Estate Planning

For tomorrow belongs to the people who prepare for it today.

African Proverb

No one likes talking about death, but that doesn’t mean you shouldn’t. In fact, you should be talking about end of life planning a lot more than you think you should.

Seventy percent of families have strong misconceptions about the value of an estate and more than 30% of children don’t even know the value of their parents’ assets, says a study from Fidelity Investments. It probably doesn’t help that most inheritors haven’t talked to their benefactors about their eventual wealth.

Discussions around estate and succession planning can be emotionally charged, so families tend to shy away from them but for families that want to leave a legacy and ensure the nest egg they have built is protected across generations, communication and planning are key.

Why you need to have a will and estate plan.

The sooner children understand major money matters – like estate planning, the better. But that raises the question, “what exactly is estate planning?”

Estate planning is comprised of wills, which is your very basic document saying who gets what, and who’s in charge of your estate. In the estate planning process, people are also designating someone to make healthcare decisions for them while they’re alive.

It’s best to start out with outlining your estate plan exactly the way you want to.

How large is your estate? What’s your family situation like? Children, step-children, grandchildren, and other relatives may be considered when making a plan.

Estate planning tips

Estate planning attorneys can help you create a plan that is right for you. It’ll cost you, but making sure you’re doing everything legal and correct is worth it. You don’t want your death to create any drama.

Confirm your money is in line with your estate. Being financially aligned with your estate plan should be essential. Remember when you’re done planning doesn’t mean you can’t change something later. It can be updated and changed any time you want it to.

Once you’ve got a handle on your will and estate, make sure inheritors know exactly what is coming. Let them know that they can ask any questions, regardless of how uncomfortable they are, so they understand everything that should happen after you pass. Just because they are hard to ask doesn’t mean it isn’t necessary.

Who you list in the will to receive your assets are referred to as beneficiaries. Everybody should have beneficiaries listed on their financial accounts. A few accounts to add beneficiaries to…

  • Life insurance
  • Retirement accounts
  • Checking
  • Savings
  • Brokerage accounts

Funeral planning

If you don’t face your own mortality, your loved ones will face a different truth: Overspending.

Modern American culture has a taboo against discussing death. After all, who likes planning out their burial plot when they’re young or healthy? But this way of thinking hurts us financially.

People tend to leave the funeral planning to their loved ones, making them guess what the deceased wants and limiting the ability to shop around.

No one wants to make a quick decision on a costly item when the emotional stakes are high.

The national median cost of a funeral with viewing and burial for 2017 – the latest year this data is available – was $7,360, according to the National Funeral Directors Association. But just because that’s the median cost doesn’t mean you need to spend it.

Joshua Slocum, executive director of death industry watchdog Funeral Consumers Alliance (FCA), gave us tips to follow as you plan your funeral in advance when you don’t believe death is near.

1. Follow a budget

There are a lot of details that people often consider for a funeral: cremation or burial, type of casket, and myriad other choices. But the first step is establishing a budget.

When you’re planning, understand and articulate with your family clearly what a comfortable budget is one that does not require you to take on debt. How much money do you have – not how much you think it has to cost.

2. Shop around

Once you’ve chosen a service, compare prices in your area. If there’s a local FCA group, check there first for local price surveys. Large price discrepancies, sometimes up to thousands of dollars, exist between different funeral homes in the same city. That information can help you narrow down which funeral homes to consider for a more detailed quote.

When you visit funeral homes, ask for their price lists on paper (which they’re required by federal law to provide) so you can look at their prices at home, outside of a sales context. And ask funeral homes specific questions if you don’t understand something.

If you need help during the planning process, contact the FCA.

3. Talk with your loved ones

Have a conversation about the funeral arrangements with your family or the circle of people closest to you.

Don’t merely tell your survivors what you want. It’s awfully selfish if you don’t go further and add on to that, ‘Hey, guys, you’re going to be here when I’m gone. What do you think will work for you? What would make you feel better and what would you find meaningful?’ Make it a dialogue, not a dictation session.

