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How I Ditched Debt: Penny Pinchin’ Mom

Published: Monday, March 20, 2017 @ 8:00 AM

In this series, NerdWallet interviews people who have triumphed over debt using a combination of commitment, budgeting and smart financial choices. Their stories may even inspire you to pay off your debt.

A year before Tracie Fobes was married, she declared bankruptcy. It eliminated her debt, but by the time she and her husband had their first child, they’d accumulated $37,000 more debt due primarily to a home equity loan and two auto loans. Fobes said that until they began to have open conversations about money, she hadn’t realized why they had gotten into debt in the first place.

How I Ditched Debt: Penny Pinchin' Mom

Tracie Fobes blogs about her family’s debt repayment journey as the Penny Pinchin’ Mom.

The Missouri couple started their repayment journey in November 2007, and today, they’re free of all consumer debt. Tracie Fobes is a stay-at-home mom and now blogs about family life, money management, saving and finding deals at The Penny Pinchin’ Mom. Here’s their story.

How did you end up in debt?

Tracie Fobes: When our oldest was born, I quit my job to become a stay-at-home mom. This was something that was important to both my husband and I, so we knew it would make our financial situation tight, but it was well worth it. We purchased a brand new minivan right after she was born. At the time, I had another vehicle and owed much more than it was worth. That meant we had to roll that amount into the financing on our van. Our payment had to go up as result. My husband had a pickup as well. While it was a bit older, we still had to take out a loan to make the purchase, which contributed to our debt as well.

We also decided that it would be “smart” to pay for things we needed around the house by taking out a home equity loan rather than using credit cards. The interest rate was lower, but it was still a very stupid mistake on our part. We also had one small credit card that did not have much of a balance on it. We really never used cards too often, so we did not have to worry about that.

What triggered your decision to start getting out of debt?

I remember going to dinner with some friends one evening. While money was tight, my husband told me that I just needed to have an evening away from the kids. At the end of the meal, while most of us were using plastic to pay for dinner, my friend pulled out an envelope with cash. I asked her what the cash was for and she started to explain what they were doing and how they were digging themselves out from under their debt. In the back of my mind, I started thinking that if they could do this, why couldn’t we?

When I got home from dinner, I told my husband what they were doing. We knew that they made no more than we did. We began our research and within a week, we had started working on a budget and a debt plan. The rest, as they say, is history.

What steps did you take to reduce your debt?

We were a team. We knew we had to work together and be on the same page during this entire process, or it would not work. Our budget was 100% a joint effort. When it came to the debts to pay first, we talked it through and agreed as a team the path to take.

We both looked at what we could do to have money to pay off our debts. My husband decided to sell things he no longer needed. I took the approach of trying to reduce our budget, namely groceries. I began researching and learning ways to really save on the food we needed. In doing so, I began to share my findings with others. That led me to start my website, Penny Pinchin’ Mom, which also allowed me to make additional money that we were able to throw at our debt.

How has your life changed for the better since you got out of debt?

I wish that I could put the feeling into words, but I can’t. It is just something you have to experience. It is like happiness, relief, joy, calm and peace, all rolled into one.

We now have less stress when it comes to money. When the cost of groceries or fuel goes up, it doesn’t make us worry. Sure, we hate it as much as the next person, but it doesn’t really affect us negatively. We don’t worry how we will come up with more money to cover these increased expenses.

In addition, we can do the things we want. We took our three children on their dream vacation last summer. We spent more than a week in Florida doing all of the “kid” things such as Disney, the beach and Universal Studios. The best thing about this trip was that it was paid for in cash.  100% of it. No bills following us home after our trip. Our hard work and savings afforded us this amazing opportunity to do something amazing for our kids.

We also have less stress about job loss. There is money in the bank to cover us should that happen. When you remove financial stress from your life, you get to live the life you want. There is no better feeling.

