How to Improve Your Credit Score by Focusing on Payment History and Reducing Credit Card Debt

Credit ScoreOne of the things that many consumers are obsessed with today is a better credit score. After all, your credit score influences more than whether or not you qualify for a mortgage, or whether you get the best interest rate on an auto loan. Your credit score can also impact the insurance premium you pay, or what happens when you sign up for cell phone service.

There are all sorts of “tricks” out there for improving your credit score, but really it just boils down to a couple of basics:

  1. Manage your payment history
  2. Pay down credit card debt

If you make payments on time and pay down your credit card debt, you will likely have a decent enough credit score to accomplish just about anything you want.

Payment History and Your Credit Score

Most credit scoring models heavily weight your payment history. “Payment history accounts for 35 percent of a consumer’s FICO credit scores,” says Michelle Black, a credit expert at HOPE4USA.com, a credit education and restoration program.

This means that if you want to get off to a good start, you need to make your payments on time. If you make all of your loan payments on time, they will be reported positively to the credit bureaus. Missing a payment, or paying late, can mean a lower score. The longer you miss payments, or the more late payments you have, the bigger the effect on your score. One late payment isn’t going to be the end of the world, but there is a cumulative effect once you start piling up the late payments and missed payments.

Even your non-credit payments can impact your credit score. While making your utility payments on time won’t have a net benefit to your score, missing your payments can be negative. Your company can report the missed payments to the bureau, or turn your account over to collections, which is viewed negatively and can drag on your score.

Credit Card Debt

However, it’s important to note that the amount of your credit card debt can also have a big impact. Credit utilization accounts for about 30 percent of your FICO score, and if you have a high ratio of credit used to your available balance, it can mean a disappointing score, even if you make your payments on time.

“Paying down credit card debt is the single most actionable way for a consumer to see an improvement in their credit scores,” says Black.

Many credit experts suggest that you keep your revolving credit card utilization to less than 50 percent – and it’s ideal if you can keep it to less than 30 percent. This means that if you have available credit lines on your cards amounting to $5,000, you should try to keep the amount that you carry to $2,500 (50 percent), or to $1,500 (30 percent). If you want to see a solid improvement in your credit score, paying down high credit card balances can be one of the most effective ways to go about it.

In any case, maintaining a good credit score isn’t about sudden moves. Over time, you are likely to see the best results if you practice good financial habits, keeping your revolving credit balances relatively low, and making sure that you make your credit payments, and other bill payments, on time.

Do you need to improve your credit score? How are you going to go about doing so? Leave a comment!


How to Avoid Double Closing When Buying a House and Selling Another

Double ClosingIf you’ve ever been involved in a real estate transaction before, you’re probably familiar with the term double closing. That’s an arrangement where you buy a new home on the very same day that you sell your old one. In a perfect world, you close on your old house in the morning, and then on the new house in the afternoon.

Sometimes that arrangement actually works. Other times it’s enormously stressful. If you’ve ever been involved in the stressful kind of double closing, then you know why it’s something to be avoided at all costs. If you have two closings scheduled for one day, and the first one doesn’t happen, the second one won’t either. And because of the lack of time separating the two closings, there won’t be an opportunity to fix whatever went wrong with the first closing in order to make the second one happen.

Close on the Old House First

Most people try to work a double closing because they need to sell the old house before they close on the new one. Typically, they need the proceeds from the first sale in order to pay for the purchase of the new home. In addition, the mortgage lender is probably requiring the sale of the first property in order for you to qualify for the mortgage on the new home.

Beyond these basic requirements, you probably would be thinking that if you could close on both properties on the same day, you would avoid the need to stay at a hotel and have your belongings in remote storage in between closings. But sometimes that’s exactly what you need to do.

If the purchase of your new home is contingent upon the sale of your current one – whether you need the proceeds for the down payment on a new one, or the lender is requiring the sale – you need to make a priority of selling your old home first. The purchase of the new home won’t happen if you don’t.

Selling a house is almost always more difficult than buying a new one. That’s because you are at the mercy of finding a willing buyer, and their timeframe after you find one. When you’re buying a home, you have more control of the timing factor.

If it’s at all possible, you should concentrate first on selling your current home. Once you do, you’ll know exactly how much cash you’ll have for the down payment, and you will have removed the old obligation, enabling you to more easily qualify for the mortgage on the new home.

In addition, trying to work two real estate transactions at the same time – and closing on the same day – is enormously stressful. A problem with one translates into an automatic issue with the other.

Take a Short-Term Lease on the Old House After Closing

Okay, you decide you’re going to sell your old house before buying a new one. What do you do in the meantime – and how much will it cost you?

One strategy that you can use to avoid a double move, is to sell your house and then lease it back from the buyers for the next 30 days or so.

You’ll have to pay an agreed upon monthly rent – but then if you still own the property you would have a house payment anyway. It’s a matter of paying rent, rather than your regular mortgage payment. Meanwhile, you won’t have to move your furniture into a storage unit anywhere.

Armed with the cash from the sale of the house, you’ll be in a position to more easily purchase a new one. Just as important, home sellers love when buyers don’t have the contingency of having to sell their current home.

In a real way, closing on your current home and renting it for time will make you a more attractive buyer for the home that you want to buy.

Take a Short-Term Lease on the New House After Closing on the Old House

This is reversing the situation described above. You close on your old home, then move into the new one – complete with your furniture – pending the closing at a later date. You’ll have to pay rent to the seller, but again this just replaces the payment you have on your old home.

This isn’t possible to do in all cases, but the seller may appreciate the fact that you are a “clean buyer,” by virtue of the fact that you have sold your old home, and are fully ready to close on the new one.

