Money Management

Discover how Matt Dodson paid off $50,000 in credit card debt in just a year. Can his financial freedom strategies help you? [[{“value”:”

Matt Dodson of Florida had a dream of flipping a house into a profitable investment. Alongside his wife, Dodson embarked on what seemed like an exciting venture. They found what they thought was the perfect fixer-upper — a property they could renovate and sell for a tidy profit. However, reality hit hard and fast. Dodson, a nurse by profession, soon faced a string of unexpected expenses and job-related challenges. The dream project quickly became a financial nightmare, ending with a credit card debt of $50,000.

And Dodson is not alone in his struggle. According to the Household Debt and Credit Report from the Federal Reserve Bank of New York, this is a common predicament. Americans currently face record-high credit card balances totaling $1.13 trillion, a $50 billion increase over a 90-day period.

As the debts mounted, so did the pressure. Dodson described the overwhelming hopelessness and the toll it took on their lives. “It’s hard to think logically and clearly,” he told The Motley Fool, speaking to the mental and emotional strain of such financial stress. The turning point came when he realized they couldn’t keep up with the minimum payments due to high interest rates and additional fees.

Dodson’s proactive step to seek assistance led him to Money Management International, a nonprofit specializing in debt relief, and ultimately, he cleared the $50,000 worth of debt in just over a year.

And it was through this process that he learned some valuable personal finance lessons anyone in debt can apply. Here are his top three.

Focus on consolidating your debt

Dodson’s experience particularly underscores the effectiveness of this approach. By consolidating his debts, he didn’t just lump them together; he effectively halted their growth and negotiated away additional fees, turning a chaotic array of obligations into a structured and prioritized repayment plan. While Dodson used Money Management International (MMI) for help with debt consolidation, it’s something you can do yourself. It’s not just a one-size-fits-all solution; it’s more like picking the right tool for the job based on your unique financial landscape.

Debt consolidation comes in different flavors, each with its own set of benefits and considerations:

Balance transfer credit cards: These are the financial world’s equivalent of a tactical move. Balance transfer cards come with low introductory rates, making them a savvy choice for transferring high-interest credit card balances. It’s like moving your debt to a quieter neighborhood where it won’t grow as fast.Personal loans: Think of this as pooling your debts into one basket. A personal loan gathers your debts under one roof, usually at a lower interest rate. This can make your financial obligations feel less like a juggling act and more like a manageable to-do list.Home equity loans or lines of credit: If you’re a homeowner, this option lets you borrow against your home’s equity to squash your debts. It’s a bit like asking your home to lend you a helping hand, but remember; it also means your home is on the line.401(k) loans: This is akin to borrowing from your future self. Taking a loan from your 401(k) can be a way out of debt, but it’s not without risks, like affecting your nest egg for your golden years.

Negotiate with creditors

When Dodson found himself deep in debt, he quickly learned that talking things out with creditors wasn’t just helpful — it was crucial. This isn’t just about making a phone call or two; it’s about engaging in a strategic dialogue with those you owe money to. While Dodson relied on MMI to negotiate, you can also do it.

Negotiation with creditors can take various forms. It could be as simple as asking for a lower interest rate, which can sometimes feel like asking a bear for a dance — intimidating but surprisingly doable. Or it might involve requesting the waiver of late fees, akin to asking for a clean slate. In some cases, it’s about restructuring your repayment terms to something more manageable.

Yes, MMI was a great ally in Dodson’s corner, but this isn’t a privilege reserved for those who seek professional help. Individuals can — and should — feel empowered to approach their creditors directly. Think of it as finding a middle ground where both parties can come away with something beneficial.

Implement the snowball method

Finally, adopting the debt snowball method was part of Dodson’s approach to eliminating debt. This method involves focusing on clearing debts with the smallest balances first while keeping up minimum payments on larger debts. This strategy not only simplifies debt management but can be particularly motivating, as it allows for quick wins and can simplify the process by gradually reducing the number of debts. The psychological boost of seeing individual debts disappear can be a powerful motivator in your journey toward financial freedom.

And Dodson can’t emphasize enough the mental toll debt takes on a person. So, feeling regular accomplishments and enjoying that simplification means positive momentum for your wallet and mental health.

Dodson’s journey teaches us a valuable lesson: Understanding your consolidation options and choosing the one that fits your financial landscape can transform an overwhelming debt situation into an organized and manageable pathway to financial freedom. “It felt like you could actually take a deep breath,” he said, describing the moment he became debt free.

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No one wants to pay for a car they don’t own anymore. Learn exactly how that could happen to drivers in one situation. [[{“value”:”

Car payments are a fact of life for many people, although they aren’t necessarily the most fun thing to spend money on. At least those payments go toward covering the cost of a vehicle that’s necessary to get to school or work or family activities.