Make your own ‘get rid of debt’ plan

If you have debt you’d like to eliminate, you’re going to need a plan of attack:

  • Start by stopping: Avoid adding to your existing debt or opening new accounts.
  • Next, assess what you owe and rank your debts from highest interest to low-interest or “good” debts, such as a mortgage payment.
  • Then, determine where you can cut spending and how much you’ll devote to paying off each debt. If you need some psychological motivation, try paying off your smallest debts first with the debt snowball method. Or you might prefer the debt avalanche method, in which you pay off your highest-interest debts first. This method is likely to save you the most money on interest and help you pay off your total debt faster.
  • Finally, make a commitment to stick to your plan.

As part of your larger payoff plan, consider consolidating your debts into one new debt with a lower interest rate. This can lower your monthly payments and even help you pay off your debt sooner. You can consolidate with a 0% balance-transfer credit card or a personal loan. Try using a personal loans calculator to learn about possible interest rates and monthly payments, according to your credit score.

Anna Helhoski is a staff writer at NerdWallet, a personal finance website. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

40 things you can do today to take control of your money

Published: Sunday, June 25, 2017 @ 12:27 PM

With a timeline and a list of goals to achieve, you may find that you’re capable of being much more disciplined that you thought!

You have to give up a few things if you want to add more freedoms to your life

The idea is to challenge yourself — make it a priority to focus on taking specific steps over the next few weeks to get your money back on track. The hardest part is just deciding to do it, because once you start making changes, you’ll become more motivated and more empowered with every new step you take.

It all starts with changing your mindset.

Getting control of your money is not about taking things away — it’s about adding freedoms to your life — both now and down the road.

A lot of people ignore their financial problems, or their finances in general, because they know they can’t afford to fix everything at once — or they simply just don’t know where to start.

So instead of trying to change everything all at once, start with small steps — small changes and milestones that will get you, and keep you, on the right track.

Making just a few smarter decisions each day can have a big impact on your future, because each step you take will give you more motivation to keep going. And it won’t take long for you to begin to see how all of those small steps are adding up to big progress!

To help you get started, we’ve rounded up a list of some easy things you can do each day to get your financial life back on track! So print this out and start checking items off the list — and before you know it, you’ll have a whole new outlook on not just your money, but your life!

40 ways to take control of your money

1. Cancel a subscription

If you want to get your money in order — both for the short term and the long term — take a look at all of your monthly subscriptions and figure out which ones you don’t really need. Cut at least one. Then next week or next month, cut another one. After a few months, you’ll start to see the difference in your accounts, allowing you to save more and develop better budgeting habits over time.

Here are a few examples of subscriptions you may be able to live without:

  • Gym membership: If you go to the gym every day, you may want to keep your membership. Go to the manager and ask about special offers to decrease what you’re paying. You can also shop around for better prices at other gyms — then take a better price offer to your current gym and ask for a decrease in your membership fee. Also check out these 8 ways to save on a gym membership.
  • TV: Here’s a list of several alternatives.
  • Magazine subscription
  • Other: Are there any monthly/annual subscriptions (like Netflix or Amazon Prime) that you can cut and share with someone in your family? By sharing the account, you cut the cost in half!

Read more: 21 ways to cut costs and save more

2. Lower a monthly bill

A lot of people don’t realize they can lower their existing monthly bills just by doing a little negotiating. Many people can even get their credit card interest rate lowered — just by asking!

Here’s more on how to lower your existing bills.

3. Increase your 401(k) contributions

Log on to your 401(k) or other retirement account online and increase the amount you’re contributing each year. A boost of just 1% is probably small enough that you won’t even notice the money gone when you get your next paycheck. And even just an extra 1% can add up to a lot of extra savings over time!

If you can’t do it online, make a note to call your plan provider tomorrow!

Read more: The #1 tip to maximize your 401(k) investments

4. Make your savings automatic

The best way to start saving more money is to make it automatic. By giving every dollar a purpose, you can avoid reaching the end of the month and having no clue where all your money went — including the money you intended to save.

Figure out how much money you can realistically save each month, after covering all your bills and other expenses, and then set up your direct deposit to have that amount sent directly to savings. That way you won’t be tempted to spend it, and if you absolutely need the money, you can access it pretty easily.

