How to Avoid Falling into a Credit Card Debt Trap

It came in the mail and you just had to stare at it for a while. Your first real credit card. Not a debit card or one of those pre-paid or deposit-secured cards. The real thing. Shiny, new and ready for a real swiping.

Transunion, the credit reporting agency, estimates that the average person carries about $5,000 in credit card debt. That’s a big number, but it is easy to fall in a deep, dark financial hole if you’re not careful.

Continue reading “How to Avoid Falling into a Credit Card Debt Trap”

The Complete Guide to Building Credit — and How to Make Your Credit Score Soar

Let’s say you wanted to snub your nose at the Corporate Global Machine and have vowed to live a noble life, spiritually guided and financially modest. Swearing off debt. Denouncing materialism. But you still need a job, right? You’ll probably need a good credit score to qualify. And yes, you want to live a minimalist life, but you’ve got have cable. I mean, if for nothing more than the Discovery Channel. Credit check. Want to rent a humble casa? Sign here and we’ll see if you qualify.

Continue reading “The Complete Guide to Building Credit — and How to Make Your Credit Score Soar”

How to Deal with Debt Collectors

Sometimes money can get tight, there’s no doubt about it. And while we all want to pay our bills on time, every now and then, bad things happen to good people. It can be as serious as losing a job, or as simple as forgetting a payment. Neglecting to make timely payments to creditors not only wrecks your credit rating, it puts your reputation at risk.

You may find yourself dealing with stern and persistent debt collectors, which only adds to the stress of a financial setback. But remember, in addition to your responsibilities, you have rights. Here’s how to deal with debt collectors, negotiate a settlement, and be treated with respect.

Know your credit collection rights

debt collectionsWhen you are being pursued by debt collectors, you might cringe each and every time the phone rings. While you don’t want to answer, it’s in your best interest to keep the lines of communication open between you and your creditor. The conversations are never easy but you are protected by the Fair Debt Collection Practices Act from rude and unscrupulous collection agents. The Federal Trade Commission enforces the FDCPA and can prosecute illegal collection procedures in the U.S., which include:

  • Phone calls prior to 8am or after 9pm, unless you agree. Debt collectors simply must refrain from calling you at inconvenient times or inappropriate places. And they can be prohibited from calling you at work, if you aren’t allowed to take calls on the job.
  • Debt collectors must discontinue contact with you if they are notified in writing. There are only two exceptions: to advise you that there will be no further contact, or to inform you of a pending action, such as the filing of a lawsuit. While further contact will end, you will still owe the debt.
  • Third parties cannot be contacted by debt collectors to discuss your debt, only to gain contact information. However, your attorney or spouse can be designated to discuss the situation on your behalf.
  • You cannot be threatened, harassed, or spoken to with profane or obscene language. Debt collectors also cannot lie or misrepresent themselves, the amount you owe, or who they work for.
  • You cannot be threatened with arrest.
  • A debt collector may not make threats regarding the seizure of property, wage garnishments, or any other action that is not legally authorized.

Dealing with debt collectors: When you do owe the money

If you truly owe the creditor who is contacting you, be proactive. Try to resolve the matter as quickly as possible, if you are able. The sooner you respond, the less damage will be done to your credit rating. Here are some proactive steps you can take:

  • First, if any debt collector has infringed your rights as stated above, report it to your state Attorney General’s office ( and the Federal Trade Commission ( While the federal rights outlined by the Fair Debt Collection Practices Act prohibit the actions as listed above, many states have their own debt collection laws that may vary. Your state Attorney General’s office can assist you. Note that these regulations cover the collection practices regarding personal debt, but not amounts owed in the operation of a business.
  • Check your personal records to confirm that the amount being collected by the creditor is correct. If you doubt the information being provided by the debt collector, request verification of the debt in writing.
  • Try to work out a settlement. Many times creditors will reduce the amount you owe — sometimes by as much as half or more — if you can show a hardship and offer a lump-sum payment. Determine how much you can afford, and then offer a settlement a bit less than that. Then negotiate the best deal you can, up to your budget limit. Remember, the debt collector is nearly as motivated as you are to come to some kind of agreement: they don’t get paid if you don’t pay. If you do make a deal, be prepared for another bill at tax time. The amount written-off by the creditor may be reported as income to the IRS and subject to federal taxes.
  • Be sure to get any agreement documented in writing before providing payment. For safety, as well as for creating a permanent record of the transaction, it’s best to issue the lump-sum as a cashier’s check or electronic transfer, rather than writing a check.