Naturally, you’ll want to make sure that you have a solid pre-approval on your new mortgage before getting into this type of arrangement. That, in addition to the fact your old home is been sold, will make you a very desirable candidate for this type of arrangement.

Stay at a Hotel for a Few Days While Your Stuff is at Either House

There’s a third way to do this that isn’t as pretty as the last two options, but it will get the job done.

You sell your house before closing on the new one, and then move into a hotel in the interim. Your furniture stays either in your old home, or is moved to the new one. And again, there may be a rental for this arrangement, but it’s likely to be far smaller than what you would pay for a remote storage facility.

If you are storing your belongings in your old home, you close on the property but get an agreement to leave your furniture in a specific part of the house, typically the garage or the basement. Once you close on the new house, you complete the move.

Alternatively, you can close on the old house, and set up an arrangement to move your belongings to the new one. Again there will be a monthly rental, but this will be easier to bring about because you sold your home and you have a mortgage pre-approval.

Selling one home and buying another is never easy. These methods of avoiding the double closing won’t be pretty, but they will help you to avoid the financial stress that comes with trying to close on two properties on the same day.

Have you ever tried these methods, or have you simply attempted the double closing? Leave a comment!


How it’s Never Too Late to Start Saving for Retirement

RetirementPeople who haven’t saved money for retirement often avoid even starting out of fear that their efforts now will be too little and too late to make a difference.

In truth, it’s never too late to start saving for retirement.

Even if the money you save will be inadequate to provide a full retirement, it still has enormous potential to improve your life when your retirement years come. Here’s how:

1. Any Retirement Savings is Better than Nothing

Think about the times in your life when you didn’t have enough money saved – when having just a few thousand dollars put away would have made all the difference in the world. Those situations won’t stop happening after you turn 65. You’ll still have emergencies, and times when money is just a little bit short. If you have some money put away you’ll be able to ride out those rough spots in relative comfort.

While it’s true that you no longer have the years that have passed, when you didn’t put any money away for retirement, you do have the present moment. The money that you save between now and the time you retire will go a long way toward improving your life, even if retirement is just a few years away.

2. You Can Take Advantage of Tax-Deferred Investment Income

There are plenty of options for saving for retirement, even if you don’t have an employer-sponsored plan. Virtually anyone – especially people without employer plans – can take advantage of having their own IRA. Just as is the case with an employer-sponsored 401(k) plan, the money that you put into an IRA is generally tax-deductible in the year you make the contribution. Best of all, income earned on those contributions will accumulate on a tax-deferred basis.

This is a powerful advantage, and one that you should be taking advantage of if you can. Let’s take a look at the power of tax-deferred savings.

Let’s say you decide to invest $5,000 each year in stocks in a non-tax sheltered investment account, earning an average of 10% per year for the next 15 years. Your combined federal and state income tax rate is 30%. Because of the tax bite, the 10% per year that you are earning on your stocks is effectively reduced to 7%.

After 15 years, the account has grown to $125,648. Not bad.

But let’s take the same numbers, but assume that you put the money into a tax-deferred IRA, giving you the full benefit of the 10% annual average investment return.

After 15 years, the account has grown to $158,867. You’ll be ahead by $33,219 just because of the tax-deferral.

A tax-deferred retirement account, such as an IRA, can give you that advantage. And for what it’s worth, in 2014 you can actually contribute $6,500 per year to an IRA if you are 50 or older.

3. Even a Small Cash Flow from Retirement Savings Can Make a Difference

Let’s use the IRA example that we used above. We’ll assume that you began saving in your IRA beginning at age 50, planning withdrawals to start at age 65. Assuming that you withdraw at a rate of 5% per year – leaving the remaining 5% in the account to grow for future use – you’d be able to withdraw $7,943 per year, or $662 per month.

Now, $662 may not seem like much of a monthly income, but if you add it to your Social Security income, and maybe an income from a part-time job, you may have enough money to live on. Even if you do nothing better than semi-retirement, that’s a lot better than not being able to retire at all.

4. It Will Help Prepare You for a Later Retirement

If you haven’t saved much for retirement, you always have the option to delay retirement, giving you an opportunity save even more money.

There are at least three advantages to doing this, and collectively they are huge:

It will give you more time to save money. Delaying your retirement from 65 to 70 could make a big difference in the amount of savings you have. Continuing our IRA example once again, if you delay retirement from 65 to 70, meaning that you will have 20 years to contribute to your IRA, rather than 15, your IRA nest egg will grow to $286,382. That’s an additional $127,515 just for waiting five years, and continuing to make yearly $5,000 contributions.

It will reduce the number of years you’ll have to withdraw funds. One of the big concerns for virtually all retirees is the prospect of outliving your money. By delaying your retirement for a few years, you reduce the prospect considerably. If at age 65 you expect to live to be 85, you’ll need to provide for yourself for 20 years. But if you delay retirement to age 70, you’ll only need to provide for yourself for 15 years. The need for savings will decline substantially.

It will increase your Social Security benefit. For most people who are close to retirement, the age of “normal retirement” is 66 or 67. Let’s say that in your case, it’s 66. If you delay your retirement to age 70, the Social Security Administration will increase your monthly benefit by 8% per year. Delaying for the full four years will increase your benefit by 32%. That’s a lot of additional income just for delaying by four years.

5. Retirement Savings Can Be Used as a Large Emergency Fund

In the financial media of today it’s popular to project the need for multimillion-dollar retirement portfolios. And maybe that’s what’s truly needed in a perfect world. But let’s say that there’s no chance you’ll ever have a seven-figure retirement portfolio. Let’s say that all you’ll have is $100,000.

That may not be enough to provide you with an income during retirement years, but it’s an extremely generous emergency fund. If you could manage to get by on Social Security income and a part-time job, you’ll have your emergency fund to pay for major expenses and to cover you in those months when cash is short.

