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How Much Debt Is Too Much?

How Much Debt Is Too Much?

Aug 2021

No one plans to take on too much debt. Unfortunately, it can be easy to gradually get in over your head. One month, you fund a beach vacation on your credit card. A few months later, you purchase a laptop. Then, your car transmission goes, and before you know it, you’re in deep. But knowing how much is “too much” for your financial situation may help you avoid digging a hole that might take you years to climb out of.


How debt happens. Sometimes debt arises unexpectedly due to emergency spending, a job loss, medical expenses or unanticipated home or car repairs. But excessive debt can also result from impulse purchases or a desire to keep up with the Joneses. It’s nearly impossible to set limits on the former type of debt, but you can control the latter. Also, note that we’re mostly referring to credit card debt as opposed to mortgages, car payments or student loans.


Debt’s damage. It costs money to assume and maintain debt. You’ll likely spend a pretty penny to finance your credit card balances through the interest you pay your lender. And when you make only the monthly minimum payments, those charges, along with an occasional late fee, can add up fast. And the damage isn’t necessarily limited to financial impacts. Debt can cause stress, exacerbate marital problems and damage your credit. Ultimately, debt can even derail your retirement plans. When you take on a lot of debt, you’re likely contributing less to your retirement plan, and the money you don’t invest doesn’t have the opportunity to grow over time.


Setting limits. Every situation is different, and there are no hard-and-fast rules. But consider the 28/36 rule as a good place to start. This is a guideline many lenders use when evaluating mortgage applications. It stipulates that no more than 28% of gross monthly income should be spent on total housing expenses, and no more than 36% on all debt, including credit cards.


Monitoring debt: Once you have a sense of how much debt is too much, the challenge is trying not to cross the line. To do that, you need to monitor your debt situation on a regular basis — because it’s hard to control what you don’t track. Fortunately, numerous online and mobile tools are available to help you do just that. Some examples include Mint, Credit Report Card and Tally. These apps can help you consolidate and organize all of your debt tracking in one place. You can also use a simple spreadsheet to list all your debts according to lender, total balance and interest rate.


If you’re concerned about the impact your debt may have on your retirement readiness, talk to your WellCents financial professional to review your financial situation, including your current debt. Together, you can come up with a plan to dig out of debt once and for all.



Have a Long-Term goal? Financial Planning can Help You get you there

Have a Long-Term goal? Financial Planning can Help You get you there

Sep 2021

After several years of wallowing in financial upheaval caused by a severe recession and financial crisis, Americans are, once again, looking to the future. A renewed confidence has many people setting their sights on long term goals that, just a few years ago, may have seemed out of reach. However, as too many people have painfully learned, simply having a long-term goal, whether it’s an early retirement or a college education for your children, is not enough to realize your ambition.

A financial goal is a life destination which requires a map and a way to get there; and, assuming you have finite resources with which to successfully make the trek, they need to be used wisely or you are likely to come up short. If you have a long-term goal, financial planning can help you get there.

What exactly is Financial Planning

All of us have certain things in life we want to accomplish and many of them require financial resources. These are called financial goals. Living a secure and enjoyable retirement is a goal shared by most people. In addition to that, parents want to be able to provide a college education for their children, buy a bigger house, or expand their business, and while working towards all of those, they want to ensure the financial security of their loved ones. These all become intricately linked pieces of your financial puzzle.

A financial plan is about carefully forging those pieces and fitting them in their proper place so that they work effectively together towards your vision. If a piece is missing or doesn’t fit quite right, it could skew all of the other pieces. As you become financially successful, more pieces are needed to complete the financial puzzle, such as risk management, tax strategies, and estate planning. Because of their impact on the total financial puzzle, it is critical to have a wellconceived, integrated plan.

The financial planning process enables you to focus clearly on your specific goals while addressing all of your concerns so they are no longer obstacles. And, having a well-conceived, comprehensive financial plan enables you to shutout the constant drone of doom and gloom, because, in the long-term, your plan is all that matters.