Dealing with debt collectors: when you don’t owe the money

Perhaps this whole matter is an ugly misunderstanding. Maybe your records have been confused with another creditor — or it could even be a matter of identity theft. Whatever the reason, here’s what to do when you don’t owe the debt:

  • Don’t agree to pay the debt, not even a partial payment, and don’t acknowledge the amount owed until you are convinced it is yours — with written proof.
  • If no proof of the debt is provided, instruct the debt collector in writing to discontinue all further contact and collection efforts.
  • If the matter is concerning an old debt, it may be uncollectable because of time limitations that are imposed on credit collections. Statute of limitations vary from state to state and for different kinds of debt. For example, the statute of limitations on credit card debts can be as long as 10 years, according to the Federal Trade Commission. Most states impose a period of three to six years. You may want to get assistance from a legal aid lawyer, your attorney, or your State Attorney General’s Office.
  • Check your credit report to make sure that there has been no negative impact to your credit rating.

Debt regret

Imagine what it must be like to have a job calling on people all day long to collect debts. It would make just about anybody cranky. Now, we’re not saying you have to be best buddies, but treating debt collectors with the same consideration and respect that you deserve and expect may help the matter pass with the least amount of stress for all involved.

Knowing your rights, understanding your options to negotiate and getting all information in writing will help protect you and your credit rating.

Everything You Need to Know About Your Credit Score

There’s just no denying it. By now, it’s clear to all of us that our modern lives are being monitored. What we do, say and buy; where we live — it’s all out there.

Our financial lives are of particular interest to Big Data. Especially your credit score. It’s one number that invisibly follows you everywhere, impacting your life in more ways than you may imagine. It is the ultimate grade. Here’s how it works and why it matters.

Who is keeping score?

credit scoreThe three big players in the credit score business are TransUnion, Equifax and Experian. They make their money selling your credit information, history and score to banks, businesses and even employers. Your credit report details your payment history, the amount of debt you’ve piled up — even where you work and live.  Plus, if you’ve ever been sued, arrested or filed for bankruptcy.

They compile all of this information and generate a credit score — basically a grade — of how financially reliable you are. The higher the score, the better. Each credit bureau develops their own score, but the information is also compiled and interpreted by Fair Isaac Corp., which generates its own “FICO” score. Generally, that’s the one most creditors use.

Why should I care about my credit score?

Your credit score plays a big part in your life, even if you’ve sworn off debt. But you haven’t have you? Well, if you are looking to rent an apartment, buy a house, purchase insurance or get a new car, your credit score is in play.

Want a credit card? Score!  Want to hook up to cable or satellite TV? Score!  Even if you’re trying to get a job, some potential employers will have you sign a disclosure so that they can access your score.  For better or worse, it’s a number that is being stamped on your life as a grade for your character and dependability.

What’s a good credit score? What’s a bad score?

Think of 7 as your lucky number. Generally, a credit score of 700 or more is considered favorable. Of course, things are never that simple. Each credit agency has its own score range with minimal variations — and then there’s an alternative scoring system called VantageScore. Developed by the Big Three agencies, it ranges from 150 to 990, just to confuse things a bit.

But the scores most reported, including the FICO score, commonly range from a low of 300 to a high of 850. Experian says that the average American has a credit score of 675, so at 700+ you’d rank above average.

Here’s how the curve is graded:

  • Anything under 640 is considered a poor score — You’re likely to be considered a high-risk borrower and that means your credit card interest rates will be much higher than average and you won’t qualify for a typical loan.
  • 641-680 is graded ‘fair’ — You may qualify for that loan or credit card, but your rate will be a higher than borrowers with a better credit rating.
  • A credit score of 681-720 is good — You’re in the pocket. With a score in this range you’ll get plenty of credit card offers, qualify for loans with good rates and pay lower insurance premiums.
  • 720 to 850 means you’re buying lunch — At this level you get the best rates on credit cards, car loans and home mortgages. 720 is the threshold to what is deemed a “perfect” score, so you don’t have to try to attain a lofty perch at 850, because no one will be handing out awards or additional perks.

What affects my credit score?

The “how and why” of your credit score doesn’t have to be a mystery. There are tangible reasons why your score changes, and specific steps that can be taken to improve your credit history and ultimately increase your credit score. Let’s look at what most impacts your credit score, according to the source itself: FICO.