After you have that talk, write down the decisions and the prices you found in your area. Make physical copies of these and hand them to your family. If you have it in an email, safe deposit box, or password-protected file, people will overlook these at the time of death.

4. Don’t forget that a casket is just a box

People are accustomed to spending $2,000 or more on a casket, but that number should make them pause. It is simply a box, and they’re vastly marked up over their wholesale price.

If you find a casket on your own, funeral homes must legally accept it without charging a fee. (The same goes for urns.) Choose a casket using two criteria: Is it affordable for you, and does it appeal to your eye?

Remember that caskets do only one thing, and every casket does it just as well as another: It simply holds the body.

5. Never prepay

There are a few reasons to never prepay for a funeral. You could move cities. You may want to choose a different funeral home later because your choices have changed.

Do you really believe that you will want exactly the same thing at 78 as 40-year-old you would? Most of us, by the time we’ve gotten to middle age, realize how much things can change.

6. Keep returning to your decision

Funeral shopping is not a one-stop process. If you’re 40 years old and you’re planning for a funeral ahead of time, you need to revisit the decision every few years or if you move.

Rechecking costs can also save you money. Sometimes prices lower over time because conditions have changed.

Most Americans don’t have a plan to transfer an inheritance

Determining your financial stability on a windfall of cash from a loved one may not be the wisest choice. And what if you never receive that inheritance?

As previously outlined, an estate plan is a preparation of moving one’s assets over to their surviving family members after their death. The family will need to settle their estate taxes which typically involves an attorney with a background in estate law.

When it comes to legacy planning, generally speaking, the sooner the better. Failing to have an estate plan in place can lead to significant family confusion once a beloved family member passes. Too often, it may result in costly mistakes or the wishes of a loved one’s estate and legacy plans going unfulfilled.

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Inheritance of Debt

For adult children, the death of a parent is a fraught experience. Adding to the stress: the unwelcome surprise that Mom or Dad died with big debts.

Who is on the hook to pay them?

Unless you cosigned one of your parent’s loans or accounts, it’s usually the estate, not you. Usually. Not always. The rules are complex and differ depending on the type of debt and where your parent lived.

If there’s not enough money to cover the debt, in many instances your parents debt will die with them.

But if there is money or other assets, they must be used to pay the debt before anything is distributed to heirs.

Which means even when you’re not legally responsible to pay the debts, they may still reduce – or even wipe out — what your parent intended to leave you. For instance, an executor may need to sell some of an estate’s assets to satisfy creditors’ claims.

Or, say you expected to get the money in your mom’s 401(k) or IRA. It will only be protected from her creditors if she listed you as a beneficiary on the account itself. If you are not listed as a beneficiary, the money will be rolled into the estate, and creditors can make claims against it.

Creditors typically have a fixed period of time — usually between two and six months — to make claims against your parent’s estate.

This is the typical order of payment:
  1. Fees such as fiduciary, attorney, executor and estate taxes
  2. Burial and funeral costs
  3. Family allowance, depending on state statutes
  4. Outstanding federal taxes
  5. Medical expenses not paid by insurance
  6. Property taxes
  7. Credit cards and personal loans are usually at the bottom of the list.

Taxes: The estate is responsible for paying any property tax and income taxes, delinquent or otherwise. And tax agencies are usually given top priority as creditors. Also, if federal estate tax is due but property is distributed before it’s paid, the IRS can puta lien on the property and collect on it.

Medical debt: If your parent received Medicade, the insurance program for people who can’t afford care, the state where your parent died can recover the payments it made from the time your parent was 55 until death. A house is the only substantial asset a person may keep and still qualify for Medicaid. So the state may place a lien on your parent’s home to recover payments.

Some states, however, may be willing to negotiate and let the executor pay less than the total due. The state may not, however, ask you to use your own funds to pay the bill. Nor is the state allowed to pursue payments during the lifetime of a surviving spouse.

The state is also barred from collecting if you or an adult sibling lived in your parent’s home for at least two years before his or her death and provided care that delayed your parent’s admission to a nursing home or other medical facility.