Unfortunately, in some cases, drivers could actually get stuck paying off a car they no longer own and cannot use. Here’s how that could happen.

Here’s how drivers could get stuck with car payments on a car they can’t drive

Sadly, it’s not uncommon for drivers to find themselves in a situation where they might have to keep making payments on a car that’s not available to them any longer. This can happen when an auto insurance company cuts a check for a vehicle.

See, auto insurance will pay for a car if it is stolen and not recovered, or if it is damaged or destroyed beyond the point of repair after an accident or other covered loss. But an insurer is typically only going to pay the fair market value at the time of the covered incident.

Many drivers, unfortunately, owe more than what their car is actually worth. In fact, Edmunds indicates 14.7% of people trading in old cars to buy new ones had negative equity, with the average amount owed coming in at $5,341.

The problem is that if an insurer cuts a check for $15,000 and the driver of that car has an outstanding loan balance of $20,000, that lender still has to be repaid for the other $5,000. So the driver who took out the car loan is going to have to keep making payments until the loan is paid off in full, even though the car is no longer theirs.

How to avoid this unpleasant situation

Continuing to spend money on a destroyed or stolen car simply does not make sense for most people — especially since they’ll most likely have to go buy another car once they can no longer drive their old one.

The good news is there’s a way to avoid this. Drivers can make sure they don’t have to spend their hard-earned money on car loan payments for a car that’s gone if they buy gap insurance. Gap insurance pays the difference between what is owed and what the car was worth at the time of a covered loss.

Most insurers offer gap insurance as an add on, and it’s generally not expensive — often around $20 to $40 annually when it’s added onto an existing auto insurance policy. That is a very small price to pay to avoid the potential to get stuck with thousands of dollars left on a car loan after receiving an insurance check.

But gap insurance has to be bought before the accident or incident that destroys or disappears the car. So drivers cannot wait until something goes wrong. Anyone with a car loan they could potentially be underwater on should call their insurer today and make sure they have gap coverage. Having the right insurance could prevent a true financial disaster tomorrow.

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The need for cash savings in retirement is huge. Read on to learn more. [[{“value”:”

Retirement can be a bit of a scary thing. That’s because you’re going from earning a regular paycheck to suddenly having to live off of savings.

Now once you enter retirement, a lot of your income may come from withdrawals from an IRA or 401(k) plan. And chances are, those accounts will be loaded with different investments, as opposed to plain old cash.

That’s a good thing, because you want your portfolio to keep generating returns during retirement. That opens the door to more income for you. And historically, assets like stocks have generated higher returns than savings accounts.

But it’s also important to stockpile plenty of cash in the bank as a retiree. Doing so could prevent you from having to take serious losses in your investment account.

Save enough for one to two years of expenses

During your working years, you’re generally told to build an emergency fund with enough cash to cover three to six months of expenses. During retirement, your cash savings should be able to cover one to two years of expenses.

How come? As a retiree, in the absence of regular income from a job, you’re living off of savings, whether it’s cash in the bank or your retirement account. But the investments in your retirement account could fluctuate in value.

One thing you don’t want to do is liquidate investments in your IRA or 401(k) when they’re down because you need income to pay your bills. If you do that, you’ll lock in permanent losses in your account. If you leave those investments alone when they’re down, they might recover their value in full, putting you in a better financial position.

If you have plenty of cash on hand, you’ll likely be able to ride out a period when your investments are down, like a broad stock market decline spurred by a recession. But it can take time for investments to recover lost value, which is why you need so much cash on hand.

Should you put your cash into a CD during retirement?

CD rates tend to be higher than the rates you’ll find in savings accounts. For this reason, it could be a good idea to put some (though not all) of your cash savings into CDs as a retiree. But what you’ll want to do is set up a CD ladder so that you’re not tying all of your money up at once, but rather, setting your CDs to mature at different intervals.

Also, at a minimum, you should really make sure to have at least six months’ worth of cash outside of a CD and in a regular savings account. That way, you can pay your bills for half a year without running into any issues.

Fidelity suggests aiming for enough retirement savings to replace your ending salary 10 times over. The bulk of your retirement nest egg can come in the form of different investments. But make sure to keep some of that money in cash so you have the flexibility to ride out market downturns without hurting yourself financially in the long run.

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When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Many Americans are unaware of just how expensive borrowing on a credit card is. Find out why this could be a huge problem. [[{“value”:”

Credit cards are a very popular method of paying for items — and with good reason. If you have a rewards card, you can usually earn cash back, points, or miles for the items you buy. Using a credit card wisely and paying it off can also help you to earn a good credit score. And you may be entitled to purchase protections such as extended warranties and return protection when you charge items on a card.

Unfortunately, while cards are popular and can be a great tool if used correctly, many people don’t really understand some key details about their cards that could impact what they do with them. Specifically, there’s one very important fact that close to half of Americans don’t know about their credit cards and that they really ought to pay more attention to.