  • Credit history (35%) – Timely repayment of borrowed money is the most important factor in your credit report, impacting 35% of your FICO score. This includes credit cards, retail accounts (like department store credit cards), loans and finance company accounts. Late payments can impact your score for up to seven years.  And your credit history also includes bankruptcies, foreclosures, lawsuits and other public record and collection items. Legal action can impact your score for 7-10 years, though the impact slowly lessens with time.
  • Amounts owed (30%) — Carrying a large debt load can lower your score, even if you make payments on time. Having used a large portion of your available credit can account for 30% of your credit score. FICO also considers remaining balances due, as well as the number and types of credit accounts you have.
  • Length of credit history (15%) — The longer you’ve managed credit, the better. Having a brief credit history can lower your score.
  • Types of credit (10%) — This is not a key factor, accounting for only 10% of your FICO score, but still a consideration. Having a good mix of credit: retail accounts, credit cards, installment loans and a mortgage, are all considered.  For example, not having a credit card can actually lower your score.
  • New credit (10%) — FICO believes that having several new credit accounts pop up in your report within a short period of time means you represent a greater lending risk, especially if you have a short credit history.

Tips to improving your credit score

So there are a lot of moving parts that make up your credit score. I know my head is hurting a little bit just writing about it. But here’s the good part. There are some fairly simple things you can do to improve your score:

  • Start early — You like this one, don’t you? It’s true, you have to begin building your credit history early, so get a credit card if you don’t have one.
  • Use no more than half of your available credit –- For example, if your Visa card has a $1000 credit limit, train yourself to use just half — or less — of that available credit. By thinking of your card as maxing out at $500 instead of $1000, and disciplining yourself to spend less than the credit limit, you will lower your “balance-to-limit” ratio, which can help raise your score. This only applies to revolving consumer accounts, not to your mortgage or installment loans.
  • Use payment reminders –- Since making timely payments is the greatest factor in your credit score, you may want to make the process as painless as possible. Using payment reminders or automatic debit payments can help, but remember to set the payments for an amount greater than simply the minimum required.
  • Pay off accounts but don’t close them — Once you pay off a credit card that you think would be best retired for good, don’t use it again — but don’t close the account, either. Keeping it open will maintain your available credit, and by not using that credit you’ll enhance your balance-to-limit ratio.

Know your credit score

You can’t fix what you don’t know, so know your number. First, order a free credit report. Each of the Big Three bureaus is mandated by law through the Fair Credit Reporting Act (FCRA) to provide you a free report once a year.  You can order all three reports at once or, by rotating your requests among each one, you can receive a fresh credit report every four months.  Yessir, now that’s good, clean fun!

There is only one official site for obtaining your free report and it is  Watch out for bogus sites claiming to be the official “free credit report” website.  You can also call (877) 322-8228 to order a free report.

Once you have your credit report in hand, you’ll want to check it for accuracy. Make sure your address and other personal information is correct and then review each credit account, looking for inaccurate amounts owed and verify that each credit account is actually yours.

If you find errors, you’ll need to contact the individual credit agency issuing the report to begin the correction process. You can find help on correcting credit report errors, including a sample dispute letter, at the Federal Trade Commission website.

When you’re diving into the pages of your credit report, you may start scrambling to find your credit score.  Let’s hope you stuck with me this far. You see, while your credit report is free, your credit score is not. You have to buy your FICO score for about $20 from

Some credit cards also provide your FICO score to you free, as a cardholder benefit.

And there are services that offer to estimate your credit score — some saying they will provide these “educational scores” for free — but it’s probably best to stick with the real thing.

The end game

Now that you know just how critical your credit score is to your financial life, you’re empowered to nurture your number.  The keys are to know your score — what it means and how to improve it.  In this case, Big Data, along with a big number, can help you live large.

U.S. Marshals Office Arrests Man for Delinquent Student Loan — And There May Be More Arrests On the Way

Can you really be arrested by federal marshals for an old student loan debt? Yes. It happened in Houston last week and more arrests may be on the way.

Fox 26 HoustonA report by Fox26/Houston says Paul Aker was arrested at his home last week because of a $1,500 student loan dating back to 1987.

“He says seven deputy U.S. Marshals showed up at his home with guns and took him to federal court where he had to sign a payment plan for the 29-year-old school loan,” the report says.

In an interview, Aker contends that there was no contact within the last 30 years regarding the debt and that, as the reporter relates, “seven people in combat gear with automatic weapons” arrived unexpectedly at his front door.

“I was wondering why are you here? Why are U.S. Marshals knocking on my door?” Aker said. “Totally mind boggling. I was told I owed $1,500 and I couldn’t believe it.”

The Fox26 interview with Aker is dramatic — but leaves out some important information.

