Money Management

It’s good news all around for consumers. 

It’s an unfortunate thing that medical bills are a huge driver of debt for consumers. Even people who have health insurance often find themselves unable to keep up with the costs involved. What’s even more unfortunate is that medical bills could have a negative impact on your credit score — that is, when they go unpaid.

If you don’t pay your medical bills, your healthcare provider might choose to turn that matter over to a debt collections agency. And at that point, you risk having your unpaid debts show up as delinquent on your credit report.

Now the good news is that as of July 1, 2022, there’s a required one-year waiting period before unpaid medical debt is allowed to show up on your credit report. This change was put into place largely to give consumers more time to appeal rejected insurance company claims before having their debt show up as delinquent.

Also, as of July 2022, credit bureaus must remove all paid medical debts from consumer credit reports. That’s a big deal, because normally, debts in collections can take seven years to drop off your credit report, even once they’re paid in full.

But still, if you’re unable to pay a medical bill and it remains unpaid for a long enough period of time, it could cause credit score damage. And if your score takes a hit, it could make it difficult to qualify for a loan or credit card the next time you need or want one.

But there’s a new change you should know about regarding medical debt and credit scores. And it’s a change that could work to your benefit.

A helpful new rule to protect consumers

As a consumer, you don’t just have a single credit score. Rather, there are different scoring models that can be used to calculate that number.

FICO is generally the most common, but many lenders rely on VantageScore as well. And as of the end of January 2023, VantageScore will no longer include medical debt, whether paid or unpaid, in its 3.0 and 4.0 scoring calculations at all. So if you’re delinquent on a medical bill either due to a lack of funds or due to an ongoing battle with your health insurance company, you won’t have to worry about your VantageScore taking a hit.

A positive development

Medical debt is a problem for many consumers — especially these days, given that many people are more cash-strapped due to inflation. It’s good to see that changes are being made to help ensure that consumers who get stuck with burdensome medical bills won’t necessarily see their credit scores take a beating.

At the same time, it’s important to do what you can to avoid medical debt, because while the above change applies to VantageScore, many lenders rely on FICO as their go-to scoring model. One way to avoid medical debt, aside from boosting your savings account balance, is to take advantage of tax-advantaged accounts that let you set money aside for medical bills. These include a health savings account for high-deductible insurance plans and flexible spending accounts for those whose insurance plans have lower deductibles.

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It’s a move that could backfire on you. 

If you ended the 2022 holiday season with a whopping pile of debt, you’re no doubt not alone. It’s hard to cut back during the holidays when they only roll around once a year and there’s so much pressure to go all out and be generous with the people you love.

But if you have multiple balances across different credit cards, you may be looking for an efficient and cost-effective way to pay down that debt. And consolidating your debt with a personal loan may be an option you’re considering.

READ MORE: Best Debt Consolidation Loans

A personal loan lets you borrow money for any purpose. You can take one out and use the proceeds to pay off your credit cards. From there, you’d simply make one personal loan payment a month, as opposed to several credit card payments.

Plus, you’ll often snag a lower interest rate on a personal loan than you will on a credit card. So in many cases, consolidating credit card debt into a personal loan makes financial sense. But that’s not a given.

When your credit score needs work

Personal loans are unsecured, which means they’re not tied to a specific asset (whereas mortgage loans, for example, are secured by the homes they’re used to finance). This means that if you fall behind on your personal loan payments, your lender really has limited recourse. Your lender can’t, for example, go after your car to pay off the loan you’re behind on.

That’s why personal loan lenders place so much emphasis on having strong credit. If you’re a borrower with a great credit score, you might snag a really competitive interest rate on a personal loan. But if your credit score is poor, you could end up with a really high rate on a personal loan, since your lender will think it’s taking on a greater risk of not getting repaid.

And that’s why consolidating holiday debt with a personal loan isn’t automatically a good move. If your credit score isn’t in good shape, you might get stuck with just as high an interest rate on a personal loan as what your credit cards are charging you. In some cases, you might even end up paying a higher rate of interest on a personal loan.