Steps in the Financial Planning Process

The financial planning process involves four essential steps that, if followed diligently, will increase the likelihood of achieving your long-term goals; however, it does require discipline, patience and adherence to basic financial principles.

Establish Clearly Defined Goals

Very rarely does anything of financial importance happen accidently. In reality, absent a clearly defined, quantifiable goal that’s set along a realistic time horizon, chances are it won’t happen. Your goals need to be both realistic and inspiring enough to motivate you to action. It’s not enough to know what it is you want to achieve; you need to have a deep sense of why it’s important, and how it would make you feel when it’s achieved. To set a realistic goal, envision it, quantify it (what you need to save), and make sure you have the resources to fund it.

Assess Your Current Financial Situation

Financial planning is a continuous process of assessing where you are currently in relation to your goals. This enables you to make the adjustments in your strategies necessary to keep you on track. Your financial picture is comprised of a balance sheet (assets and liabilities) and a cash flow statement (budget and savings). Your objective is to constantly improve your financial picture – reduce debt, increase cash flow/savings, grow your assets - which could enable you to achieve your goal early, or enable you to target additional goals.

Create an Actionable Plan

A financial plan is typically comprised of several strategies, each designed to address a different piece of your financial puzzle. Developing a systematic savings and investment strategy for accumulating the funds needed for your goal is obviously a key part of your financial plan. But, life happens, and your financial plan should also include strategies for dealing with life’s contingencies, such as an accident or illness, or even a premature death in the family that could derail the plan.

Priorities have to be established in order to shore up all aspects of the plan. Before allocating all of your resources towards your financial goal you need to create an emergency fund to cover at least six months of living expenses, and an insurance plan to protect your finances in the case of a disability or death of a family member. Each priority should have an actionable plan to achieve it.

Monitor and Measure Your Plan

The biggest mistake many people make is to create a financial plan and then put it on the shelf. A financial plan is a living, working document that needs to reflect your current circumstances as well as the impact of a changing environment. It becomes a benchmark against which your progress to your goals is measured.

As your personal circumstances change and evolve, your plan needs to be updated, and, very likely, strategies will need to be updated or added (i.e. increases in insurance amounts, a change in your asset allocation, a new tax reduction strategy). The more frequently you assess your situation and measure your progress, the more minor any adjustments to your strategies will be.

Seek Professional Guidance

Although financial planning is not rocket science – there are plenty of resources available to develop your own – it can become more daunting than the average person is able or willing to tolerate. The body of knowledge required to navigate multiple disciplines (i.e., investments, insurance, taxes, retirement planning, estate planning, etc) is beyond the capacity of most people. In addition, most people lack the discipline and patience to strictly adhere to a plan, especially when their emotions get the upper hand.

A competent financial advisor can more efficiently guide you through the process of planning your future, designing your strategies and navigating the complex universe of investments and financial products. Of equal importance, he or she can also be your financial coach, holding you accountable to your plan while coaching you through your emotions and encouraging you to the finish line.

Tags: reduce debt, debt, retirement, long term goals

Securities may be offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services may be offered through NFP Retirement, Inc. Kestra IS is not affiliated with NFP Retirement Inc., a subsidiary of NFP.

This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.

Average Credit Card Debt by Age

Average Credit Card Debt by Age

Sep 2021

A report by Federal Reserve economist Joanna Stavins combined Equifax data with the 2015- 2016 Federal Reserve Bank of Boston’s Survey of Consumer Payment Choice (SCPC) on how consumers pay for purchases. Comparing self-reported measures with objective data, she found that people tend to have fewer credit cards with higher limits than they report. According to her research, it’s estimated that 44% of adults have revolving credit that they don’t pay off in full each month with an average balance of $6600.

The study also included average credit card balances for various age brackets. Debt is becoming an increasingly larger part of the financial planning landscape. And it has different implications at different ages. Here are the average balances for each age group in the study and how carrying debt can impact them at each phase of life.