It’s not a perfect outcome, but it’s a lot better than having no emergency fund of all.

Do you ever feel overwhelmed at the thought of saving money for retirement, to the point that you choose not to do it? Have you ever thought about the advantages listed above? Leave a comment!


The Most Important Thing You Can Do To Get Out of Debt

Get Out of DebtOne of the financial issues that seems to plague many consumers is debt. Getting out of debt can be a long, difficult road – especially if you have a lot of debt to get rid of. Before you try to pay off your debt, though, it’s important to understand that the single most important thing you can do is to stop debt spending.

Are You Really Changing Your Money Habits?

It’s a popular thing to power through your debt reduction. A dramatic debt reduction, by which you live like a pauper for a few months in order to get rid of your debt, can be an invigorating way to take care of your financial problems. Plus, you get to feel a sense of accomplishment.

While this approach can work for some consumers, the reality is that it doesn’t work for everyone. In fact, in some cases, by tackling just the debt and moving on, many people find themselves back in debt sooner than they expected. This is because, in some cases, just paying off debt doesn’t lead to a change in habits or long-term spending.

Once the debt is gone, it can be easy to fall back into original habits of debt spending. Instead of just taking care of the debt problem, it’s important to understand the underlying cause of your debt, and to stop the spending mentality that got you there in the first place.

Fixing Your Financial Outlook

In order to be truly successful in the long-term, you need to stop your debt spending. It seems obvious at first glance. However, many people go right back to the same habits they had before once the debt is paid off. This means that they have’t really changed their outlook on money. Within months, debt spending is being practiced again, and the emergency fund is being depleted.

Rather than tackling debt wholesale to begin with, the first step to long-term success at remaining debt-free is to change the way you view money and spend it. You need to stop digging the hole. Start cutting your budget, and earning more money. Get used to living a different lifestyle – one that you can maintain after you’ve paid off your debt.

Once you are used to your different lifestyle, and once you have stopped the debt spending, you can begin your debt reduction plan. By changing your financial habits before you start your debt reduction plan, you have a better chance of sticking to the changes when the debt is paid off.

It’s too tempting to view having your debt paid off as the end of the story, and as a sign of success. The reality is that long-term financial freedom requires that you get used to prioritizing and making choices about spending all the time, and not just when you are trying to pay off debt. Get used to this mindset before you start paying down debt, and you will be better able to stay out of debt once you get your loans paid off.

Are you ready to stop debt spending? Why or why not? Leave a comment!


How to Use Peer-to-Peer Sites to Borrow Money from Friends and Family After a Layoff

peer-to-peer lendingBorrowing is never recommended after a layoff. But sometimes you have to do what you have to do.

There are a lot of not-so-smart ways to borrow money, particularly when you are in desperate need of funds.

Title loans certainly come to mind. But there’s a high risk of losing your car in the process, not the least of which because you don’t have a job to repay the loan.

You can also turn to credit cards. After all, you can use the credit lines without having to qualify based on your income or credit, so the whole process is pretty much effortless. The ease of accessing money for credit lines is also the built-in problem. Once you get started, when do you stop? Tapping credit cards for cash can create a vicious cycle that continues until you’re unable to repay the loans. Worse, cash advances on credit cards generally carry higher interest rates than for purchases.

Loan salvation these days is increasingly coming from peer-to-peer sites, that enable you to borrow money while bypassing the banks. The loans also typically come with both fixed rates and payments, making the repayment process totally predictable. Best of all, you may be able to arrange a loan from family or friends through a peer-to-peer lending site.

Borrowing should be avoided at all costs if you have been laid off from your job. But if you absolutely need a loan, peer-to-peer sites may be the best way to do it – even if the proceeds for the loan ultimately will come from family and friends.

When You Can’t Get a Loan from the Bank . . .

The inherent problem with getting a loan from a bank – other than existing credit lines – is that you can’t qualify because you don’t have a job. That limits your options, no matter where you want to borrow money.

But peer-to-peer lending sites offer the opportunity to match the lender with the borrower. If you need to borrow money, and a family member is prepared to lend it, you can meet on a peer-to-peer lending site and make it happen. The sites offer the opportunity to formalize the loan process, and that has a number of advantages to both parties.

Why You May Want to Formalize the Loan Process with Family or Friends

From a borrower standpoint, one of the biggest problems with getting direct loans from friends and family is that it can very easily lead to misunderstandings. You might borrow money with the intention that you’ll begin repayment once you regain employment. But the friend or family member making the loan might expect repayment to begin immediately.

In either case, any time expectations are not met in a loan situation between family and friends, misunderstandings can develop. And when you do business with family and friends, the potential damage from the fallout of a loan agreement can go well beyond money. You risk permanent damage to a very important relationship. Formalizing the loan arrangement can help prevent the type of misunderstandings that cause problems in the first place.

You and your “lender” can work out whatever terms are agreeable to all parties. There is no bank process to go through since the lenders – your family or friends – choose the terms that are acceptable to them. And once settled, there is an agreement with a repayment term that includes the interest rate and monthly payment.

Another advantage comes when you’re looking to borrow a single loan from several different friends or family members. A peer-to-peer lending site could enable you to create a single loan in which you are the lone borrower, but there is more than one friend or family member acting as lenders.

Why Friends and Family May Want to Formalize the Loan Process

Family and friends making loans face a double risk in doing so. Not only is there the same risk of permanently damaging an important relationship – just as you as the borrower would face – but they also risk the potential of losing some or all of the money that they provided for the loan.