Look at different solutions

A personal loan isn’t your only option for consolidating holiday debt. If you own a home, a home equity loan may be a better solution.

The reason? Home equity loans are secured, so even if your credit is poor, you might get a lower interest rate on one because your lender is taking on less risk. In an extreme situation, a home equity loan lender could force the sale of a home to get repaid if a borrower falls behind.

But if consolidating your holiday debt doesn’t end up working out, tackle your various credit card balances in order of highest interest rate to lowest, and keep a calendar with your cards’ due dates so you know when to make your payments. Debt consolidation can be a helpful way to pay off high-interest debt. But if it won’t be cost-effective for you, there’s no sense in going down that road.

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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.The Motley Fool has a disclosure policy.

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Before you file your taxes, you need to read this IRS warning 

On Jan. 23, 2023, the IRS issued a news release announcing the start of the tax-filing season. This is the tax-filing season that is taking place from January to April 2023, and it is for your 2022 taxes. You’ll submit your information about the income you earned last year and, in some cases, will receive a refund (or in other cases, you may owe taxes).

In its news release, the IRS had an important warning about the impact of stimulus checks on the tax return you’ll file this year. Specifically, the IRS made clear that because there were no stimulus payments last year on the federal level, you could find yourself with a smaller tax refund than you might expect.

Since many people count on their tax refunds to help them pay down debt, bulk up their bank accounts, or accomplish other important financial goals, it is important to read and understand this IRS warning so you are not caught off guard.

Here’s what the IRS had to say about stimulus checks

According to the IRS news release, there are two big reasons why your tax refund may be smaller this year than it was during the last tax-filing season.

“Due to tax law changes such as the elimination of the Advance Child Tax Credit and no Recovery Rebate Credit this year to claim pandemic-related stimulus payments, many taxpayers may find their refunds somewhat lower this year,” the IRS news release read.

The Recovery Rebate Credit was the $1,400 check authorized by the American Rescue Plan Act. The American Rescue Plan Act also expanded the Child Tax Credit, offering parents $3,600 for children under age 6 and offering $3,000 for parents of children aged 6 to 17. These amounts were per child.

Together, these two stimulus payments resulted in millions of Americans getting thousands of dollars in extra tax credits when they filed their 2021 tax returns in 2022. But, if you got used to having that big refund coming because of the stimulus checks, you are likely to be very disappointed this year when you receive much less money from the IRS since neither of these stimulus check programs was renewed in 2022.

What to do if your tax refund is a disappointment

If you were anticipating a larger refund than you get, it can be hard to cope with the financial consequences — especially if you earmarked the money for something important.

The good news is, you can find other ways to bring in extra cash for your financial goals. Some states are still planning to send out stimulus payments in the coming months and you may receive a payment depending on where you live. There are also lots of opportunities to pick up a side hustle to bring in supplementary funds.

The important thing is to heed the IRS warning, be aware your refund may be for less than you’d hoped for, and make other plans to make up for this shortfall if you were counting on the cash coming in.

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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.The Motley Fool has a disclosure policy.

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It’s not entirely about the prices. 

Although I hardly live in a remote area, I happen to be located in what I like to call a Target dead zone — meaning, there are no Target locations that are particularly close by or convenient. Because of this, most of the shopping I do at Target tends to be online. And all told, I probably shop at Target less frequently than your average consumer.

But when I do go to Target, I almost never go with the intent to buy groceries. This isn’t to say that I won’t impulse buy some stacks or grab a staple item if I’m there already. But I generally don’t visit Target for the express purpose of stocking up on food. Here’s why.

I don’t want to be tempted to buy other things

When I go to my local supermarket for food, I may be tempted to buy an extra bag of chips or some cookies that look enticing. But it’s not like I’m going to go to ShopRite and come home with throw pillows, loungewear, and a new pair of sneakers. At Target, I might.