If your parent wasn’t on Medicaid, but died with unpaid hospital or doctor bills, the estate is responsible for paying them if it has the money.

But check state law. Close to 30 states have what’s known as “filial responsibility” statutes. Those require adult children to pay for a deceased parent’s unpaid medical debts, such as those to hospitals or nursing homes, when the estate cannot.

Mortgage debt: Inheriting a home with a mortgage is a very complex issue. So talk to an estate lawyer familiar with all state and federal laws governing the issue.

Generally, if you inherit your parent’s home and it still has a mortgage on it, the lender may not demand that you pay off the mortgage immediately. In other words, the bank can’t call the loan. But you will be responsible for making payments on it going forward.

If the mortgage is worth more than the property when you want to sell the home, ask the bank if it will agree to a short sale if it won’t, you can tell the bank to foreclose.

Either way, you should not have to pay the bank the difference between the sales price and the money still owed on the loan. But in the event of a foreclosure, “the bank could go after the estate for the difference.”

The foreclosure should not affect your credit score, either, so long as your name is not on the mortgage. But it all depends on how the mortgage company reports the transaction to credit bureaus. Wells Fargo, for instance, would not report the transaction under your name, even if it was listed on the title to the property, just so long as your name isn’t on the loan itself.

You may also choose to disclaim your inheritance, in which case the house would go to the person designated if you had died before your parent. If no one was named, in many states the house becomes part of the general estate.

Credit card debt: Unless you’re a cosigner on your parent’s credit card, his or her Visa bills are not your problem.

That’s not to say that debt collectors might not try to convince you otherwise. But they’re only allowed to call you requesting payment if you’re the executor. (There are federal rules governing who creditors may call regarding a deceased person’s debts.)

The credit card company is often a low-priority creditor behind funeral homes, federal and state tax agencies and various lenders. So it may be willing to negotiate a lower payment.

Estate Planning: Estate planning attorneys can help you create a plan that is right for you. It’ll cost you, but making sure you’re doing everything legally and correctly is worth it. You don’t want your death to create any drama.

Confirm your money is in line with your estate. Being financially aligned with your estate plan should be essential. Remember that just because you’re done planning doesn’t mean you can’t change something later. It can be updated and changed any time you want it to.

More on estate planning next time.

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Insurance

Fun is like life insurance;
the older you get, the more it costs.
Frank McKinney Hubbard

Insurance is like a life jacket. It’s a bit of a nuisance when you don’t need it, but when you do need it, you’re more than thankful to have it. Without it, you could be one car wreck, illness or house fire away from drowning in debt. Insurance can offer peace of mind and you can find an insurance policy to cover almost anything imaginable but these are some of the essential to be included in your financial planning

1. Health Insurance

is one of the most important types of insurance to have. Having good health allows you to work, earn money and otherwise enjoy life. If you develop a serious illness or have an accident without being insured you may find yourself unable to receive treatment or even find yourself in debt to the hospital.

Many employers provide health insurance benefits to full-time and even some part-time employees. If you do not have health insurance coverage this is the first place to check as it will generally be the most affordable. If you’re married you may both be able to receive coverage under one of your employers plans. When both employers make health insurance available a close comparison of co-pays, deductibles, premium costs, network coverage and covered expenses will determine which plan yields the most benefits.

If your employer does not offer health insurance or you’re self-employed then the federal healthcare marketplace is a good starting point; alternately you can contact insurers directly to see what type of coverage is available in your state. Use the same criteria as above to evaluate and compare policies costs and coverage.

While purchasing your own health insurance may be more expensive if you’re self-employed the premiums you pay out of pocket do qualify as a tax deduction.

2. Life Insurance

is important if you are married and/or have children or own assets, but even single people can benefit from having life insurance. It can be used to pay burial costs, replace lost income of the deceased, help to pay any lingering debts after your death or pay for your children’s college education.

Many employers offer basic group life insurance as a benefit and some even allow you to purchase additional coverage at a very affordable rate. Outside of employer plans there are hundreds of insurance companies that can provide the right coverage for you.