An official statement issued by the U.S. Marshals office, provided to me by spokeswoman Donna J. R. Sellers, fills in the missing details.

“Since November 2012, U.S. Marshals had made several attempts to serve a show cause order to Paul Aker to appear in federal court, including searching at numerous known addresses. Marshals spoke with Aker by phone and requested he appear in court, but Aker refused. A federal judge then issued a warrant for Aker’s arrest for failing to appear at a December 14, 2012, hearing,” the statement says.

When two deputy U.S. Marshals arrived at Aker’s residence, apparently things got a bit more complicated.

“When they attempted to arrest him, Aker resisted arrest and retreated back into his home,” the Marshals office statement continues. “The situation escalated when Aker verbally said to the deputies that he had a gun. After Aker made the statement that he was armed, in order to protect everyone involved, the deputies requested additional law enforcement assistance. Additional deputy marshals and local law enforcement officers responded to the scene. After approximately two hours, the law enforcement officers convinced Aker to peacefully exit his home, and he was arrested without further incident.”

So, you can be arrested for unpaid student loans. However, first you will have to ignore repeated collection notices and refuse to appear in court.

Aker signed a payment agreement for the $1,500 student debt, and along with $1,300 to reimburse the Marshals office for the expense of his arrest, plus penalties, interest and other fees, his bill now totals over $5,000.

In fact, the U.S. Marshals office says others may soon experience visits by local authorities.

“In Houston, approximately 1,500 individuals have been identified by the court as defaulting on federal loans,” Nikki Credic-Barrett, a spokeswoman with the U.S. Marshals Service said in an email response to my inquiry. “These individuals have not been contacted yet to address their debt in court.”

Bottom line: Unpaid student loans never go away.

Retire Before Age 40: How This Couple Made the Retirement Dream Come True

KaderlisIt’s the opposite of working till you drop. Retire before 40. There’s no shortage of blogs stating just such an intention. The writers share their own personal mantra of how to pay off debt, save more money and begin life after work while you’re still young enough to enjoy it. Some are working toward the goal, others claim to have achieved it. Most are only a few years into their effort either way, so whether they achieve long-term success or just a huge resume gap, remains to be seen.

But Akaisha and Billy Kaderli retired at age 38 – and that was 25 years ago. To say they have achieved proof-of-concept is an understatement.

“We’ve got enough that if we can control our spending a bit, we can live anywhere we want.”

Coming to a crazy conclusion

Billy, a French chef, and his wife Akaisha bought a Santa Cruz, California restaurant in 1979. Later he became a financial advisor while she continued running the popular eatery. After six years of her serving hot dishes to customers and him cold-calling prospective clients, things were getting a little tense at home.

“It got to a point where ‘Kaish and I weren’t seeing each other anymore,” Billy tells Money Cynic. “She was running the restaurant and working nights — and in California the stock market opens at 6:30 in the morning and I was done at one o’clock. I’m at the beach, and she’s just going in to do the dinner shift.”

Being a “numbers guy,” he took stock of their assets and came to a seemingly crazy conclusion.

“All of a sudden it just clicked. I said, ‘We’ve got enough that if we can control our spending a bit, we can live anywhere we want.'”

Running the retirement numbers

She was not so sure.

“I was 36 at the time, and that wasn’t in my plan at all,” Akaisha admits. “I figured that I’d work until I was 55, and that would be ‘retire early.’ And he comes with this harebrained idea that we’re just going to chuck it all.”

It took a little convincing, to say the least.

“We were tethered to our jobs, to our bills,” she says. “And the idea that we could chuck it and live comfortably really was appealing. Once I calmed down.”

They analyzed their spending — so much of it was work related. Two cars, a house near the beach, insurance, meals out; the usual American overhead. The Kaderlis took two years to “test the waters” before making the leap in January 1991. Their nest egg? $500,000.

$500,000 to last a lifetime? Seriously? Can that work? It does when you spend just $22,000 a year in living expenses. As of the end of 2014, after 24 years – 8,760 days, Billy notes — the Kaderlis have spent an average of $22,040 annually or $60.38 per day. Basically the Kaderlis are living on the 4% withdrawal rule.

“2008 did rock our boat”

“The S&P 500 on the day we retired was 312.49,” Billy tells Money Cynic. “And if you do the math on that, up to last year, that’s about an 8.18% return, plus dividends. So with a couple percent for dividends, you’re right at the 10% level.”

Don’t you love the way he says “about” and then quotes a hundredth decimal point return? When it comes to numbers, this guy is not guessing. But after a sustained bull market, isn’t he a bit leery of a long-overdue correction?