This is a crucial detail many Americans don’t know

According to a recent study conducted by Ramsey Solutions, close to half of all Americans (47%), do not know the annual percentage rate (APR) that their credit card charges.

APR is the cost of borrowing on a card, including interest and any fees assessed. The higher it is, the more expensive a loan is. And credit card APRs are very high. In fact, according to the Federal Reserve, the average credit card APR is 21.47%.

The fact that so many people don’t really know what their card issuer is charging them is a huge problem because this lack of knowledge may very well lead them to make borrowing choices they otherwise wouldn’t.

It’s important to know your APR before you borrow

Knowing your APR is essential because understanding the cost of debt allows you to make informed choices about whether you want to borrow the money or not. In other words, if more Americans knew they were most likely going to be paying upward of 20% in interest on all of their credit card purchases, they might very well decide not to carry a balance on their cards — especially not for years to come, and especially when there are alternatives out there.

Personal loans, for example, can often be a lot more affordable than credit cards as a method of borrowing. Say, for example, someone wanted to buy something that cost $5,000 but they didn’t have the money.

The table below shows how much that could cost if they used their credit card versus if they opted to take out a personal loan (with an APR of 12.35%, the average in November 2023) that they’d repay in two years. It assumes borrowers would make the same monthly payment toward both debts, even though their credit card minimum payment might actually be lower than that amount.

If you made only the minimum credit card payment, it would be even worse. If you carried a $5,000 balance on a card and made only a minimum payment equaling 2% of the balance, you’d end up paying back the debt for more than 30 years and would pay a total of $27,667.16 over that time.

Knowing your credit card’s APR can help you to see whether you really want to take on the high costs of credit card debt. You can check your cardmember agreement to find out how much you’re paying to borrow. If it’s higher than you’d like — and it probably is — then you shouldn’t stop using your card. Just make the commitment not to carry a balance on it, and to find other ways to fund purchases over time, like cash from a savings account or a personal loan instead.

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When you max out a credit card, it can cause financial issues. Find out what steps you should take right away if you’ve maxed out a credit card. [[{“value”:”

When you’re approved for a credit card, the card issuer also approves you for a credit limit. That’s the maximum amount you can spend. If you reach that limit, then you’ve maxed out your credit card.

This has some serious consequences. If you can’t pay off the balance, you’ll get charged credit card interest, which is normally expensive. It can also negatively affect your credit score. That’s why after maxing out a credit card, there are a few steps you should take right away.

1. Stop using it

If you try using your credit card any more, it will most likely be declined. You need to pay down the balance before you can use it again.

Now, some card issuers have flexible spending cards. These let you exceed your credit limit, without any extra fees, on a case-by-case basis.

Even if you have one of these cards, it’s better to stop using your credit card until you’ve paid down the balance. You’re going to be charged interest on your balance. The more you spend on your card, the harder it is to pay back, and the more interest you’ll pay.

2. Make a plan for paying off your credit card

Credit card debt can be very costly. The average credit card interest rate is 21.47%, according to Federal Reserve data. On a $5,000 balance, you could end up paying $1,074 in interest per year.

When you’ve maxed out your card, it’s important to start working on a plan to pay off your credit card debt. Here’s how you can do that:

Review your monthly income and expenses.Figure out how much money you can afford to put toward your credit card every month.Plug that amount into a credit card payoff calculator to see how long it will take.

It usually makes sense to put as much money as possible toward your debt. Make your credit card debt one of your top priorities, after paying your regular bills. Paying an extra $100 or $200 a month can often shave months off your payoff time and save you hundreds of dollars as a result.

3. Look for ways to cut costs or pick up extra income

You might find that you can make a solid monthly payment toward your credit card, without any changes. But if not, your best bet is to reduce your spending, increase your income, or both.

Here are a few ideas to consider:

Try spending less on groceries and dining. These are both areas where it’s easy to overspend. Fortunately, it’s also easy to cut back by shopping for more affordable foods and going out to restaurants less often.Cut back on monthly subscription services. While these usually aren’t too expensive, they can add up when you’re paying for several of them. By temporarily canceling one or two subscriptions, you could have an extra $20 to $30 to put toward your debt.Look for a side hustle. There are plenty of side hustles that you can do in your free time, such as rideshare driving, pet sitting, and offering freelance services online.See if you can pick up more hours at work. Let your manager know that you’re interested in working extra hours if available. It never hurts to ask.

4. Check out balance transfer offers

A balance transfer is when you move a balance from one credit card to another. The reason to do this is that some credit cards offer a 0% intro APR on balance transfers. If you have a good credit score (670 or higher), you may qualify for one of these balance transfer cards.

Let’s say you’ve maxed out a card with a $5,000 credit limit and a 20% APR. If you can pay $300 a month, it will take 20 months to pay off and cost you $906 in interest.