For this reason, they may prefer formalizing the loan agreement through a third-party source, such as a peer-to-peer lending site. Sure, you could all sit down and hash out a formal loan agreement, using a standard loan agreement forms. But unless someone in the group is a lawyer, doing it that way may be completely un-enforceable in court.

Repayment of the loan through a peer-to-peer lending site does not guarantee that the loan will be paid, but it does create the proper framework that will prevent misunderstandings, and maximize the lender’s ability to be repaid their money with interest.

There is another reason why family and friends may prefer to use a peer-to-peer lending site to formalize making a loan to you. Under IRS regulations, the transfer of funds from one person to another exceeding $14,000 could be construed as a non-repayable gift. That could create a gift tax liability for the lender, particularly if you fail to repay the loan.

Setting up a loan through a peer-to-peer lending site would provide an acceptable paper trail that would prevent the IRS from re-classifying the loan as a taxable gift.

Using Peer-to-Peer Lending Sites

How do you use peer-to-peer lending sites to create a loan from family and friends? If you need to borrow money, you can go to a peer-to-peer lending site and create a loan listing on that site. This would establish the amount of money that you’re looking to borrow and the terms you’re willing to accept. The friend or family member could go to the site and accept the terms, or even propose modifications. Once you’re both in agreement, the loan can be created.

There are now dozens of peer-to-peer lending sites available. Some of the more popular ones include Prosper and Lending Club. One of the complications with Lending Club is that they run their loans through WebBank, so the process is likely to be more formal, though it’s still worth checking out.

If you’re looking to do a larger loan amount, particularly one that will be secured by your primary residence, you could also check out National Family Mortgage. As the name implies, they are in the business of creating peer-to-peer mortgages between family members.

Once again, if you have been laid off from your job, borrowing money should only be a last resort and only in case of emergency. Your first priority should be to create additional income sources in combination with lowering your living expenses. But failing that – and when borrowing is absolutely necessary – peer-to-peer lending sites could be the way to go.

What do you think about peer-to-peer lending sites? Are you going to try one? Leave a comment!


Should You Take Advantage of COBRA After a Layoff?

COBRA after LayoffNext to the loss of your income, the biggest concern you’ll probably have following a layoff is the prospect of losing your health insurance.

This is a rational concern.

Not only will you not have sufficient income to deal with medical events, but the very fact that you’re unemployed can make you more vulnerable to accidents, injuries, and certain types of illnesses. For these reasons, you’ll want to do whatever you can to make sure you have at least some type of health insurance in place during your time of unemployment.

The most common form of health insurance following a layoff is through COBRA. This is an extension of health insurance coverage that large employers are required to make available to their employees following separation.

What is COBRA?

COBRA is a federal law passed in 1985. It stands for Consolidated Omnibus Reconciliation Act of 1985. It is a law that requires employers to offer health insurance coverage to former employees under certain circumstances – that includes layoffs.

COBRA covers employee and/or their dependents under the following circumstances:

  1. Death of the employee
  2. Separation/termination for any reason except gross misconduct
  3. Divorce or legal separation – benefits extended to an ex-spouse
  4. Continuation of coverage for dependent children who reach the age at which they’re no longer covered

Under COBRA, health insurance benefits under an employer’s group plan are made available to the employee and the employee’s family for a period of up to 18 months. However, if you are deemed to be disabled – by the Social Security Administration – the coverage can be extended up to 29 months. And in the event of divorce, or the death of the employee, coverage may continue for up to 36 months.

Why COBRA May Be a Good Option for You

There are solid reasons for accepting COBRA coverage in the event of a layoff. The continuation of your existing health insurance plan is one. It will provide you with complete continuity in regard to providers, at agreed-upon benefit levels even after your layoff. In effect, it will mean business as usual for you and your family, at least in regard to health insurance.

Along the same line, if you opt to take the COBRA plan, there’ll be no break in your health insurance coverage. That can be especially important if an illness or injury occurs shortly after your regular employer-sponsored health insurance terminates. That will be the last thing you will need on a greatly reduced income.

It will also avoid the necessity of shopping around for a new plan. And when you’re dealing with a layoff, you need to keep your time and your mind free to focus on the job search. Looking for the right health insurance plan can be a distraction that you don’t need right now.

Why You May Want to Pass on COBRA for Other Options

Unfortunately, COBRA is not necessarily the best deal you will get in regard to health insurance. Cost is probably the most prohibitive factor. While you’re an employee, it’s very likely that your employer paid a large amount of your monthly health insurance premium – they may have even paid most of it. But once you are separated, you’ll have to pay the entire monthly premium: your portion and the employer contribution.

In addition, the administrator of the COBRA plan can mark the premium up with an administrative fee, typically adding something on the order of 15% to the monthly premium. This is the primary reason why people opt out of COBRA – they simply can’t afford it following a layoff.

One of the basic limitations of COBRA is that it is a temporary health insurance plan. As stated above, the policy will only remain in force for up to 18 months in most cases. After that, you’ll either have to replace it with a new employer-sponsored plan or get a private policy.

If your future involves working for an employer that does not provide health insurance, or if you decide to become self-employed, you will need to find a replacement policy for your COBRA plan within 18 months. That can delay your problem without solving it on a permanent basis.

Going with Obamacare Instead

Since the passing of the Affordable Care Act (Obamacare), the options in regard to health insurance policies have slimmed considerably. Gone are the days when you could take a catastrophic health insurance plan, with high deductibles and low premiums, just to get you through a stretch of unemployment. You’ll have to fit into one of the Obamacare plans – Bronze, Silver, Gold or Platinum – with whatever premiums and limitations each has.

However, there may be advantages to having this option. One of the biggest reasons why people were forced into COBRA in the past was the presence of pre-existing conditions. Obamacare has done away with pre-existing conditions, which means you are virtually guaranteed approval and can not be charged higher premiums. The only factors that a health insurance company can adjust your premiums on are geographic location, your age, and whether or not you are a smoker.