“2008 did rock our boat,” Billy admits. “At this point, we’re a little more conservative in our investments because we’re now 62. We’ve gone through three or four of these down draws in the market. So, am I nervous? I’m always nervous.”

But Billy says it’s not just what you make, it’s what you spend.

“The key to this whole thing is: How much are you spending today on your lifestyle? If you’re spending level is $100 a day then you just have to have the assets — the net worth invested — to support that. That’s all.”

Retirement living in ‘cost beneficial countries’

Kaderlis-2However, it’s a safe bet that many Americans, at least those contemplating retirement, are living on much more than $100 a day.  And will require a large enough nest egg to support their current rate of spending. The Kaderlis admit that part of their strategy is living in “cost beneficial countries” such as Mexico, El Salvador, Vietnam, and Thailand. When we spoke via Skype, they were living in Lake Atitlan, Guatemala, one of their favorite stops.

“Housing is one of the largest expenditures in any budget. So if you work on getting  your housing down to an affordable amount per month, you can live just about anywhere,” Akaisha says. “It’s housing, transportation, taxes and food — but housing is your biggest [budget item].”

They don’t live by a budget, but to this day track their spending diligently. The Kaderlis spend 21% on housing, 24% on medical expenses (a spend rate that has been impacted by some recent health issues), 20% on transportation, 22% on food and entertainment, 8% on miscellaneous, and 5% on computer expenses. These are net expense amounts, after taxes.

Their housing costs have been reduced almost in half by house sitting. The couple says these stints can include spectacular beach views in well-appointed homes with maid service. Otherwise, they find monthly rates for apartments or hotels.

Low-budget living in the U.S. 

Can such low budget living work in the States? The Kaderlis say you have to get creative, look for low cost-of-living areas and consider renting out a room, a floor — or owning a duplex and leasing out half of that to a tenant.

Health insurance is also a major consideration. In the beginning, they bought a high deductible, catastrophic coverage plan. Now, when they visit the U.S., they take out a traveler’s policy. Day-to-day, living outside of the States, the Kaderlis are exempt from the Obamacare health insurance mandate.

“We’re self-insured,” Akaisha says. “We pay out-of-pocket for all of our medical expenses.” The couple also relies on their own version of medical tourism, visiting favorable foreign locales for healthcare.

And they don’t own a car. They used to own a vehicle, but now use local mass transit, walk, bike, share rides with friends, or hire a driver. It’s a debt-free lifestyle built on frugality – and freedom.

“The financial industry is not doing their job,” Billy says. “Debt is the killer. You’re a wage slave when you have debt. And if you can eliminate that, it frees up a whole lot of options.”

Check out the Kaderli’s website:

This article was originally published on

The Last-Minute Christmas Money Move You Can Make Right Now

The presents are tucked under the Christmas tree, and you’re taking a quiet moment this morning before the family holiday madness begins. You’re relieved that all the shopping is done, so you can take a breath and relax — at least for a few minutes.

After Christmas money moveBut perhaps you feel a twinge of guilt as well. You love pleasing people and the holidays are a time for joy. The thing is, you probably spent too much, right? And put it all on credit cards. You’re a little afraid to add it all up — that’s a clue, right there. You’ll think about it later, especially when the monthly statements begin arriving.

So let’s agree to this: Give yourself a pass for now. Enjoy your family and friends and this amazing time of year. But also, make a little promise to yourself that next year will be different. And this time, you mean it.

Look, I’m a Certified Financial Planner and a former financial advisor. That means I’ve sat across the table from real people with real money issues and helped them figure things out. From wealthy families planning their legacies to retired couples struggling to get by on a fixed income. I’ve had the hard conversations — and the happy talks, too.

Here’s a plan. Meet me here a couple of times a week during the New Year. We’ll talk about the money obstacles you face, and I’ll offer some easy-to-understand actionable advice. No jargon, no Wall Street speak, no hidden sales agenda. And next Christmas, your financial situation will be vastly improved, I promise.

Now before you jump back into the holidays, let me leave you with your first money move.

According to the National Retail Federation, nearly half of us plan to shop after-Christmas sales in stores and online. Sure, you can snag some really good bargains. But try this: For any discretionary purchases you make between now and the end of the year, use your current cash flow. That means, if you use your credit card for purchases in the next week, promise to pay those charges off right away. So, if you buy a few things Saturday, go online to your credit card company and pay it off Sunday or Monday.

Or, better yet, if the purchase is made in person, use cash.