Age <25:The average credit card debt for this age group is $2340*. You may be a recent graduate with your first real job, earning your own money for the first time in your life — finally paying your own way. But you’re also likely having your first experience trying to balance saving and paying off debt if you graduated with student loans. Having an extra credit card payment can make that juggling act even harder. Or it can delay independent living altogether. Adopting a “cash only” policy for things you want early in life can help stave off larger problems later.

Age 25-34:: With an average balance of $3240 on your credit cards, you might be buying your first home and starting a family. With growing credit card debt, it could push that first home purchase a few years down the road or out of site altogether. When planning to buy a home or start a family, it’s important to look at your overall budget ahead of time. This is a terrific opportunity to sit down with your financial advisor to help set you up for success and make this exciting time in your life as stress free as possible.

Age 35-44:Carrying an average credit card balance of $5480, you’re in your prime earning years and you may be on your second or even third home. There could be an even larger family at this point and temptation to start cashing in on your years of hard work and higher salary. While you certainly deserve to enjoy the fruits of your labor, it’s important not to sacrifice future happiness for today’s pleasures. Maintain and increase your contributions to your 401(k) and other retirement accounts. It’s often easier to bump up contributions after a raise or bonus. It will become increasingly harder to make up for lost time later.

Age 45-54:With life in full swing and an average credit card debt of $6250, you may be facing some additional financial challenges during this phase of life. You might need to fund an expensive college education for one or more kids, pay for a wedding or two — and you might even have to start pitching in to help your parents. It can be easy to lose track of your own financial goals with so much going on. Stay in regular contact with your financial advisor and start making catch-up contributions to your retirement accounts if you need to once you qualify.

Age 55-64:Retirement is starting to loom large in the window and you need to start getting your ducks in a row. Hopefully, you’re carrying a little less debt now, on average $5360 on your credit cards — but it’s no time to become complacent. Have a plan to reduce debt as much as possible before your income stream dries up. Make sure you’re addressing healthcare financial risks by taking care of yourself and consider long-term care insurance if you don’t already have it.

Age >65:Congratulations on your retirement! Or maybe not so fast. Excessive debt can delay or even prevent retirement altogether. The average credit card debt for this age bracket is $3630. If you’re still carrying a balance, try to pay it down as fast as you can. If you’re not employed full-time any longer, consider a little part-time work or some temporary lifestyle adjustments to get the job done faster and enjoy your golden years debt-free.

*To account for people who declined to participate, the researcher made some statistical adjustments to keep study results nationally representative.


Tags: reduce debt, debt and retirement, debt, retirement

How To Pay Back Student Loans

How To Pay Back Student Loans

Sep 2021

You just graduated college, so congratulations are in order and so is a big warm welcome to adult life.

First order of business? Pay your bills!

That diploma wasn’t free and if you’re like 73% of the other 2017 graduates, you have student loan debt and need to figure out how to pay it back.

The good news is that you have choices. There are several student loan repayment plans to choose from. Some are based on a percentage of discretionary income, run for 20-25 years and may include loan forgiveness if all payments are made on time. Other start with low payments that increase over time as your income increases.

Regardless of which plan you choose, make sure you know who your loan-holder is, where to send payments and how much to pay. You may also have questions about discharging your loans or the consequences of missed payments. Get answers to your concerns before you fall behind, and join the 4.2 million borrowers who were in default at the end of 2016.

When must I begin repaying my student loans? Do I have a grace period?

Most student loans have a six-month grace period, which means you won’t have to start making payments until six months after you graduate, drop out or drop below half-time status. The grace period is meant to give you a chance to find a job and begin earning an income before you’re swamped with bills.

Tips to prepare for student loan payments:

  • Use the grace period to research student loan repayment options,
  • Create a budget built around your student loans
  • Prioritize paying off student loans
  • Communicate with your loan servicer
  • Set up automatic payments to avoid late fees
  • Avoid student loan default at all cost
  • Know the exact date when you expect to pay off the loan and give yourself a target ahead of that to shoot for

The following types of loans have six-month grace periods:

  • Direct Subsidized/Unsubsidized Loans
  • Subsidized/Unsubsidized Federal Stafford Loans
  • Some private student loans

PLUS loans have no grace period, and you must begin repaying them as soon as they are fully disbursed.