With the elimination of pre-existing conditions, applying for a policy is also easier than it’s ever been. The application process can generally be completed on the phone, in not more than 10 or 15 minutes, and you’ll be asked no more than a half-dozen questions.

Since COBRA is generally offered to the separated employee several weeks after a layoff, you should investigate your options under Obamacare as soon as possible. Once you know what your premiums will be under that plan, you’ll be in a position to judge whether or not COBRA is the right plan for you.

What do you think about COBRA in light of recent changes to healthcare options? Leave a comment!


How to Convert Employer-Paid Insurance to an Individual Policy Upon Layoff

Health InsuranceAfter you experience a layoff, there is a provision in federal law – known as COBRA – that will enable you to retain your employer-sponsored health insurance plan for up to 18 months or longer.

But health insurance is hardly the only type of insurance coverage that you may have with your employer. There are other types of policies that you may have had through your employer, and you may wish to continue them after you’ve been separated.

Unfortunately, other types of employer-sponsored insurance plans are not dealt with the way health insurance plans are under COBRA. In fact, it’s pretty much a mixed bag as to whether or not you will be able to continue with the various employer-sponsored insurance plans after a layoff. We’ll discuss some of these individually.

What we won’t cover is employer-sponsored health insurance itself. That is covered under COBRA, but since it’s a major topic all by itself, we’ll write about it in a separate article.

What are some of the other employer-sponsored health insurance plans that you may want to convert to private plans upon layoff?

Life Insurance

Next to health insurance, employer-sponsored life insurance is probably the coverage type that is of most concern to most people facing a layoff. This is particularly true if your employer-paid plan is either the only life insurance that you have, or the single largest policy that you have.

While it may be tempting to simply forgo life insurance coverage during a layoff as a way of saving money, this is probably the worst strategy imaginable. Life can become more confusing and stressful when you’re out of work than it was when you were fully employed. You may be more at risk of early death from either accident or illness. Just as is the case with your health insurance, you’ll want to make sure that you have an adequate amount of life insurance even though you don’t have a job.

As far as converting an employer-sponsored group life insurance policy to an individual policy, that will depend upon your former employer and the plan they had place. In order for you to be able to have conversion privileges on your life insurance plan, the group plan has to have a conversion provision for that to happen.

The conversion provision allows a separated employee to convert their life insurance coverage to a private plan, and it usually does not require you to undergo a medical examination. This can be important – if you have any kind of health conditions you may not be able to obtain private life insurance. Or even if you can, it may be with premium rates that are prohibitive. The ability to convert your group plan to an individual one will likely be the best life insurance deal you’ll get.

Even so, the premium that you will pay on the converted group plan will be based upon your age at the time of conversion. That was not the case when you initially signed up for the group plan, but now that you are out of the group, age will be a factor.

In addition, the conversion plan may require that the policy be converted from a term policy to whole life. Generally speaking, that will result in higher premiums than what the plan would have been if it was allowed to remain term. And since you will have exited the group, your premiums will be based on individual rates, not the lower-cost group rates.

As is the case with all converted insurance policies, you’ll be required to fill out relevant paperwork, and to begin making your premium payments in advance of conversion.

Short-Term Disability

The news on a short-term disability plan through an employer is a lot more confusing. Again, the ability to convert it to a private plan will depend upon the arrangement that is included in the group policy for the employer.

One of the complications specific to a layoff is that since you are no longer earning any money, the necessity of short-term disability doesn’t really exist. There will be no income to replace in the event you become disabled. That will likely make short-term disablity unnecessary.

Accidental Death and Dismemberment (AD&D)

AD&D is one of those lesser understood insurance policies, but one with a very specific intent. These policies pay benefits upon one of two situations:

  1. Accidental death – typically within three months of the accidental cause, and
  2. Dismemberment – this is usually the loss of one or more limbs, or eyesight

In regard to dismemberment, the policy will usually pay the full benefit amount upon the loss of both legs, or both arms, or the loss of sight in both eyes. Generally speaking, it will pay 50% of the face amount in the event a single limb is lost, or eyesight in just one eye is gone.

Once again, your ability to convert an employer plan to an individual one will depend upon the way your employer set up the plan, as well as the insurance company itself. Some will allow you to convert your AD&D plan without medical certification, and most will restrict coverage to people under age 70.

Supplemental Health Insurance

Supplemental health insurance is coverage related to certain very specific illnesses or accidents, such as cancer, heart disease or types of disability related to accidents. They’re not health insurance in the traditional sense, but rather supplements that pay you a flat amount of money upon the incidence of the covered event. It can be excellent insurance to have, particularly if you have been laid off. It will provide you with extra cash that you will need to cover health insurance deductibles, as well as additional expenses that may result from your accident or illness.

Best of all, it pays benefits direct to you, rather than to the healthcare provider.

AFLAC is the most common provider of supplemental health insurance. If your plan is through AFLAC, you may be able to convert directly from your employer plan to an individual policy, depending upon how the plan has been set up between your employer and AFLAC. Even if there is no conversion provision, AFLAC will allow you to take an individual policy.

There other insurance companies that provide AD&D coverage, and how you will manage the conversion will depend upon the employer policy  and the conversion provision that may or may not be spelled out in the plan.

Which type of insurance are you looking to convert? Have you converted your insurance before? Leave a comment!


How to Convert Your Layoff Into the Opportunity of a Lifetime

LayoffA layoff typically comes as a complete surprise. When it hits, you might even be in for a bit of a shock. There’s usually a combination of hurt, anger, fear, and anxiety. But once the initial shock wears off, you might want to try to apply a little bit of positive energy to the situation.

