Personal Finance Interview on Managing Debt with Preston L. Cochrane
Believe in Your Future is a multi-faceted campaign developed by the Utah Council on Financial and Economic Education (UCFEE) to promote financial knowledge and economic education.
At the heart of the campaign is the Believe in Your Future website. The site is designed to give all Utahns access to reliable information and trusted local resources to assist them with a wide variety of money-related issues that may arise over the course of their lives, whether it is getting out of debt, looking for a job, saving for college or retirement, or buying a car or home.
We decided to chat to Preston L. Cochrane from Believe in Your Future to get a better idea of the campaign and some ideas on managing debt.
Tell us about your mascot.
Our mascot is Dollar Bill, a trusted friend and guide who can help you navigate the tricky world of personal finance by providing free unbiased financial advice and guidance you can believe in. The Believe in Your Future campaign works to provide easy access to financial education programs and support, reinforce positive financial behaviors such as saving, budgeting, and wise spending, and embed financial education into all aspects of a person's life.
What is your recommended debt pay-off method?
When it comes to working through financial difficulties and eliminating debt, there is no one-size-fits-all solution. Each individual's situation and circumstances are unique, therefore requiring that the appropriate option or solution meet their individual needs.
When it comes to debt elimination strategies, there are various opinions and self-directed strategies of how to do it. For some, the "debt-snowball" method of debt repayment whereby extra cash is dedicated to paying debts with the smallest remaining balance owed. As each smaller debt is repaid in full, the money used to pay that debt is then applied toward making additional payments on the next-smallest debt. This goes on until all debts are repaid. This method has gained more recognition because it is the primary debt-reduction method taught by many financial experts.
Other financial and wealth advisors believe the "debt-ladder" approach is the most efficient method to becoming debt-free in the fastest way possible. This method focuses in listing your debts in order from largest to smallest interest rate and putting any extra funds toward the account with the highest interest rate. By following this strategy, you ultimately minimize the amount of interest paid which means you'll save more money over time.
Unlike the debt-snowball method, if you expect quick results and easily get frustrated, the ladder method may cause discouragement. The debt-snowball method works well for small accounts, like retail credit cards, whereas the debt-ladder method works well for larger accounts like student loans, which take longer to pay off. If your credit score is a primary concern, focusing your energy on paying down credit card debt that has reached the credit limit may give your score a boost since debt utilization ratios play a significant factor in determining credit scores.
Those who have fallen behind on their bills should consider contacting a reputable non-profit credit counseling agency to help them create a budget and determine if participating in a debt management program is right for them. Our philosophy of getting out of debt is to first create a realistic budget to know exactly how much money you're spending and identify alternate ways to save in order to apply as much money as possible towards your debt elimination plan.
Those who have fallen behind with their financial obligations should consider contacting a reputable nonprofit credit counseling agency to discuss what options are available to help them get back on track with their creditors. Call 2-1-1 to be connected with a credit counseling agency in your area.
Why do you think so many people get into unnecessary debt these days?
There are a variety of factors driving people into debt. The most common causes of financial trouble financial counselors at AAA Fair Credit Foundation see on a regular basis when counseling individuals and couples stem from life events (accidents/illness, job loss, divorce, death, lawsuits, natural disasters), lack of financial literacy, psychological factors (impulse buying, addictions, advertising), and income stagnation. By far, the most common reasons people find themselves in debt are because of car/home repairs, medical expenses and job loss. Many households rely on credit cards to pay for basic living expenses (rent, mortgage, utilities) or to deal with unexpected financial emergencies.
Having a major emergency can quickly deplete even a well maintained savings cushion and force families into relying on credit to get by. If we are strictly talking unnecessary debt, it all comes down to wants versus needs. People simply want to keep up with the "Jones's."
What would you say is more important: A job you don't enjoy, with a stable income, or a job you love with a rocky income?
Stable income at a job you do not enjoy. However, you should never give up looking or improving yourself to find that job you are looking for. If you can't plan to live with the potential of an inconsistent income and prepare in advance for times when your income is lower, then you should probably choose a job with steady income over a job that's more enjoyable to you. When you are dealing with uncertainty, and whether you are going to make any money from your passion at this point is definitely an uncertainty, you act. You don't think about what might happen, or try to predict the outcome, or plan for every contingency. You take a small step toward making it a reality, and you see what happens. Who knows? Even the smallest step can change everything. After all, who knew you could make huge money by figuring out a way to connect all your friends (Facebook)?
How do sites like Mint, in your opinion, help people manage their money better?
Sites like Mint.com give people free access to real-time information and options for managing their money successfully. Once set up, it does the work of organizing and categorizing your spending for you and even suggests ways to save. Setting up automatic bill reminders will help you avoid costly late fees and potential damage to your credit rating and credit scores which could end up costing you thousands of dollars in the long run. Different people are motivated by different things, so it's important that consumers have access to a wide variety of quality tools to help them achieve financial success. The Mint online community provides a wealth of articles, tips, support, and resources to help you achieve financial success.
People are generally the most receptive to financial education and support at "teachable moments" when the information is especially applicable to their lives: Getting married, preparing income taxes, adopting or giving birth to a child, entering college, buying a home, risk of losing home, applying for a loan, when in need of credit repair, or when recovering from bankruptcy.
How can people pay off their student loans quicker?
The easiest way to pay off your student loans faster is to simply pay more each month. Of course, it's difficult to pay more if you don't have the money in the first place. One way to obtain extra income is to take up side jobs or freelance work using a special skill or talent you have.
Another method is to make bi-weekly payments. That means you end up paying 26 bi-monthly payments (the equivalent of 13 monthly payments) per year.
Most student loan lenders offer interest rate deductions (usually 0.25 percent) for people who set up direct deposit. Unless you arrange for a different repayment schedule with your loan servicer, the standard repayment schedule is 120 months (10 years). If you are financially able to do so, it may make sense for you to pay off your student loans early. Generally there are no penalties involved in paying off your student loans early. Sometimes when you pay more than your minimum payment, your lender will credit the amount against a future payment rather than apply it toward your loan balance. If you plan to pay more than your minimum monthly payment, you can instruct your lender or servicer to credit the payment against the principal.
If someone with student loans can't afford to pay more than their minimum payment, they can look into loan forgiveness options, or employment options in public service with benefits for receiving student loan forgiveness.
Take better control of your spending by limiting eating out at restaurants and indulging in activities that will prolong a lifestyle of indebtedness. No matter what else you do, it's critical to stick to a budget. Without a budget, you will have no clue where your money is going.
Can we all build wealth by just saving?
Anyone can build wealth by saving. Wealth building can mean more than just earning a bigger paycheck. It also means knowing how to save more effectively, and how to use the money you've already saved to work for you. One of the most important things you can learn in life is how to save money. You can't begin to save unless you know where your money is going. It's the first step to getting where you want to be. Anyone can do it. You just have to put your mind to it. Once you start, it gets easier and easier and before you know it, you're on your way to making your dreams a reality. Set a savings goal and make a plan to save by taking the America Saves pledge today. Click here to take the America Saves pledge.
Do you have any books you recommend that help inspire and provide tools for managing our money better?
- Raising Money Smart Kids by Janet Bodnar
- Tips from the Top: Targeted Advice from America's Top Money Minds by Edie Milligan
- Think & Grow Rich by Napolean Hill
- The Richest Man in Babylon by George Clason
- A Penny Saved by Neale S. Godfrey
- The Millionaire Next Door by William Danko
You can also like the Believe in Your Future Facebook page or follow Believe in Your Future on Twitter.