Next thing to consider is whether to purchase Term or Permanent life insurance. Term insurance covers you for a specific time period, typically 5-30 years. Permanent insurance covers you for your entire life, as long as premiums are paid. Of the two, term life insurance tends to be more flexible and less expensive but if you’re looking for an investment component you may prefer permanent coverage. Either coverage should be funded to 15-20 times annual salary.

With most types of life insurance your ability to get covered depends on your age and health profile. The younger and healthier you are, the lower the cost is likely to be but be prepared to take a brief medical exam as part of the application process. There are some insurance companies that offer no-exam term life policies. While this may be easier to apply for by only completing a brief health questionnaire, this type of coverage could carry higher premiums.

3. Property Insurance

is one type of policy that for most people that is actually mandatory to have when you have a mortgage. The premium often times is rolled into the mortgage payment. For many people, their home is their greatest asset so it is vitally important to adequately protect it.

If you rent instead of own, a renters insurance policy is just as important. Your belongings inside the dwelling can add up to a significant amount of money. In the event of a burglary, fire or natural disaster you should be able to at least have a policy that can cover most of the replacement costs. Both homeowners and renter’s insurance can also protect you against personal liability if someone is injured at your home.

Like any other type of insurance, take the time to compare coverage and premiums. Homeowner’s insurance, for instance, may not cover you in the event of flood damage or damage from an earthquake. If you live in an area that’s prone to those types of events you may need to supplement your policy with additional natural disaster coverage.

4. Auto Insurance

is another type of policy that is often required. Most states require by law that you have basic liability coverage. If you buy a car with a loan you may also be required to add collision coverage to your policy. If you’re in an accident liability insurance covers damages to the other vehicle while collision covers damage to yours.

The most common reason to have auto insurance is to cover the replacement of an expensive asset. Like a home, automobiles can be quite expensive and if it gets damaged you want to be able to repair or replace it. But there is more to auto insurance than just covering the car itself.

Most automotive insurance policies cover bodily injury or death of another person in an incident that you are legally responsible. While it generally pays for medical expenses related to the incident it can also cover legal defense costs. You will also generally find medical payment coverage that pays for medical treatment for you and your passengers during an accident regardless of who was at fault. You can also include rental car coverage in your policy in the event that an accident leaves your car undrivable.

The more coverage you add to your policy, the higher the premium costs may be but, conversely, you should be able to lower those premium costs by raising your deductibles.

5. Long-term disability insurance

protects you from loss of income if you are unable to work for a long period of time due to an illness or injury. Don’t think a permanent disability could sideline you and your ability to work? According to the Social Security Administration, just over one in four of today’s 20-year-olds will become disabled before reaching age 67.

Those odds are too high for you to skimp on long-term disability insurance. If you’re in your prime wage-earning years, a permanent disability could potentially derail your dreams of home ownership or paying for your kid’s college.

Bottom line: make sure you’re covered. Many companies offer long-term disability insurance to their employees, so start there.

As you look into your options, you’ll also find short-term disability insurance designed to fill in income gaps caused by an illness or injury that keeps you out of work for three to six months. That’s insurance you can skip—especially when you have a fully funded emergency fund to cover your needs.

6. Long-term care insurance

covers a range of services like nursing home care and in-home help with basic personal tasks like bathing, grooming and eating. Usually, long-term care refers to any ongoing assistance for those who have a chronic illness or disability. It’s expensive, and long-term care costs are not generally covered by Medicare.

So who really needs long-term care? To protect your retirement savings from the expenses of long-term care, get long-term care coverage no later than age 60. Remember that while you’re not likely to need long-term care before then, many factors—like your health and family history—go into your decision when to buy long-term care insurance—and how much you’ll pay for it.

7. Identity Theft Protection.

According to a 2017 Identity Fraud Study released by Javelin Strategy and Research, identity thieves stole $16 billion from 15.4 million US consumers last year. Cyber crime and identity fraud are real threats—even if you’re careful about protecting your personal information. National retail stores are under constant attack by industrious hackers who break into their payment systems, leaving millions of people vulnerable to theft.