No, a layoff is not a happy event. But while we can’t control what happens to us, we can certainly change the way we deal with it. At a time like this, it might be best to step back and do some reflecting. Are there any reasons why this layoff could possibly be a positive development?

I can actually think of a few situations where it could be.

1. You Could Get Out of a Job Where You Might Have Been Stagnating

Have you ever known or heard of someone who was laid off and actually felt relieved? I realize that might be a counterintuitive reaction, but having experienced a couple of job losses myself, I can report that it can actually be a very positive development.

While it’s true that you probably need your job as a means of survival, there are plenty of employment situations that are something much less than a happy marriage. For example, you could have been working for a boss who demanded more than you could give. You might have had one or more coworkers who were making your life miserable. The company may have set goals and expectations that were not doable. You may have been passed over for promotion. Or you may have been stuck in a job that just didn’t fit your skills and preferences.

The loss of that kind of job is often a mixed bag. Sure, you’re worried about losing the paycheck. But the other stuff – the things that made your life miserable on the job – you’re more than happy to say goodbye to.

Sometimes we find ourselves working in a job that truly isn’t a good fit, but we feel too insecure to leave (that’s actually a negative mindset that can be nurtured by a bad job situation). We know that we should leave, but don’t take the initiative. But then circumstances develop that make the decision for us.

That’s not always an unhappy outcome. If that is your situation, embrace it for all it’s worth. You’re getting out of a painful situation, and that will clear the path for you to seek a better one.

2. It Could Be a Chance to Make a Career Change

As much as we may not want to admit this, sometimes a layoff is completely our own fault. Let me explain.

Many times, people find themselves working in jobs and careers that don’t really work for them on any number of levels. They may have gotten into the field because of parental pressure, a lack of direction early in life, or even by accident. However they landed in the job, it’s never really been a good fit. As the years pass, they gradually, quietly burn out, until they are no longer effective in their work.

That’s when – and why – a layoff hits. We can only pretend for so long, but eventually it becomes obvious. Your boss and your coworkers become painfully aware that you are not the right person for the job. It may not even be anything specific that you are doing or not doing – you simply might not be bringing the right energy and enthusiasm to the job.

If you even suspect that this may have been a factor in the loss of your job, you should greet your layoff as an opportunity to make a career change. Yes, it’s scary to make a change as big as one that involves your occupation, but you will never arrive in a career that you are meant to be in if you don’t.

Instead of agonizing over the events that led up to your job loss, do some soul-searching. Ask yourself if you even liked that job, and that field – and be completely honest in your answer. It could even provide some clues about your future direction.

The layoff should always be viewed as a career break more than anything else. It gives you a chance to step back and reflect on where you’ve been, and whether or not your work is actually working for you. If it’s not, it may be time to fill your hours figuring out what you should do for your next career.

3. It Could Be an Opportunity to Start Your Own Business

Some people do very well working in an organization. They thrive with a set schedule, management oversight, a daily work agenda, and the support that working with others brings. Others however feel constrained in the same environment. If you felt this way for a while, you may be one of those people who is just cut out to be self-employed.

How can you know if you’re an entrepreneurial person? Here are some clues:

  • You work well independently – in fact, you even prefer to work that way
  • You’re the “go-to-person” – when management really needs to get the job done, they come to you
  • You’re a born crisis manager – when there’s trouble, your coworkers are at your desk
  • You have above average people skills
  • You work in some area of production, and you’re better than average at it
  • You have a natural desire to do more than the minimum required
  • You have the absurd notion that you can actually make things better in your department or company

If you have at least three or four of these traits, being self-employed might be in your blood. Be open to the possibility of becoming self-employed. Your layoff will be opening that door in your life.

4. It’s a Chance to Clear Your Head

Remember back when you were in school, and you had that extended summer vacation every year – the one that lasted for two or three months? It was a welcome break between school years, wasn’t it?

How many chances do you get to take that kind of break in adult life?

A layoff may provide just that opportunity. It may not be good for your finances, but it can be exactly what you need on an emotional, spiritual, and even physical level.

Sometimes you just get burned out – we all do. This is an opportunity to clear your head, to get some rest, to do some experimenting, and to prepare yourself for the next push forward in your life. By doing this, you can actually convert a layoff into a positive experience. You may even find that you come out of your layoff in better shape than you went in. That’s one of the possibilities that could come from a layoff – if you allow it to happen. And it should always be the objective in managing your layoff.

Have you ever lost a job and later realized that it was one of the best things that ever happened to you? Leave a comment!


Would You Take a Career Sabbatical?

Should YOU Take a Career Sabbatical?In the last few years, there has been a lot of attention given to the idea of lifestyle design. As part of this attention, more people are taking career sabbaticals or embarking on “mini retirements.”

The idea is that you don’t have to work for thirty or forty years, only to try and retire for another twenty or thirty years, while your health might be in decline. Instead, the idea is to work for a few years, and then take extended time off for a year or two before going back to work.

To a certain extent, this is something that has been somewhat common in the academic world. My husband is a college professor, and he has colleagues that go on sabbatical to further their research, write books, or engage in other activities.

These days, though, you don’t have to be in academia to take a break from your job. If you plan it right, you can take a sabbatical from almost any job, and get back into things after you’ve had a break.

How Long is Your Break?

Your first job is to figure out how long you want your break to last. Some workers choose to take as little as six months off, while others might go on sabbatical for as many as five years.

How long your break lasts depends largely on whether or not you have the financial resources to make it happen, as well as what you plan to do when you are ready to return to work. In some cases, your employer might be willing to allow you to leave work for one or two months and then come back to your job, but you might not be able to stay away for a year.