That will force you to make wise buying decisions because your purchases will be impacting your financial situation in real time. And you won’t be adding to your Christmas credit card debt. That’s guilt-free shopping!

Then, let’s get back together and talk later.

Merry Christmas!

Is money getting in the way of your happy marriage?

Once you’re married or in a committed relationship, money should be the least of your concerns, right? Shared expenses, perhaps more than one income – how could something like an old loan or a credit score get in the way? Is your money history really that important?

“Very important. Some studies suggest that financial stress is the top cause of marriages collapsing,” says Bruce Provda, a New York-based divorce and family law attorney for some 40 years. “When credit scores are more or less similar and neither party enters the marriage with a burdensome debt load, the couple is more free to focus on building the relationship.”

The #1 cause of stress in a relationship

Provda is right, at least according to a survey released earlier this month by SunTrust bank. Of those surveyed who admitted stress in their relationship, finances were the #1 reason, noted by 35% of respondents overall. And it’s not an issue that necessarily gets easier with time. Of those aged 45 to 54, money issues were ranked the top cause of marital stress by 44% of those surveyed. And Provda claims the catalyst can be a matter as mundane as a FICO score.

“Credit scores really come into play when the couple share a ‘must-have-it-now’ mentality and aren’t willing to work and save towards major purchases,” he says. “If one, or both, parties have lousy credit scores, it tips the playing field in the relationship and adds to the stress. However, if the couple hasn’t developed trust in each other, learned to communicate honestly and openly, then the credit scores and debt are secondary to the real problems facing them.”

Angela and Kirby Jacobson are young marrieds living in Dallas. She is a marketing professional; he’s an investment analyst. Having been married for nearly five years and sharing finances for eight, you would think that — like many couples — there would have been some serious financial discussions along the way. Serious, maybe. But Angela says they never fight about money.

“I think that people think we’re lying when we say that we haven’t fought about money but it’s genuinely true,” she told the Money Pivot. “There doesn’t always have to be strife in order to have a remarkably positive outcome, and I like to think that we’re a living, breathing example of a couple who agreed on goals before we had any money to speak of and have stayed committed to those goals even as our priorities have changed.”

The couple’s primary goal: earn fast, retire early.

“We’ve actually never fought about money because we have both agreed from the beginning on the same goals – make as much money as we can as quickly as we can, so we can get to actually living our lives and enjoying our lives together,” she adds.

Separate or joint accounts?

For the newly married or cohabitated, money issues can be triggered by something as simple as deciding about whether to maintain separate or joint banking accounts. Once and for all: what’s the right move?

“Both. And neither,” Provda says. “A young couple, just starting out, may find it beneficial to share a joint account for household bills, vacations and so on while maintaining separate accounts for personal bills, hobbies, etc.”

But in Provda’s experience, the answer seems to evolve to joint accounts over time. But take that will a grain of salt – after all, he is a divorce attorney.

“As they mature, I have found that many of my clients have slowly merged individual accounts into one joint account as the level of trust has grown. The question of joint or separate accounts is a great question, but not one that can be answered definitively for every couple. Each couple needs to do what works best for them,” he says.

From the beginning, Angela says she was reluctant to fully merge finances, so the couple created a system where they each paid a share of the household bills based on the percentage of total income they individually contributed. But still, they share joint accounts.

“Having separate accounts implies that one or more individuals in the relationship aren’t willing to be fully honest about their spending habits. Rarely are separate accounts desired so that one person can constantly shower the other with surprises,” Angela says. She and Kirby share their thoughts about finances at “Separate accounts also imply that there is a certain amount of yours versus mine, and we’re very opposed to that. Marriage is a partnership and that means finding a way to agree on how money is acquired and spent. Respecting each other enough to manage against shared expectations is fundamental to a successful marriage.”

Millennials and marriage

Millennials like the Jacobsons are waiting longer to marry, choosing to deal with things like student loan debt and career issues first before committing to a long-term relationship. Does that give them a better chance for marital success?

“I’m not sure the Millennials are being proactive in their decision to wait longer before marrying,” Provda says. “Maybe they’re being reactive because of the student loans. It’s an interesting question to think about. But regardless of their position as being pro- or re- active, yes, many studies have shown that the longer a couple waits, the more they mature and the more each of them mature, the better the odds for marital success.”

However, he adds:  “But maybe the longer wait before marrying isn’t about money after all. Maybe the longer wait allows them time to mature and develop sufficient inter-personal skills which allow them to better manage — and discuss — the household finances.”