Read more: How to automate your savings

5. Check your credit reports

Many people don’t check their credit reports because they either don’t realize it’s a big deal or they don’t want to face what’s in it. Bad idea! The only way to improve your financial life is to know what’s going with it, so you can take steps to get back on track. Here’s why:

1. Mistakes

  • There could be errors on your report that you don’t know about — maybe you paid off a bill but your report shows that you didn’t.
  • You want to find any mistakes as soon as possible — so you can get them fixed and minimize the damage.

2. Old bills you never knew about or forgot about

  • Maybe you had a bill from a doctor or a retail store — and you moved, so you never got the bill.
  • Even it’s for a small amount, an old unpaid bill could be damaging your credit without you even realizing it.
  • If a bill is sent to collections, it stays on your credit report for 7 years — even after you pay it off.
  • It causes less damage to you over time, but it doesn’t go away for 7 years.
  • So even after you get things together, your credit could still suffer. So the sooner you start paying attention, the sooner you can get your credit on the right track

At AnnualCreditReport.com, you can get a free copy of each of your credit reports once each year. In just a couple minutes, you can see everything that’s going on with your credit. But you can only do this once a year, because doing so more than once per year will ding your credit and cause your score to drop.

You can also monitor your credit for free with a service called Credit Karma, which pulls in your information and gives you a good idea of what’s going on with all your finances and anything that impacts your credit.

Here’s a guide on everything to know about your credit reports and scores.

6. Make an extra payment toward a debt

The average U.S. household is carrying more than $15,000 in credit card debt, according to a study by NerdWallet. And as that debt rolls over each month, the total amount owed continues to increase — sometimes by quite a lot each month — depending on the credit card’s interest rate.

Think about your situation: do you have any credit card debt or student loans hanging over your head? Those debt obligations can be big obstacles keeping you from reaching your financial goals. So the quicker you get it paid off, the quicker you will be able to truly start building wealth.

One thing you can do today is make just one extra payment toward a debt. While you may not be able to pay off the entire balance today, every little bit helps. Skip a splurge this week and use that money to pay extra toward your credit card bill or student loan debt. Put the extra money toward whichever debt has the highest interest rate — as that’s the debt that will end up costing you more money over time (the longer it sits there accruing interest, the more you’ll owe).

Paying an extra $100 toward debt, instead of wasting it on something you don’t need, will be more beneficial to your long-term financial goals by allowing you to become debt free sooner in life. Plus, the more you start to pay down debt, the quicker you’ll see the light at the end of the tunnel of getting it paid off.

7. Transfer a high-interest debt

If you have a big credit card bill that’s slamming you with high interest fees every month, transferring the balance could save you hundreds of dollars. By allowing you to transfer the debt to a credit card with 0% APR (annual percentage rate) for a certain number of months, these types of offers can help you pay off your debt in a timely manner — without having to pay interest. 

So if you have a credit card with a high interest rate, check out this list of great balance transfer options.

Once you transfer the debt, your payments will go a lot further without the high interest — which will cost you less money in the long run and also allow you to get it paid off quicker.

8. Find free money

Unclaimed money from bank accounts, insurance policies, rental and utility deposits, safe deposit boxes and other places could be hanging out there somewhere in your name. All you need to know is how to check and collect it without paying any fees.

It’s particularly easy if you have a unique last name. Simply go to MissingMoney.com and punch in your name to do a database search of available unclaimed funds across all states. With one click of your mouse, you can cover the entire spectrum of what’s available.

Please note that not every single state participates. If you live in a state that doesn’t participate with this free site, there’s one more option for you: Unclaimed.org. This website is a clearinghouse for the National Association of Unclaimed Property Administrators.

Also, if you ever had an FHA home loan, HUD may be sitting on refund money for you. Go to HUD.gov and see if you’re in their refund database.

More ways to find free money in your name.

9. Reduce your student loan debt

Many people don’t realize that a big chunk —often the majority — of their monthly payments are probably going toward interest, depending on the interest rate and other factors (we’ll get to that). So even by paying hundreds of dollars each month, you may not even be making a dent in the total cost of your debt.

Student loan refinancing can be a great way to reduce your payments and decrease the total cost of your debt — while shrinking the time it takes to get it all paid off.

Here’s how to get started.

10. Shop for cheaper car insurance

It may be a pain, but taking a few minutes to sit down and shop around can end up saving you big bucks! Here’s where to look and how to start shopping for a better deal.