You also might not have the financial resources to take a long sabbatical. Instead, you might have to limit your break to the size of your bank account.

Will You Earn Money While on Sabbatical?

Of course, you can augment your financial resources with income, depending on what you do while on your break. Perhaps you want to act as a consultant while you are taking your mini retirement or while you start a side business. Earning money while you are taking your mini retirement can help you extend it, and it can also provide you with a “resume filler” to use if you don’t want it to look like you’ve had a long break in your work history.

Do You Plan to Return to the Same Career Field?

Another consideration is whether or not you plan to return to the same career field. Perhaps part of your sabbatical involves retraining so you can start a new career. If you take a long break, you will probably have to find a new job regardless of whether or not you change career fields. Carefully consider the logistics of this before you make your choice.

In the end, a sabbatical can provide you with a way to enjoy your life now, during your healthy working years. If you have to work longer later, it isn’t as bothersome if you’ve had the chance to take mini retirements along the way.

So, would you take a career sabbatical? How do you think you might benefit? Leave a comment!


How To Live With No Regrets

Live With No RegretsIf you had to summarize everything you know about money into one sentence, could you do it? Just a few months ago I wouldn’t have been able to but now I can. In fact I can boil it down into just two words – No Regrets

If you’re a stickler for finance I know you may not agree with this tip. I can understand why you might read it with some skepticism. Until this last May I would have felt the same way about what I am going to say.

In fact, part of me thinks I shouldn’t even waste your time trying to convince you of its importance. As a parent, I’ve seen how people don’t really believe the advice you’ve given until they do the opposite and suffer the consequences.

It doesn’t matter if you’re 8 or 48, the only way you really learn is through experience. So I know that you’ll probably read what I’m about to share, maybe file it away or just blow it off, and go on with your day.

This Changed My Life

Whether it helps you or not I feel obligated and compelled to share this with you because it’s changed my life. If a red flag just went up in your mind because you’ve heard about so many “life changing” experiences, I understand. I really shouldn’t even use that term because of the skepticism it can trigger but I’m sticking with it because it’s accurate.

Not only has it changed what I do in my day to day life but also how I think about life and how I experience it. I won’t go into detail about what happened to me and why I feel so strongly about this tip because it doesn’t really matter. It’s not about what happened; it’s about what I learned.

Sharing What I Learned

This is really about you, not about me. I had a nightmarish time in my life last May but in hindsight it taught me a lesson I probably wouldn’t have learned otherwise. I’ve had the benefit of an Ebenezer Scrooge type experience, now I want to pass the insight I gained onto you.

So I’ll just say that I didn’t think I’d be around to see my kid’s next birthday and leave it at that. Experiences like those send your mind into places you’ve probably never explored before. As I lay there wrestling with these fears night after night my brain always ended up sliding back into the same heart breaking place. A giant cauldron of regret. My every waking action simmered in an ever-present, ever-growing feeling of regret and remorse.

That is why my tip to you is simple but vitally important – Live With No Regrets

I know it’s not an actionable tip, you can’t take it to the bank. It’s not going to help you save $500 in 20 minutes. It’s really more of a mantra or a philosophy than a tip.

No Second Chances

Years from now when you look back on your decisions and choices, you won’t be able to turn back time and get a second chance. If you’re able to think back on your life with a sense of peace and gratitude that will be amazing. If not, you’d give any amount of money to be able to go back and try again.

But of course you can’t, life doesn’t work that way. That’s why trying to live with no regrets is so important. So what are you supposed to take away from “No Regrets”? It’s a pretty vague philosophy, how can you apply it to your situation? Here are 5 ways to adjust your life so you’re more likely to look back with fewer regrets:

1) Quantify What’s Important

Most of us don’t have a bottomless bank account or endless days of leisure. Since we’re constrained by time and money we have to make decisions about how to use those limited resources based on what’s important to us.

It’s difficult to put a monetary value on lots of things in life but you can measure them against other things in your life. An example of this that you’ve likely faced before is choosing which job to pursue or accept.

You’ve probably wrestled with how important job flexibility was – whether you wanted to schedule your job around your life vs scheduling your life around your job.
Weigh Your Options
Things like the importance of flexibility compared to salary, your interest in the job vs benefits, opportunity for advancement vs required travel.

These are all aspects of a job that you have to weigh against one another. It’s really tough to put a financial value on flexibility, job interest, and time away from home but you still have to consider them when choosing the right job for you.

You don’t have analyze every decision but it really helps to take the time to measure and weigh the important factors when making big life decisions.

Weighted Criteria Matrix
This is one tool you can use to measure and rank life decisions and the factors that go into them. I talk about it in the context of a job search, here’s how you can apply it to help choose the right job.

Simple Head to Head
You can use the same approach for any big life decision but you don’t have to be that thorough. There’s a simple trick I taught my son for making decisions when he got hung up choosing between different options – the head to head method.

You take your top 6 options and compare them with each other one pair at a time.

  • Option #1 vs #2 – Pair A
  • Option #3 vs #4 – Pair B
  • Option #5 vs #6 – Pair C

Then you compare the best option from Pair A against the best option from Pair B. Whichever one comes out on top, you compare against the best option from Pair C. The winner of that “head to head” is your top option.

Not very sophisticated but if you make a note about each pair and your reasons for choosing then you come out with a winner and you know why you took that path.

Whatever your method, however simple or complex, it’s vital to learn how to quantify what’s important in life and make your decisions based on that.

You won’t always (ever) have perfect decisions as a result but following a system can help you avoid making a string of life decisions that you end up regretting in the short and long term.

2) Get Better at Saying No

Learn to say no
What are the most important things in your life? What do you want to accomplish, to leave as a legacy? Since you have a limited amount of time and money you want to focus on investing them towards achieving those goals.