The grace period on Federal Perkins Loans depends on the school that gave you the loan. If you have this type of loan, check with your school to find out when you must begin repayment.

The grace period on a private student loan depends on the lender and your loan contract. Most private student loans have a short grace period, but you must check with your lender to make sure.

You may also choose to consolidate your student loans during the grace period. This will group your federal student loans into one payment and simplify matters considerably.

If you have federal student loans, you can choose to consolidate them with the department of education, through your loan servicer, or consolidate with a private lender. Private lenders offer lower interest rates, but only to those with high credit scores. If you have good credit and are looking to lower your interest rates on medical school loans, for example, working with a private lender may be the best option.

How much do I pay each month? Can I pay more?

Your minimum monthly payment is based on the type of loan, the amount you owe, the length of your repayment plan and your interest rate. You’ll typically have 10 to 25 years to repay federal loans entirely. Shorter lengths of repayment time or larger loans will result in higher monthly payments.

The Standard 10-year Repayment Plan is by far the most popular plan with 11.37 million borrowers enrolled in 2017, but that doesn’t mean it is the best plan for you. This is the default plan. Borrowers are automatically enrolled in the Standard Repayment Plan unless they choose a different one.

You’ll make fixed monthly payments for 10 years. It’s a great plan if you can afford the monthly payments and the cheapest option long term because you’ll pay a lot less interest. But, if you don’t have the income to support these payments, you should enroll in one of the income-driving repayment plans.

As for making additional payments, you can always pay any amount more than the minimum payment each month. There are no penalties for early repayment, and taking this approach can save you a significant amount of interest over time.

How do I make payments?

Once bills are due, you’ll be responsible for sending your monthly payments to the companies that hold your loans

If you don’t know where to send a payment, check with your school’s financial aid office. The financial aid office will be able to tell you who your loan servicers are. You can then contact your loan servicers directly with specific questions.

You can also retrieve loan information via the National Student Loan Data System.

Be aware that your payments are due even if you don’t receive the bills. If you move after graduation, tell your loan servicer your new address to ensure that you receive bills and can stay on top of your payments.

Consider changing your loan due date to make budgeting easier. The student loan payment might be due before you receive your paycheck each month. Contact your loan servicer to see if they can switch your payment date to directly after you get paid.

What are my options when I’m having trouble meeting minimum loan payments?

If your monthly required payment is more than your income allows you to pay, you may be eligible for income-driven repayment plans like the Income-Based Repayment Plan (IBR); Income-Contingent Repayment Plan (ICR); or Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE).

The income-driven repayment plans are based on your income rather than the amount you owe, thereby lowering payment requirements for low-income borrowers. Generally speaking, these plans take into account your income, family size and state where you live. You pay between 10% and 20% of your discretionary income and plans run 20-25 years, depending on which program you choose

If you expect your financial difficulty to be short term, such as if you are in between jobs or are on medical leave, you can temporarily suspend payments on federal student loans. However, your loans will continue to accrue interest, meaning you will owe more when you resume payments.

You may also be able to extend the time you have to repay federal loans by using an extended repayment plan.

Or, if you expect your earning power to increase significantly over the years, you can opt for a graduated repayment plan. This allows you to pay less at first, with monthly payments increasing over time.

What are the consequences of missed payments? Defaulting?

Student loans never disappear. There’s no statute of limitations, and student loans are rarely discharged even in bankruptcy. With few exceptions, your student loans will follow you through life, until you pay them off

If you make a late payment on a federal student loan, you may be responsible for a late fee of 6% of the payment.

Defaulting on federal student loans will result in more severe penalties. You are considered delinquent when you haven’t made a payment in 90 days. When you haven’t made a payment in 270 days (nine months), you go into default and suffer a lot of consequences for it.

The government can garnish up to 15% of your wages and Social Security benefits, as well as offset income tax refunds. The government may also deduct 25% of each payment for collection fees, making the loan cost significantly more.

