The term “consumer debt”
describes money owed to others, excluding a home mortgage. It includes credit
cards, car loans, student loans, lines of credit, and other debts. There are
two types of consumer credit: revolving credit (where a balance can be carried
forward month to month) and installment credit (fixed monthly payments for a
High consumer debt is a problem
for many U.S. families and there is no easy way out. Rather, there are small
steps that can make the situation better over time. It is impossible to borrow
your way out of debt because new debt will just make things worse. The
solution, instead, is taking positive action. Below are five specific action
a Low Consumer Debt-to-Income Ratio- Monthly consumer debt payments should
not exceed 20% of take-home (net) pay, which is consider a “danger zone.” A debt
ratio of 10% to 15% is even better, especially for people living in high-cost
states and/or those with high ongoing expenses such as child care.
Less Expensive Car- When people spend less on a car, say $17,000 instead of
$26,000, they can take out shorter loans, make lower monthly payments, and/or
be underwater (i.e., owing more than your car is worth) for less time.
Purchasing options include a smaller, lower-cost new car or a late model “new
used” car in good condition. Services that comparison shop and negotiate prices
on a buyer’s behalf may also be useful.
PowerPay Debt Acceleration Calculation- PowerPay
is a free Utah State University website that shows how much time and interest
can be saved by accelerating debt repayment. If people have multiple creditors,
PowerPay will create a calendar of monthly payments. As each debt gets repaid,
its payment gets applied to payments for remaining creditors. Debts can be
accelerated in order of highest interest rate, lowest balance, and shortest
Income for Debt Repayment- Sometimes, it may be possible to apply a large
lump sum toward reducing or eliminating debt. Sources of extra cash can include
working overtime, freelance work, reducing household expenses, expenses that
end (e.g., child care), completing a savings
challenge, and/or receiving a raise or bonus.
When Needed- Non-profit credit counseling agencies can assist people whose
consumer debt has gotten out of hand. They may be able to negotiate concessions
from creditors (e.g., waived late fees and lower interest) but will probably
require clients to surrender their credit cards to not run up additional debt.
Personal finance articles often focus on expense reduction
ideas to save money. This is understandable because expenses are generally
easier to control than income. Individuals, themselves, can decide to spend
less on variable expenses whereas decisions about how much people are paid are generally
made by employers or clients (if you are self-employed).
Nevertheless, there are time-tested ways for people to
improve their cash flow (i.e., income minus expenses) by increasing their
income. Below are seven small steps to boost your salary:
Be Valuable and Visible-
Develop areas of expertise that your employer or clients (if self-employed) value
and make sure that they are aware of your talents, skills, and past performance
(e.g., through formal reports and social media posts).
Have One or More Mentors-
Mentoring is a process of transferring knowledge and expertise between workers.
Plan Ahead- Think about
where you want to be in your career 5, 10, and 20 years and develop an action
plan to get there.
Keep Your Resume Updated-
Develop a process to revise your resume; highlight skills and results that
Develop Good Writing Skills-
Writing everything from reports to blogs to company marketing materials is
required in most job settings. This skill can be developed through self-study,
mentoring and feedback from coworkers, and practice.
Develop Good Public Speaking
Skills- Like writing, this skill is valued by employers and can be
developed through self-study (e.g., joining a Toastmasters group), mentoring
and feedback from coworkers, and practice.
Live a Healthy Lifestyle-
Employees who are healthy get things done and are not a drag on an employer’s
productivity. Specific steps to take include eating healthy meals, getting
daily physical activity, and getting adequate sleep.
Yesterday, I attended the
Spring conference of the Financial Planning Association of New Jersey. Below
are some ideas that I gleaned from this meeting:
More financial planners are shifting from
lifestyle practices (i.e., firms with 1 or 2 principals and no formal
succession plan) to enduring businesses that ensure services for clients after
they retire or pass away.
Client service is important in financial
planning and ANY transaction with consumers. The best experience you had anywhere should be the experience you
Approximately 63 million Americans receive $1
trillion in annual Social Security benefits.Social Security spending topped $1 trillion
for the first time in 2017.
People who froze their credit (e.g., after the Equifax
hack) and want to set up an online Social Security account need to unfreeze
their credit with Equifax.Another
option is to go to a Social Security office (appointments were recommended) to
get a special code. The reason given is that certain questions (to set up an
online account) are based on credit report data and a freeze needs to be lifted
to access this data.
If people do not sign up for Medicare during the
7 month window around their 65th birthday and wait until age 75,
premiums will be doubled (10 years x 10% penalty for each year they should have
Medicare but didn’t). If you are still working and not receiving Social
Security at age 65, you must enroll yourself.
Retirement is a major life transition and “the
longest vacation people will have.”
The estate tax exemption will be cut in half
after 2025 under the Tax Cuts and Jobs Act (TCJA). Affluent households who will
be affected by this need to plan now. Also, as a result of the TCJA, only 5
million taxpayers are expected to be able to itemize tax deductions vs. about
30 million who itemized last year.