Every time you say yes to spending time or money on something that doesn’t match up with your life goals you’re chipping away at part of what’s important to you.

I’m sure some of these “asks” might sound familiar to you:

  • Can you take on this project?
  • Will you volunteer for this position?
  • Can we tackle this house project?
  • Will you work this weekend?

Whether it’s your boss, friends, spouse, co-workers, church, club, parents, neighbor, or kids there will be people asking for your time.

Getting better at deciding who to say no to and how to say it will free up some of your time to focus on meaningful parts of your life.

If you’ve ever seen the movie Office Space you’ll remember the banner the boss (Bill Lumbergh) hung up that asked “Is This Good for the Company”. Lumbergh instructed every employee to ask that question before every decision they made at work. You can tweak Lumbergh’s suggestion and ask yourself “Is This Good for My Life” every time you’re asked to give time and money.

Unfortunately saying no is something that I’ve never been very good at. I would love to hear in the comments what approach works for you. Here are some tips from LifeHacker and Zen Habits on how you can learn to say no.

3) Be Present

Offering this type of generic advice runs counter to my personality. I prefer specific and actionable tips and I’ll admit that suggesting you “be present” is vague and not action oriented.

I found some decent tips for “living in the moment” that I’ll share in a minute. The main take away I’d like you to remember is not to spend so much time thinking about the future that you ignore the present.

Soak it in.

This catchy quote from Alice Morse Earle sticks in my head:

“Yesterday is history. Tomorrow is a mystery. Today is a gift. That’s why it is called the present.”

Unfortunately I haven’t always heeded this advice. As you know from reading this site, I’ve been working hard to accumulate and preserve money since I’ve been a kid.

I’ve always been thinking about the future, about what was next. However, one of the lessons I learned from my health scare was that I wasn’t making enough space in my brain for the present.

It can be tough to do with competing demands from work and family and today’s attention greedy society. Here are some actionable tips to help you along:

4) Allow Yourself to Celebrate

Celebrate Success
If you’re an overachiever you’ll have days where you feel defeated. Nothing went right, you made little/no progress, or things even went really wrong. It’s easy to get down in the dumps on those days but don’t let it hold you down.

If you’re reading this then chances are you’re better off than most of the people in the world. Even when you have a terrible day your life is overall still pretty good.

Why is it important to pep yourself up?

If you get hung up on the down dips you can waste days and weeks fretting over them and missing out on other things going on in your life. If you’re healthy and keep a positive attitude then you can overcome those challenges tomorrow.

The reason there are so many famous quotes about how successful people are good at dealing with failure and moving on is because it’s true.

Revel in the Small Wins
As achievers we tend to set our goals high and get frustrated when we don’t achieve them. One aspect of living with no regrets is allowing yourself to celebrate the gains that you do make even if you are not fully achieving your goals.

I’m not saying you shouldn’t push yourself because ambitious people help make the world go around – just give yourself permission to celebrate a little.

I’ll admit I’m not good at this; in fact I’m pretty terrible at it. I’ve been getting better lately but it’s still tough for me to find a balance between achievement and celebration.

Let me ask you this. If your life is only about achievement and you die next month do you think you’ll regret the celebrations you missed out on?

5) Be Lean

[Photo Eric RiesMr. Lean (Eric Ries)]

Being lean has a double meaning in this case. The first and most obvious is to stay healthy. Regular exercise can not only help you live longer – it also gives you time to yourself to reflect on, plan for, and appreciate life.

The second meaning has its roots in lean manufacturing. I was exposed to it via Eric Ries and his concept of a Lean Startup in business but it can also apply to your life.

In a nutshell, the approach is about quickly discovering the right thing to create. The goal is to avoid wasting time and money on something your customers don’t want. A great way to achieve this is by running lots of little tests to quickly learn whether you’re on the right track or going off in the weeds.

Lean in Your Life
You can apply this same approach to big decisions in your life. Rather than making assumptions and spending big chunks of your life trying to achieve something based on those assumptions you can setup small tests and spend some time trying to prove/invalidate them.  For example, if you’re thinking about changing careers you can look for an internship, temp job, or volunteer role in the industry/career you’re considering to see if it’s worth investing further time and money into.

Testing Assumptions
Maybe one of your assumptions is that you need to change careers to make more money, get a better work schedule, or to find a job that you really enjoy.  All those things could be true but until you confirm or invalidate them it’s possible that you could be doing the (wasted) work to switch careers when what you really want could be obtained with your current skill set or industry.

If you do find you need to change careers the next step could be to test your assumptions about internships, part-time jobs, and volunteer roles. There’s always something else about your life you can test.

If you think you could avoid wasting time and money while in hot pursuit of something you’re not sure about then I’d definitely suggest you read more about lean principles. Here are two articles that can help you get started:

Living With No Regrets

I’m sorry to say there is no secret formula to being able to live regret free. When I started this site 8 years ago I knew that I wanted to address the importance of managing your money wisely while also using your money as a tool to have a good life. Ironically I put so much time and effort into running the site that I probably missed out on some things in life. I don’t regret publishing Money Smart Life over the years but there are some things that I wish I’d done differently.

Looking back on my 5 suggestions for living with no regrets, I realize that I’m not great at many of them. I’m still in the process of transitioning from work-a-holic to a guy who can stop and smell the roses.  I’m still figuring this out so I’d love to hear any comments or tips you can share that have helped you make better decisions and left you with fewer regrets.

Obviously making mistakes is human and mistakes help us learn.  We’ll always have some regrets but hopefully these tips can help you avoid regret for the really important things in life. Please share your experiences, suggestions, or tips in the comments below!



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