Late or missed payments will also show up on your credit report and can harm your score.

If you cannot afford your payments, it is much better to contact your loan servicer and review your repayment options rather than simply not paying.

Can I cancel my student loans?

Federal student loans may be canceled under the following circumstances:

  • Your college closed down while you were a student there or within 90 days after you withdrew.
  • Your school owed you or your lender a refund after you withdrew but never provided it.
  • The loan was a result of identity theft.
  • The student borrower dies.
  • You become totally and permanently disabled.

Can my loans be forgiven?

Federal student loans may be eligible for certain forgiveness programs depending on your profession.

If you have an IBR plan, any balance remaining after 10 years will be forgiven if you spend those years in a public service sector such as the military, public education or police work.

You can have up to $17,500 in loans forgiven if you teach in a low-income area for five years.

If you ever find yourself struggling with student loans, keep in mind that you always have options. Don’t wait until you’ve missed several payments or have already defaulted on your loans; get help as soon as possible to create a plan that works for you and your budget.

NFPR-2019-75 ACR#324822 08/19

Student Loan Defaults Can Wreak Havoc on Retirees

Student Loan Defaults Can Wreak Havoc on Retirees

Sep 2021

No one could have foreseen the convergence of two of the most consequential economic events in our history – the mass migration of the Baby Boom generation into their final life stage and the tectonic shift of a declining global economy. Unhinged stock market volatility, rising health care costs and historically low interest rates on savings have caused millions of preretirees to rethink their plans and their vision, especially as they consider the prospect of having to stretch their retirement income over 25 or 30 years. As if that weren’t enough, now tens of thousands of retirees are finding that their only real safety net is threatened as a result of their decision to default on their student loans.

That’s right; at least 700,000 student loan debtors are over the age of 65, double the number just five years ago. Nearly 10 percent of these debtors are at least 90 days past due on their student debt payments up from 6 percent in 2005.1Unlike most other forms of debt, the federal government will not rest until it receives all of its money. And, because the federal government issues Social Security checks, they can also withhold what they need, leaving many retirees unexpectedly short of cash.

The government can deduct as much as 15 percent from each check until the debt is repaid. With the average monthly benefit being $1,234, that would mean about $200 less in available to meet tight monthly budgets. Needless to say, it can make life much more difficult, especially for retirees living on a fixed income.

The sudden increase in senior student debtors can be attributed to two key factors: In the last couple of decades, parents who wanted to ensure their children had a college education became mid-life borrowers; and many older adults took out student loans to continue their higher education later in life. Student loan defaults among seniors are accelerating as more Baby Boomers are crossing the retirement threshold with very tight budgets. What many of them may not have realized is that student loan guaranteed by the federal government is not dischargeable through bankruptcy.

Retirees facing tough decisions about their finances need to consider the long-term consequences of defaulting on student debt. Not only will a default result in automatic deductions from your Social Security check, it will also make it difficult to find employment or obtain financing if either become necessary at some point. It would be better to look for an additional source of income, perhaps through part-time work or even refinancing a mortgage.

Additionally, retirees can also look into the Income-Based Repayment (IBR) program which can reduce your payment or cap it at 15 percent of their income. As long as payments are made on time, the loan balance is forgiven after 25 years.

If a retiree can find full-time employment (30 hours per week) in certain public services, such as a public library, military organization, emergency service, child or elderly daycare, etc., the Public Service Loan Forgiveness (PSLF) will forgive the loan after 10 years of payments. The PSLF program can be combined with IBR to keep payment low.

Lessons Learned -The unfortunate position of these retirees should provide valuable lessons for mid-life adults considering taking on student debt, either for their children or for their own continuing education. Parents especially should consider the viability of financing their children’s college education. Early planning and savings are the obvious solution for parents who are intent on sending their children to college; however, for parents who aren’t financially prepared, other options, such as community colleges and less expensive, and local public colleges can provide a quality education without the added financial stress.

Tag: student loan, student debt, retirement

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