Think about it: With a few important bits of information about you, criminals have all they need to ruin your finances by taking out a mortgage in your name, receiving medical care or filing a false tax return.

Cleaning up an identity fraud situation could take years to handle on your own, so make sure your insurance includes restoration services that assign a qualified counselor to clean up the mess for you.

8. An Umbrella Policy

is a type of insurance that adds an extra layer of protection for you and your assets when you need coverage that exceeds the limits of your homeowners or auto insurance. For example, if you’re at fault for a multiple-vehicle accident, medical bills and property damages could quickly add up to more than your auto insurance will cover. If you’re sued for the difference, your savings, your home and even your future wages could be at stake!

You can protect yourself from a situation like this with a personal liability umbrella policy. In fact, it is recommended to have an umbrella policy for anyone with a net worth of $500,000 or more. For a few hundred dollars a year, an umbrella policy can increase your liability coverage from the standard $500,000 to $1.5 million.

One Final Point to Remember

One word of caution: Stay away from gimmick policies like cancer insurance, accidental death or anything that packages your coverage with investments like universal life. These types of insurance policies are just a way for the seller to make extra money off you. You need an agent who’s on your side—not the side of the insurance company.

An industry expert will work with you to make sure you have the policies that fit your life now and help you anticipate the coverage you’ll need for the future. Plus, if you ever have to file a claim, you’ll have an advocate on your side who will guide you through the process.

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The Opportunity of a Pandemic

“The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.”― Albert Einstein

With the Covid19 Pandemic of 2020 staring us in the face and the state and local governments closing schools and businesses for the safety of the public, some of us might have some extra time on our hands. Also there are a lot of different emotions going on in the public psychology and in our own private thoughts, ranging from disbelief to blame to sadness to abject fear for the future.

No matter what your philosophy is about it, we will have to deal with the inevitable fallout from it and this could turn out to be a blessing in disguise, depending how you want to think about it. Obviously if you lose someone during this it is a horrible thing and you have my sincerest sympathies.

Having time off from work is very scary not knowing where your money will come from and how you are going to take care of your family. But that doesn’t mean you should hide in your basement with all that extra toilet paper. This is a great time to sit down with them and talk about your goals and make the dream boards that I’ve talked about before.

Assessing your financial health is next on the list. It’s a good time to fill out a personal financial statement. If you have credit cards or loans that you have been paying extra on, go back to the minimum payments and pile up cash for an extra buffer in your emergency fund.

If you have a job that has been or will be cut back on, start preparing the paperwork for unemployment insurance.

Contact mortgage, utility companies, creditors and debt collectors to negotiate realistic payment options. Financial regulators have been encouraging lenders and credit card companies to work with consumers as they are laid off or lose work temporarily. If you’re not able to pay your bills on time, the Consumer Financial Protection Bureau encourages you to contact lenders and loan services to let them know about your situation. They may be able to adjust what you need to pay or when you can restart regular payments, or waive late fees or other costs.

Beware, though, that interest may still accrue, and you will have to make up these amounts eventually. Likewise, if you’re having trouble paying your mortgage or utilities, you may qualify for forbearance or modified payments.

Don’t worry too much about your retirement account at this point there’s not much you can do about the market drops, but you can get in touch with your advisor and have it stress tested. Also it would be a good time to revisit or do your estate planning.

Then this is where the opportunities may come into play. Now that you have time on your hands first things first, spend and enjoy some time with your family. Reconnect, have meals together, go for walks, play games. We all need time to recharge and this is a great time to do so.

Get those projects done that you have been putting off for years. Clean the garage and other clutter out of your life. Clean up the files on your computer. Build that In-law room, playhouse, tree house or deck you’ve been putting off.

Have you been thinking of doing something different like starting a business? Going back to school? How about volunteering for a good cause? It’s a good time to add value to your life and community.