11. Reduce your utility bills

By making some basic tweaks around the house – like replacing your light bulbs – you can save a ton of money on your monthly bills! Here are 10 ways to get started.

12. Stop paying full price

For anything you buy today, find a coupon, a promo code or maybe an alternative option — whatever you do, just don’t pay full price! Once you start to realize all the different ways you save on things, you’ll rarely have to pay full price!

13. Check your bank statements daily

If you don’t check your statements daily, there could be fraudulent charges on your account without you even realizing it. Plus, it’s a good way to keep an eye on your spending and recognize any expenses you can cut!

14. Create stronger passwords

The easier your passwords are to hack, the easier it is for criminals to get their hands on your personal information — including your bank account. Each little piece of information that a scammer has about you can help them get access to your accounts.

Here’s how to make sure your passwords are strong and some free ways to safely keep them all in one place.

15. Get a cheaper cell phone plan

A recent survey found that most people are paying about twice as much as they have to each month for cell phone service. Why? Because they don’t make the effort to look for a cheaper plan.

You may be able to get the exact same place, or at least pretty close, for less money. Check out our guide to the best cell phone plans and deals here.

16. Invest spare change

There are some great apps available that now allow you to start investing with just a few bucks! Here’s a list of some of the best ones to consider.

17. Create a budget (or reevaluate your budget)

If you aren’t giving every dollar a purpose, you’re probably wasting more money than you realize.

Creating a budget will help you keep your spending on track. If you already have one, then take a good hard look at each area of spending and see if there are any categories where you can cut costs, which will free up more money for savings.

Check out our step-by-step guide on creating a budget that works for you.

18. Start tracking your spending

Making a mental note is not an efficient way to track your spending. If you want to actually stick to a budget, you need to track every dollar that comes in and every dollar that goes out.

And it can be a lot easier than it sounds. In fact, there are tons of apps that will do it for you. You can even get updates on your progress throughout the month — like if you get close to going over budget or get closer to paying off a debt!

Here’s more on how to start tracking your spending.

19. Eliminate a fee

There are so many fees out there these days, there’s likely at least one in your life that you can eliminate.

Investment fees: Do you know what you’re paying in investment fees? If you don’t, you need to find out — because a difference of just 1% can save you (or cost you) up to tens of thousands of dollars over time — maybe even more. Here’s a look at some low-cost investment options.

Checking account fees: How much are you paying in fees for your checking account? If it adds up to more than $0, consider these cheaper alternatives.

ATM fees: Do a quick search online or check your online bank account to find the nearest fee-free ATM in your area.

Here are 11 more fees you should never pay.

20. Shop with a grocery list

I take a list with me every time I go to the store — because if I don’t, I’ll forget the things I need and end up with a basket full of all the random things the grocery stores tempt you with throughout the whole place.

If you have a list, it’s a lot easier to avoid spending extra money. And these apps make it easy for you.

21. Start an emergency savings fund

According to a recent survey, more than 40% of Americans either experienced a major unexpected expense over the past 12 months or had an immediate family member who did.

And there’s one very easy way to minimize the damage — prepare for it

The best way to save for unexpected financial shocks is to have two separate emergency funds: a rainy day fund and an emergency fund.

  • A rainy day fund is money you might dip into every once in a while to cover an unexpected expense, like a medical bill.
  • An emergency fund is a bigger, longer-term savings fund. This money should be able to cover at least three to six months worth of living expenses in case you can’t work for a period of time, for whatever reason.

If you’re starting from scratch, these goals may seem impossible — but you can get there! At the very least, start by saving $1 a day — and then increase that amount as you can.

The best way to approach saving is to start with baby steps and then build up from there. Here’s a step-by-step guide on how to get started.

22. Shop at more than one grocery store

If you buy everything at the same store, chances are you’re paying way more than you have to on groceries.

You can save more than 30% simply by changing your routine. Check out non-traditional grocery stores like warehouse clubs, dollar stores, Aldi and Walmart for big savings on food and other items you frequently buy at the grocery store (at a higher price).