“I love that people are waiting to get married for tons of reasons, but I don’t believe that sorting one’s affairs prior to marriage necessarily leads to a more successful or fulfilling marriage,” Angela says.

Keeping financial secrets

A recent survey revealed that many people in committed relationships keep financial secrets from each other, including hidden accounts and debt. It would seem a recipe for relationship failure, but Provda says it may not be that simple.

“The issue goes a little deeper. Yes, keeping financial secrets from each other is a sure way to destroy the marriage, but a relationship built on secrets about anything — not just money — is doomed to fail. If each party doesn’t have a sufficient comfort level to trust the other in financial matters, how can they possibly have trust in other areas of married life? Open communication is the signpost towards a successful marriage and that means open communication about everything the couple faces.”

Angela and Kirby agree – and have put in place a system of checks and balances.

“We don’t run all decisions by one another — like going out for lunch or groceries — but every purchase throughout a month is reviewed by both of us in our own ways of tracking,” Kirby says. For Angela that means pen and paper, and for Kirby, a Certified Financial Planner, it’s “Trying to hide something or buying something the other wouldn’t agree with would very quickly lend itself to disaster. At each point in our careers, we’ve thought of things as ‘ours’ regardless of who made more for the year, so it’s not a ‘his’ versus ‘hers’ type of mentality since all buckets collectively help benefit us together.”

Money is not the root of all evil

And while it is often blamed for the failure of marriages, the seasoned attorney — who has sat across the table from his share of those in wedded deadlock – thinks that in most cases, money is not the root of all evil.

“Money issues in marriages, which aren’t adequately dealt with, are just a symptom of more serious problems in the relationship,” Provda says. “It’s easier to point to the inanimate object of cash as being the reason for a couple’s divorce than to take responsibility and look at one’s own issues which contributed to the demise of the union. Lack of trust, poor communication, different life goals, etc., are the primary causes of divorce. Money issues are merely the symptom.”

Investors Regret Paying Off Debt with a 401(k) Loan

Ever wish your Future Self could go back in time and tell the Past You mistakes to avoid? It’s the old “If I only knew then what I know now…” thing. Since we still don’t have flux capacitors and DeLorean time machines, perhaps it’s best to simply learn from the mistakes of others. More than four in ten (44%) investors who have borrowed from their 401(k) retirement plan savings regret the decision.

It’s a big lesson to learn. Nearly one-third (29%) of Americans who participate in a 401(k) have borrowed savings from their plan —  of those, 43% have taken out two or more loans, based on the results of a new study by TIAA-CREF

When thinking about tapping an employer-sponsored retirement plan through a loan, you’ll hear people say things like, “Why not? I’ll be paying interest to myself!” But the TIAA-CREF research says a $10,000 loan paid back over five years could mean missing more than $3,500 in potential earnings. The comparison is based on a 6% interest rate on the loan versus an 8% market return. With dividends reinvested, the S&P 500 has gained an annualized 9% return over the past 20 years.

In addition, more than half (57%) of investors cut their retirement savings contribution rate while paying back the loan.

Another downside: Retirement plan loans can trigger taxes and penalties if not repaid in a timely manner. If you leave your job with a balance remaining on the loan, you may be forced to pay it off within 60 days or claim the amount as a taxable distribution.

The primary reason given by respondents for taking a loan from their retirement plan savings was paying off debt (46%). Other reasons included:

  • Paying for an emergency expenditure (35%)
  • Home purchase or renovation (26%)
  • Paying bills due to a job loss (24%)
  • Education costs for self or children (20%)
  • Special event like a wedding or family vacation (15%)

Plan participants facing an emergency need may have an alternative to a loan: applying for a hardship withdrawal, if permitted by your employer. In certain instances, such as avoiding foreclosure or to cover medical expenses, you can access your savings but not without a cost. You’re likely to owe income taxes – and if you’re under age 59 ½, you may also incur a penalty for a premature distribution.

Fathers Confess: Don’t Make the Same Money Mistakes I Did

Originally published on U.S. News & World Report

In life, there are occasions when we wish we could get a “do-over.” Just as in the movie “Groundhog Day” or Tom Cruise’s latest sci-fi thriller “Edge of Tomorrow,” we would love the opportunity to keep doing something over and over until we get it right. In honor of Father’s Day, we’re going to give a few dads a mulligan on their money mistakes.

Lesson learned

Mike Robbins admits to making his share of financial mistakes and fully intends to pass on what he’s learned to his two daughters, age eight and five. Mike’s earliest memory of how financial pressures can affect a family goes back to when he was just eight years old.