With many restaurants doing curb-side or delivery service there will be a need for more people to fill in, and I’m betting the tips will be above average. Also what about personal shoppers? An hour of shopping for someone else who can’t or doesn’t want to go in public could be very lucrative. Joining a cleaning service, even part-time, could put a couple extra bucks in your pocket plus you’re helping out those that can’t.

Another idea would be to find a network marketing opportunity. There are some very good ones out there that offer all kinds of products and services. I’m sure you’ve heard of Amway, still going strong after 61 years, they must be doing something right. If you don’t want to sell products, Ambit is an energy company that I am familiar with. You can check them out at https://woodstock.myambit.com/.

If you have have other ideas please leave them in the comments. Or if you’d like to have me talk you through your situation, message me or book a session, I’d be happy to help.

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Financial Advise

BLOG quotes for clients 04

Mentors, Advisors and Coaches. What are they and why do you need them?

Mentors

Mentors are people who can be role models for you. These people may be living a life similar to how you want to live or have gone through trials and tribulations you may have to go through. They can be someone you meet with in person on a regular basis or “virtual mentors” who are people whose works you read and lives you study and learn from.

You can think of a mentor as a role model. Choose mentors who you would like to emulate for various aspects of your life. Having multiple mentors is a must because as you improve in your development, you will likely need to change some mentors for another that will take you to the next level.

Advisors

Like mentors, advisors have experience in achieving what you want to achieve. Unlike mentors, their role is more formal and expertise more focused.

Whereas a mentor offers value through their experiences and wisdom, advisors offer value through giving specific feedback about specific questions. You may get lunch with a mentor and gain years worth of wisdom but an advisor is better engaged through a pointed phone call, an email with a set of questions, or semi-regular update meetings.

You want an advisor because they know more about a specific area that you are trying to learn more about. A startup advisor may have built a company similar to the one you are building, or has experience in certain investments, or has technical expertise you need to help expedite your own growth. The expertise of an advisor should be relied on to help you avoid common problems and pitfalls.

Coaches

Unlike mentors and advisors, the primary benefit of coaches are to facilitate learning, focus, and results. Coaches are trained in the strategies for achieving the results specific to their domain of coaching. Although they may not have experienced generating the results you want for themselves, they should have experience generating these results in other people or organizations.

Coaches usually operate in their own specific domains. Athletic coaches are the most common heard about, but there are coaches trained in management, relationships, careers, financial or a number of other areas.

Good coaches will help you clarify your goals, focus on what you need to do, and find the best strategies for achieving those goals. Unlike advisors, the role of the coach is not to feed you information but to provide the proper resources for you to make the improvements you want.

Depending on what you want to achieve you could have many or few of each type throughout your lifetime. Successful people have or had at least one of each type during their journey to the top, and you should too. In many cases they will have answers to questions that you haven’t even thought to ask yet.

In the interest of transparency, I am a Financial Coach with many years of being mentored, coached and advised myself. It’s been a heck of a journey for me and I would be happy to sit down with you and talk about your goals and how you can achieve them for you and your family.

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The Cost of Borrowing

Borrowing money on what’s called ‘easy terms,’ is a one-way ticket to the Poor House. If you think it ain’t a Sucker Game, why is your Banker the richest man in your Town? Will Rogers

It is always a good idea to do your homework before you make a major purchase or enter into a financial transaction. The more you understand about the cost of borrowing before you borrow the better.

The concept of a loan is pretty straightforward: first you borrow money, and then you repay it. But the amount that you must repay is more than the amount you borrow. This is due to interest and fees, which is what a lender charges you for the use of its money. It is also referred to as a finance charge. A finance charge is the dollar amount that the loan will cost you.

Lenders generally charge what is known as simple interest. The formula to calculate simple interest is: principal x rate x time = interest (with time being the number of days borrowed divided by the number of days in a year). If you borrow a $2,500.00 loan with an interest rate of 5.00% for a period of one year, the interest you owe will be $125.00 ($2,500.00 x .05 x 1). This means you would repay a total of $2,625.00 ($2,500.00 + $125.00).