  • Grocery staples: Check out Aldi and Walmart
  • Organic: Try Trader Joe’s instead of Whole Foods
  • Bulk items: Warehouse clubs like Costco, Sam’s Club or BJ’s

Read more: Here’s a cost comparison of items at Aldi, Walmart & Kroger

23. Find an easy way to make extra cash

There are so many ways for pretty much anyone to make extra cash — whether it’s online or in your area.

Check out this list of 28 easy ways to make cash on the side.

24. Ask your credit card company for a lower interest rate

When it comes to monthly bills and companies you do business with, more often than not, you can negotiate a better — and cheaper — deal. The problem is most people don’t even ask, so they continue paying for something they could very likely get for less.

According to a survey by CreditCards.com, nearly 90% of U.S. credit card holders who asked to have a late fee waived had their request granted. On top of that, 78% of those who asked for an interest rate reduction were successful in getting that request granted.

Bottom line: There’s no harm in asking! So make the call and see what you can get!

25. Go through the past six months of bank statements

Look for recurring costs that you don’t need or use and cancel them immediately. It’s easy to overlook small charges each month, but over time, they could be costing you a big chunk of cash.

26. Sell old stuff

Organizing your home can help relieve stress and get you into a better overall routine. Go through your clothes, electronics, old books and other items that you no longer use or need, and then sell what you can and donate the rest.

Here’s a list of ways to sell all of your old stuff for the most cash.

27. Review your credit card rewards

You may have built up some rewards without even realizing it! From cash back to airline miles, check your credit card rewards to see if there are any savings opportunities you can take advantage of.

28. Try using cash

If you’re having a hard time controlling your spending, try using cash. Split up your paycheck for each area of the budget and put the cash in separate envelopes. That will force you to budget based on the amount of cash you have left, rather than just swiping a card and continuing to overspend.

29. Try a no-spend week

Take a week and plan out your meals and anything else you may need. Then put the cards, cash, mobile wallet and any other spending mechanism away — and don’t spend a penny for a full week. You may be surprised by all the little things you’re used to buying that you don’t really need!

30. Download coupon apps

There are tons of free apps out there that can save you money — apps that offer instant deals and coupons for grocery stores and drugstores, and even some that actually pay you cash back just for shopping (to help you save, not spend more!).

Check out this list of 11 great apps to try.

31. Get valuable stuff for free

There are so many things you’ve become accustomed to paying for that you can actually get much cheaper or even free!

A few examples: Garden supplies, books, online courses, health care freebies and more. See the full list of easy ways to valuable things for free.

32. Set goals

When you know what you’re working toward, budgeting, saving and making changes to your lifestyle become a whole lot easier.

33. Start a savings challenge

Here’s a 12-week savings challenge that will leave you with an extra $1,000 in your pocket by the end!

34. Try something extreme — or unique

We recently asked our fans on Facebook about the most extreme or unique thing they’ve ever done to save money. And while some of the responses were even a little too extreme for us, there were plenty of great ideas! For example, any time you get a $5 bill in change, put it away in a savings jar until the end of the year — or some other specific date you set for yourself, when you can use the money to pay off a bill or put toward a vacation.

Check out the list of 61 unique ways to save money and challenge yourself to try at least one! 

35. Shop at a dollar store

From party supplies, clothing and socks, to cleaning supplies and household products. The dollar stores can save you big bucks on a variety of things you buy all the time! Here are a few examples:

36. Cook dinner at home

​According to a recent survey, among households with annual incomes of $75,000 or more, one-third live paycheck to paycheck, and 44% said lifestyle purchases, such as dining out and entertainment, were big hindrances to saving. Among millennials bringing home $75,000 or more, 71% confessed these expenses were stealing their savings.

Get into the habit of cooking at home more. The more you do it, the more you’ll save. Plus, a recent study found that eating at home will help you lose weight, too.

37. Create a will

Getting a will in place is one of the most crucial aspects of financial planning, but for whatever reason, most people don’t do it.

A new study found that 58% of adults say they don’t have a will in place. On top of that, 64% of parents with kids under the age of 18 have no formal estate plan at all.

If you don’t have children and have very little in the way of assets, that may be OK for you. But in pretty much any other situation, having a will is critical.

