related to your garnishment, the loan application itself will almost certainly require you to list any liabilities, which would include the fact that your wages are currently being garnished. Given that your credit score may already be somewhat damaged, having an ongoing garnishment will only make borrowing more difficult.

The second is a budgeting concern. While it may be convenient, that garnishment eats up a portion of your monthly budget, which takes away some of your budgeting flexibility. The counter-argument here, however, is that you could potentially shift the money you would use to pay off the judgment to an emergency savings account.

Ultimately, you should pick whichever strategy best matches your financial goals going forward. If you like the garnishment and you don’t plan on needing a loan any time soon, then feel free to leave things as they are.

Thanks for the question!