PaymentsAmount Applied to InterestAmount Applied to Principal BalancePrincipal Balance
Starting Balance: $2,500N/AN/A$2,500.00
Payment 1: $109.69 $10.42$99.26$2,400.74
Payment 2: $109.69$10.00$99.68$2,301.06
Payment 3: $109.69$9.59$100.09$2,200.97

Compounding Interest

Many loans are taken for many years, such as mortgages. During that time, the interest continues to accrue and may be added to the principal balance of the loan. Adding interest to the principal balance is known as compounding interest. Depending on the lender, interest can be added to the loan on a monthly, quarterly, semiannual or annual basis. It is always best to pay accrued interest before it is added to the balance of the loan. You will save money in the long run by doing so. If your lender compounds accrued interest annually over a period of four years on a $2,500.00 loan with an interest rate of 5.00%, you will end up having $538.78 added to the balance of the loan by the time you begin repayment. The more frequently a lender adds the interest to the principal loan balance, the more interest a borrower will pay. Look for a lender that does not compound the interest, or a lender that does so infrequently, and close to the time of your repayment.

APR (Annual Percentage Rate)

Federal law requires that lenders provide a Truth in Lending Act disclosure to consumers. This act requires the lender to disclose an annual percentage rate, or APR. The APR tells you the true cost of your loan, and is the cost of your credit expressed as a yearly rate. While the APR may not always include all costs, it does include the rate of interest being charged and all fees collected at the time the loan is made, so it is a reasonable indicator of the cost of your loan.

Other Fees

Some lenders charge additional fees, besides interest, for the privilege of borrowing money. Generally, these additional fees are a percentage of the loan amount that is deducted from the amount you receive, and they are charged immediately upon your receipt of the loan proceeds. For example, if the lender assesses a fee of 5% and the loan amount is $2,500.00, the fee will be $125.00 and you will receive $2,375.00. You must, however, pay back $2,500.00 to the lender. These fees are usually considered part of the finance charge; or, more specifically, a prepaid finance charge. Other charges to be aware of include late charges, loan processing fees, and deferment and forbearance fees. Not all lenders assess these fees. The key to understanding the fees associated with your loan is to read the credit agreement, also known as a promissory note or note. This is a contract between you and the lender that says the lender will loan you money and you will repay it. Read it carefully, and do not hesitate to discuss it with the lender.

Bankrate.com has a nice calculator you can get to at this link. https://www.bankrate.com/calculators/managing-debt/annual-percentage-rate-calculator.aspx

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Dealing With Collectors

“The only man who sticks closer to you in adversity than a friend is a creditor.”
-Unknown

Debt collectors are after one thing—your money.

And if you borrowed money, then you are obligated to pay it back. Collectors have the right to call you and ask you to pay back the money you owe.

The problem is most of them will say anything—and I mean anything—to make you pay your bills. They don’t care whether you feed your family and keep your lights on. All they want is to be on the top of your who gets paid first list. Nothing else matters to them.

Their job is to make you angry or scared—and they do it well. They know that if you get all worked up, you will act on that emotion and do something stupid, like pay them instead of buying groceries.

Collectors have a plan, and so should you. Stay calm. Don’t let some kid in a cubicle 500 miles away take control of your life.

Debt collectors have guidelines called the Federal Fair Debt Collection Practices Act—but from the stories we hear, it seems like many of them skate around these rules at best, and ignore them at worst.

Here are some of the basics that you should know about the Federal Fair Debt Collection Practices Act:

  • The Act states that harassment is illegal, and it restricts a collector’s calls to between the hours of 8 a.m. and 9 p.m. (unless they have your permission).
  • The Act also allows you to demand that a creditor cease calling you at work. You should request this in writing by certified mail with return receipt requested.
  • No collector or creditor may access a bank account or garnish wages without proper and lengthy court action, except in the case of delinquent IRS or student loan debt. All such threats are a bluff.
  • Collectors cannot contact third parties—such as family or neighbors—more than once about your debt, and they cannot discuss the details of your debt. This is illegal but not uncommon practice.
  • Do not use a cease-and-desist letter except in horrible situations, because all negotiations stop and any hope of positive resolution is lost.

