What Goes into Your Credit Score?

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What Could a DMP Do for You #1

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While not the perfect solution to all financial problems, a DMP or Debt Management Program can be a real lifeline for consumers that are drowning in debt and struggling to make the minimum payments on their monthly bills. That’s certainly true for this month’s example family. Not all debt can be included in a DMP. For instance, secured debts like homes and cars can’t be covered. However, credit card debts and some other unsecured debts do qualify.

This example is from an actual client that just started our DMP program this past month.

 

Here is a picture of their current situation:

Total unsecured debt covered by the DMP: $38,000

Monthly payment without DMP: $2,859

 

Now, let’s look at their situation while on the DMP program:

Monthly payment on the DMP: $1,273

Monthly Savings on the DMP: $1,586

All unsecured debts covered by the DMP will be paid off in 5 Years

 

Want to Learn More?

As we said earlier, a DMP is not for everyone, but it just might be for you. You can learn more by calling 937.853.1600 or by visiting our DMP page.

1 in 4 Americans Don’t Have $400 in Emergency Savings

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According to a 2018 Federal Reserve study, 1 in 4 Americans don’t have $400 in emergency savings. That means if they had an unexpected expense such as a medical emergency or car repair, they would have to turn to debt to cover the cost. The additional debt just leads to more financial instability as struggling families must find ways to make the additional payments. You can see how all of this becomes a vicious cycle.

You must have an emergency savings account!

Your financial stability depends on having an emergency savings fund. It doesn’t have to be massive. Start small and let it grow over time. Your first savings goal should be $1000. With just $1000, you can cover many car repairs and can handle an urgent care visit… all without needing to borrow money or turning to high interest credit cards.

Grow your savings over time.

Once you’ve established your emergency savings account, keep adding to it until you have 3 to 6 months of expenses saved up. At that level, you can weather a short loss of income like a lay off at work or a hospital stay.

If it’s not an emergency, don’t touch the money.

Seriously! It’s called Emergency Savings for a reason. Repairing your car so that you can commute to work is an emergency. Paying for medical expenses is an emergency. Buying a new flat screen TV is not an emergency, even if your only TV fell off the wall and shattered. Basically, if the expense doesn’t help you get to work and pay the bills, keep you and your family healthy, put food on the table, pay the utilities, keep a roof over your head, or meet any other fundamental requirement to live, it’s not an emergency.

If you use it, pay it back!

If you do need to dip into your emergency savings account, pay it back as quickly as you can. You’ll need that money soon enough. Life has a way of happening just when we expect it least and your emergency savings fund helps to smooth out those bumps in the road.

 

Budget Tip #1 – How to Budget for Periodic Expenses

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How do you budget for those expenses that you know are coming, but that don’t show up every month? You know, like insurance payments, birthday and holiday gifts, or car maintenance? We call those periodic expenses and they can wreak havoc with your paycheck if you don’t plan for them. What happens if you didn’t save for the $600 it takes to replace the tires on your car? If you don’t have the money set aside, you probably have to turn to your credit cards and that’s never a good option.

The better solution is to plan ahead and work that $600 expense into your regular monthly budget. If you know that you will need to buy new tires for the car this year, then divide the cost of the tires into 12 monthly payments and set that amount aside each month. so, in our case, $600/12 = $50 per month that we need to set aside in savings for our new set of tires.

Go ahead and make a list of all of your periodic expenses and repeat the process. Do you have back to school expenses for your kids each fall? That’s a periodic expense that you can plan for. After you are finished, you may find that you should be setting aside $75 to $100 per month for your periodic expenses. That’s OK.  With the money accumulating in your savings account, you won’t need to turn to your credit cards when the bill comes due.

That folks, is how you budget for periodic expenses.

 

Bonus Step: Engage an Expert Advisor

If you’re struggling with your personal finances, our certified counselors have the experience to help you manage your money so that its not controlling you.

Find out more by calling 937.853.1600 or by visiting our Financial Counseling page.

Getting A Tax Refund? Put It Down on Your First Home

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What are you doing with your tax refund? Are you trying to save up for a home of your own? Coming up with a down payment for your first home seem like an impossible task?

You’re not alone. The number one problem cited by first-time homebuyers is the difficulty they have saving for a down payment on a new home. It’s not surprising with stagnant wages and high rent. However, this is a perfect season to boost in your down payment. Use your tax refund.

Having just a 3% down payment is enough to qualify you for a mortgage. Really. That means you would need $3,000 down for a $100,000 home. According to the real estate website, Trulia, the average home sale price in the Dayton area in 2017 was $115,500. You could buy that average priced Dayton metro area home with just $3,468 down. If you only consider the City of Dayton, your are looking at an average home priced at $56,900 and just $1,707 down. Of course, the more you can put down, the better off you will be in the long run. Higher down payments can lead to better interest rates and potentially avoiding Private Mortgage Insurance (PMI). Both of these would save you many thousands of dollars over the length of the loan.

Now, let’s get back to your tax refund. According to the IRS, the average tax refund in the spring of 2017 was $3,050. That would make up a serious chunk of your down payment. Of course, not everyone is getting a tax refund of that magnitude. However, if you are planning to buy in the next few years, you have time on your side. Only getting a few hundred dollars back from the government this year? Put that money into a separate savings account. Add more to the account every month along with future windfalls, and your down payment will grow quickly.

Before you spend your tax return on something else, ask yourself what are your priorities? Would you rather grow your down payment or buy a new flat screen TV? If your priority is to buy a new home, then take the road towards homeownership; use your tax refund to grow your down payment fund.

Having Enough for a Down Payment May Not Be Your Only Obstacle.

If you’ve been struggling to put together a down payment, you might need to take a closer look at your finances to determine if you really are ready to buy a home. Your new house payment could very well be much lower than your monthly rent. However, a new home also comes with other expenses like homeowner’s insurance, taxes, and home maintenance. It’s wise to go into your new home with an emergency savings that you can use to make unexpected repairs. For instance, when your furnace breaks down, you have to pay for the repairs on your own.

If you want to know if you are ready to buy a home of your own or want someone to review your finances, contact the HomeOwnership Center and we’ll give you our expert advice.