That’s why I don’t like to shop for groceries at Target. If I go there for bread, yogurt, and pasta, I might rack up an extra $100 on my credit card due to being tempted by different items. So instead, I’ll usually only visit Target when I’m looking to purchase a toy as a birthday gift, or when I’m looking for apparel for my kids.

I’ve found cheaper alternatives for groceries

While Target tends to offer competitive prices on a host of items, including groceries, I’ve found that other stores tend to offer better prices on the specific things I tend to buy. Plus, I do a lot of my food shopping at Costco because it allows me to load up on bulk items on the cheap.

My family consumes a lot of fruits and vegetables, for example. Buying those at Target or even a regular supermarket might cost double what I pay at Costco. Similarly, we go through a lot of milk and cheese in my house. Those items are significantly cheaper at Costco.

Now, I will say that shopping at Costco, like Target, could open the door to temptation. That’s because Costco stocks way more than just groceries.

But the thing about Costco is that it’s massive, and all of its food aisles (at least at my local store) aren’t really anywhere close to where I’d find tempting items like cute apparel. Because of that, I don’t tend to make many impulse purchases at Costco that aren’t of the food variety.

And even my unplanned food buys tend to be limited to the holiday season, when Costco commonly stocks different gourmet sweets in bulk. Most of the year, I tend to largely stick to my Costco list and not stray from it.

A great store to shop in — when the circumstances align

I enjoy going to Target and browsing its aisles. But I won’t make it my go-to source for groceries because doing so is apt to cost me extra money in more ways than one. I’d rather make Target a store I visit on occasion. Trust me when I say that’s much better for my wallet.

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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 positions in Target. The Motley Fool has positions in and recommends Costco Wholesale and Target. The Motley Fool has a disclosure policy.

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Should you follow her lead? 

It’s fair to say that the past 12 months have been brutal for stock market investors. And if you’re seeing losses in your brokerage account, you’re in good company.

Now, it’s not a good idea to just broadly start dumping your stocks out of panic during periods like the one we’re in. Doing so will likely mean locking in losses.

But it could pay to unload some of your stocks, especially if you think they aren’t poised for a recovery at all. That way, you can potentially minimize your losses and also free up money to invest in other assets.

One asset you may want to consider is T-Bills. In fact, financial guru Suze Orman might say that going this route is a really smart move.

Should you invest in government-backed securities?

In a recent podcast, financial expert Suze Orman talked about the state of the stock market and announced that she sold off a bunch of stocks herself. At the same time, she decided to put her money into short-term treasuries. And you may want to do the same.

When you buy short-term treasury bills, or T-Bills, you’re buying debt obligations that are backed by the U.S. government itself. And that means you’re really taking on very little risk.

When you buy stocks, there’s no guarantee you won’t lose money — and quickly, depending on how the companies behind them perform or what market conditions look like. But because T-Bills are backed by the full faith and credit of the U.S. government, you can rest assured you’ll be paid when you’re supposed to.

Many bonds work by paying you interest at different intervals. T-Bills work a little differently. When you buy T-Bills, you pay less than their face value, but then get their face value once they mature. As an example, you might buy $1,000 of T-Bills for $960. So if you then get paid $1,000 once your T-Bills mature, you’ve made $40.

T-Bills are generally sold in $1,000 increments. And you can buy them via the U.S. Treasury directly. T-Bills also have a maturity date of one year or less, and generally, the longer the maturity date, the more money you can make.

Are T-Bills right for you?

A lot of people are skittish about investing their money given the state of the stock market, and also given general economic uncertainty. Inflation and recession fears may be messing with a lot of people’s minds and making them worry about taking on risk in their portfolios.

If you’re not keen on buying stocks right now, you may want to look at T-Bills as a safer alternative that won’t cause you to lose sleep. This isn’t to say you should go and put all of your money into T-Bills. But if you were to invest a portion, it might serve you well.

That said, because T-Bills are a short-term investment, they could create a short-term tax liability for you. You may want to talk to a tax professional and get their input before moving forward with a purchase.

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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.The Motley Fool has a disclosure policy.

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