You can read more about your rights and the limits of collectors by visiting the Federal Trade Commission’s website.


Keeping good records on every collection contact is crucial. In addition to sending correspondence through certified mail with a return receipt, you should also take notes on phone conversations. These notes should include the name of the collector, the date and time of the call, points covered during the discussion, and the agreed-upon plan of action. Always try to talk to the same person to avoid the risk of having to start from
the beginning with each call.


Communicating clearly with collectors is very important. Financial expert (and former debt collector) Chris Hogan stresses the importance of the role of communication in the process and offers these three tips:
• Don’t avoid collectors!
• Speak facts when dealing with collectors.
• Script out some notes ahead of time so you feel more prepared.


If collectors are violating the FDCPA and harassing you, then assert your legal rights. You should notify the Federal Trade Commission and their state’s attorney general or Department of Consumer Affairs in writing, including the recorded information about the harassing phone calls if possible. As with all correspondence, these letters should be sent by certified mail with a return receipt request. This provides proof that the notification was delivered and received. Using certified mail with a return receipt is a good practice for all communication between the consumer and the creditor. To report unfair collecting practices, visit the Federal Trade Commission’s website.

Remember that the absolute best way to not have to deal with these people is to not let yourself get into this position in the first place. But this should help.

Stay Loose

Debt

(Proverbs 22:7) the borrower is slave to the lender.

Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase.

There are two types of debt: secured and unsecured.

Secured debt means the borrower has put up an asset as collateral for the loan. Auto loans and mortgages are common examples of secured debt. If you fail to repay as agreed, the creditor can seize the asset, for instance repossessing a car or foreclosing on a house.

Unsecured debt is not backed by an asset. A common example is credit card debt and payday loans. That doesn’t mean you don’t have to repay. A credit card issuer, for instance, will likely sell your delinquent debt to a third-party debt collector, and they will then hound you for payment. If you don’t pay the debt collector, they could sue you for payment, which can lead to wage garnishment.

Good vs. bad debt. What’s the difference?

A simple rule is if it increases your cash flow, it’s good debt. If it doesn’t do that and you don’t have cash to pay for it, it’s bad debt. I know, many people, websites, and financial advisors will try to tell you that a mortgage is good debt because it increases your net worth, but nobody can guarantee the value of what is mortgaged will go up. Think 2008.

How do you know you have too much debt? If you have 2+ jobs and one of them is selling your blood plasma or dancing with a pole for a partner. A more accurate way is your debt-to-income ratio.

Add up all your monthly debt payments and divide them by your monthly gross income to get your debt-to-income ratio. For example, you have a $1,500 mortgage, $300 car payment and pay $200 per month for credit cards, your monthly debt is $2,000.

With a monthly income of $4,000 that makes your debt-to-income ratio 50%. Anything higher than 43% debt-to-income ratio is a red flag to potential lenders. Borrowers with a high ratio are more likely to have problems making monthly payments. In most cases, you can’t qualify for a mortgage if your ratio is over 43%.

So paying off bad debt is in your best interest. There are dozens of ways to accomplish this and everyone has an opinion to which one is better. Some include paying off the lowest balance first (Debt Snowball), paying off highest interest rate first (Ladder Method) or paying off the one with the lowest Cash Flow Index first. (Balance divided by Payment= CFI). An internet search will give all kinds of options, variations there of and why that way is the best.

It doesn’t really matter which way you do it, the most important thing is that you do it. Try them all and find the one that works best for you and unless you’re a numbers nerd, keep it simple, because that’s the one you will keep doing.

Also stop using bad debt and live within your means otherwise you will not get ahead of it. Yes, that means closing those accounts and cutting up those cards. You won’t believe how much better you will sleep when you win this.

You can do this. You NEED to do this for your family, for your dreams and your goals.

Let me know what you think or if you have questions.

Stay Loose

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