Compare that to if you open a balance transfer card with a 0% intro APR for 18 months. You could then transfer over that $5,000 balance. These cards usually have a balance transfer fee of 3% to 5% ($150 to $250 on a $5,000 balance). You could pay that same $300 a month and have your debt paid off in 17 months with no interest charges. You’d save $656 to $756 total depending on the balance transfer fee.

It can be challenging to pay off a credit card after maxing it out. But if you work hard to pay it off, you’ll get your balance down to $0. Going forward, avoid using too much of your credit limit. Most importantly, only charge what you can afford to pay in full. When you always pay in full, you won’t lose any money because of interest charges.

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Car buying has been a challenge for several years. Keep reading to learn how 2024 is expected to be different. [[{“value”:”

If you’ve spent the past few years waiting and hoping to buy a new car, 2024 may finally be the time. In an interview with the Detroit Free Press, Cox Automotive Chief Economist Jonathan Smoke said that this year will be the best year for consumers to purchase a new car since 2019.

“With supply normalizing and the economy stabilizing to hit a soft landing and not turn into a recession, it leads to an environment that is the most normal we’ve encountered since 2019,” Smoke said.

However, you’re going to want to be strategic about buying a new car. Here’s what we mean.

Get your financial ducks in a row

Unless you’re paying cash for a car, you’ll likely seek an auto loan. The most important thing you can do before shopping for a loan of any kind is to order copies of your credit report. Currently, AnnualCreditReport.com offers free online credit reports weekly from all three of the major credit reporting agencies — Equifax, Experian, and TransUnion.

The process is instantaneous, meaning you won’t have to wait around for a copy of your credit report(s) to be mailed to you.

What to do with your credit reports

Once you have your reports in front of you, go over each of them line by line. You’re looking for any mistakes. For example, if a report shows that you still have a balance on a credit card you paid off months ago, note it. No matter how small the mistake, you want to record it. That’s because even the smallest mistakes can lower your overall credit score, and it’s that credit score that determines (in part) the interest rate you’ll pay on the loan.

If you find any errors, report them to the credit bureau in question (you can do it online). For example, if you find a mistake or two in your Equifax report, report it to Equifax. According to the Consumer Financial Protection Bureau (CFPB), a credit reporting agency must investigate your dispute within 30 days of receiving it and must notify you of its findings five business days after completing an investigation.

If it’s clear that your credit is a mess, you may want to spend 2024 getting it cleaned up. The goal is always to get the lowest interest rate and best terms available — but you need a healthy credit score to do that.

Make sure your budget can take the hit

Take a look at your monthly budget. Do you have the wiggle room you need to take on a new car payment, or will it deplete your checking account?

In addition to the car payment, you’ll want to factor in vehicle-related expenses like auto insurance, routine maintenance, repairs, and gasoline. The last thing you want to do is run your account so low that you don’t have enough money to cover an unexpected emergency.

Speaking of insurance, consider how much a policy will cost you. Generally, the more expensive the car, the more expensive it is to insure it properly. Unless you have room for a hefty auto insurance premium, you may want to consider a less expensive vehicle.

If you haven’t yet, take enough time to build up an emergency savings account so you don’t have to lose sleep if things go south and you need extra cash. If you’re unsure how much you should have in an emergency fund, this calculator can help you figure it out.

Check inventory before shopping

When it comes to buying a vehicle, supply and demand is king. The primary reason auto prices were so high during the pandemic was low inventory. Simply put, there were more potential car buyers than well-priced cars on the market.

Before shopping for a car at a specific dealership, check out how many cars the dealership has on the lot. If it looks a little sparse, you may want to move on to another dealership.

Take advantage of money-saving promotions

The interest rates may sting a bit right now, but auto manufacturers are making up for it by offering financing deals of their own. Here’s a sample of what’s out there right now.

0% financing

2023 Ford Explorer2024 Mitsubishi Outlander2023 Nissan Ariya2023 Nissan Titan XD

1.9% financing

2023 Ford F-1502024 Mustang2023 Chevrolet Traverse2024 Audi Q4 e-tron2024 Subaru Outback

2.4% financing

2023 Silverado 2500HD

2.9% financing

2024 Ford Expedition2024 Ford Escape2024 BMW i52024 BMW i72023 Subaru Ascent

3.9% financing

2024 Cadillac CT42024 Cadillac CT52024 Cadillac XT52024 Cadillac XT62024 BMW i42024 BMW 8-Series2024 BMW 7-Series

Again, this is just a small sample of February 2024 promotions. When you’re ready to look at cars, search online for the best promotions. While you’re at it, an online search will also give you an idea of how much you can expect to pay for insurance and routine maintenance.

2024 looks like it will be a decent year to purchase a vehicle, but only if you find one that fits both your needs and your budget.

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