“I grew up with a single mom, raised in Oakland, California, and we didn’t have a lot of money,” Mike says. He recalls the night of a particularly violent rainstorm. The ceiling began to leak from the heavy rain so his mother ran to the kitchen to grab some pots and pans to catch the water. Mike and his little sister were having a ball – it all seemed like an exciting game.

“I thought it was fun, I was running around with my sister putting pots on the floor,” Mike remembers. “Then my Mom just breaks down and starts crying in the middle of the living room — looks at us and says, ‘I don’t know what we’re going to do.’”

With no money to fix the roof, he says his mom was scared and overwhelmed – and so was he. “My dad wasn’t paying child support and my mom was trying to run her own business as a sales rep. It was scary, things were really tight.”

But that fear of financial failure didn’t last. Years later, Mike and his wife Michelle found themselves $105,000 in debt and $300,000 underwater on a mortgage.

“We’d never been taught the real basics about finances, how to make a budget and stick to a budget and we consistently spent just a little more than we made for many, many years,” Mike admits. “And we bought a house we really couldn’t afford. When the economy tanked, we were in a world of hurt.” 

Ultimately, the Robbins liquidated their house in a short sale, paid off all the debt and started renting again. It was humbling, but necessary.

“I think one of things we need to do — and I try to do this with my daughters — is to talk about money,” Mike says. “I think we do a lot of harm to our children by being too secretive about money.”

Mike and Michelle committed to making a budget and talking about it — a lot. “We called it a ‘spending plan’ because a book we read called it that, and we thought it sounded better than a ‘budget.’” 

A while later, when their daughter was in kindergarten, the Robbins were in a teacher’s conference. The teacher said the class had been discussing some upcoming project when she overheard his daughter Samantha say, “Well, I’ll have to check with my Mommy and Daddy to see if that’s in the spending plan.” Lesson learned.

The Robbins work consistently to reinforce the importance of budgeting to their daughters, even at such young ages. In fact, if you were to look on a shelf in each little girl’s room, you would see a piggy bank — with four slots instead of just one. Each slot is marked: spend, save, invest and donate.  

Mike is a speaker, consultant and author of the book “Nothing Changes Until You Do.”  

Taking money seriously

How seriously should you take a financial advisor known as “Pete the Planner”? Peter Dunn is a self-described “award winning comedian and award winning financial mind.” But while his manner may be light, his subject matter is not.

As the father of a five- and two- year old, what would be the biggest mistake he’s made that he would prefer his children avoid?

“Probably the idea of what I call ‘overhousing,’” Peter says. “That’s the idea that your house payment is too much of your net income. Early on, as an entrepreneur and a financial guy with a growing practice, I definitely found myself buying a house that I felt I could ‘grow into’ financially.”

With a heavy financial burden, he had to take a lot more money out of his business than he would have liked, putting himself and his new firm under a lot of pressure. Then again, it seems many entrepreneurs are optimists.

“I think optimists make more financial mistakes than pessimists do,” he admits. “I’m a huge optimist. Every financial mistake I think I’ve ever made has been based on a belief in my ability to generate income. Pessimists may short change themselves — they may have some opportunities lost — but often times they don’t suffer from risk management in a negative way.”

Peter Dunn is the author of “What Your Dad Never Taught You About Budgeting.”

Appreciate opportunities

We leave the last word to a father that puts financial ambition in perspective. Ellery Moore was a high school football standout at Washington High in Massillon, Ohio — later an SEC star with Kentucky, and finally, an undrafted rookie free agent signed by the NFL’s Cleveland Browns in 2005 – for three months. His career flamed out as fast as it caught fire.

With two sons, 8 and 13 and a daughter age 7, Ellery knows exactly what his advice would be.

“I would tell them to make sure they work hard enough to be successful and to appreciate the opportunities to be successful.” he says. “Once I got to a certain level [in football], my lack of appreciation, my lack of work ethic, didn’t allow me to be successful anymore. Even though I was just as talented as some of [the other players], I didn’t have the dedication and that will to work harder than everybody else. I thought my talent was great enough to make me successful — and it wasn’t.”

Moore now tells his story of missed opportunity to young athletes at football combines across the country.

“I came from a neighborhood where the world was drugs, money and alcohol — and football. I want my kids to see that the world is so much bigger than athletics. I understand that we all make mistakes, that we all fall short. But I also understand that God gave us a gift to be successful at something. We let money determine the value of a human being. Money is not what’s going to define you. I lost track of that trying to play football just for money.” 

Ellery Moore is a personal trainer in Lexington, Kentucky.