If you have children, you need a will for the simple fact that if you don’t have one, the state would decide who raises your kids if something were to happen to you. If there’s no document with written directive from you, that’s just how it goes.

If you don’t have kids but you are married — and don’t have a will in place — the state would decide how your money is allocated if something were to happen to you.

The same holds true if you and a partner are living together and aren’t married. In many cases, your partner will not be considered to inherit your estate unless you put it in writing.

Here’s a guide on cheap and easy ways to get a will in place.

38. Set up bill reminders

Automatic bill-pay can catch you off guard if you’re still trying to get control of your monthly budget. But you definitely do not want to ever pay a bill late — as late payments have a significant impact on your credit.

So to avoid overdrafting your accounts, just set reminders for yourself on your phone, tablet, calendar or wherever, for when each of your bills are due. And when that reminder pops up, pay the bill immediately so you don’t forget! If you tend to be forgetful or a little unorganized, check out these 6 tips to help you keep your money on track. 

39. Set up two-factor authentication on all online accounts

Criminals are finding new ways to con people out of money every day, and they’re using our everyday activities to try to catch us off guard — including social media, text messages, emails, phone calls and pretty much every other method of communication.

Any time you log in to any online account, whether it’s Amazon, your bank account or some other site that stores your personal information, criminals could be watching without you even realizing it. And any piece of information they can pick up about you could help give them access to what they’re really after — your money.

So it’s important to text extra steps to protect your information online and the information you access on your devices — and many sites now offer two-factor authentication to add in another layer of security.

Two-factor authentication (sometimes called two-step authentication) requires you to take an extra step to authenticate who you are when you sign in or when you are doing a transaction. It’s sometimes also referred to as two-step authentication.

The extra step just depends on the company or website, so it could be a unique code that’s texted to your cell phone or a unique password you have to give when authorizing anything over the phone. Whatever the extra step is, opt in for it! It’s another layer off security for you and your money! Here’s more on how it works and how to set it up.

40. Invest in a few things that will save you money over time

By investing a little extra money now on certain things, you can reduce a lot of extra expenses in your life — and save yourself some serious cash down the road.

A few examples include a reusable water bottle, programmable thermostat and LED light bulbs. See the full list here.

How to increase your income by reducing your expenses!

Other stories you might like from clark.com:

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More than 1/3 of Americans can't afford a $100 medical bill

Published: Sunday, June 18, 2017 @ 11:41 AM

It's bad enough when your day is derailed by an unexpected trip to the doctor, but it's even worse when you can't afford to pay the bill. Unfortunately, too many Americans find themselves in this position, according to a recent survey conducted by Ipsos for the healthcare transparency group Amino.

The survey found that 37% of Americans could not pay a medical bill of $100 or more without going into debt, and 19% of respondents could not pay anything at all towards a medical bill without incurring debt. In addition, 55% of respondents had received a medical bill that they could not pay with available funds.

The current insurance situation does not help anxiety levels. Almost three-quarters of survey respondents reported higher out-of-pocket healthcare costs within the last year. Anxiety is likely to increase as insurance companies increasingly pull out of the existing healthcare exchanges. Further, it is not clear what, if anything, will replace the current Obamacare guidelines. Consider that 10% of respondents reported that a significant medical bill is worse than a life-threatening illness. 

What can you do to lower anxiety and increase your ability to handle an unexpected medical expense? Knowledge and prevention are the keys. 

Know what your insurance covers and does not cover, especially with respect to your co-pays and coverage limits. To assess correctly how much money you need to set aside for medical expenses, try to figure out the average cost of a likely visit. Granted, medical expenses are hard to decipher even after you have received your bill – but it's important to have some concept of how much money basic procedures cost versus your risk of needing those procedures. 

» 3 Medical Debt Mistakes to Avoid

For example, the survey asked respondents to estimate the out-of-pocket medical costs associated with a broken arm. The median cost of $1,100 was widely underestimated. Only 7% guessed the amount correctly, while 46% of respondents underestimated the cost by at least half. 

If you have a suitable high-deductible healthcare plan, you may be able to pay into a health savings account (HSA) that allows you to put aside money for medical expenses on a tax-free basis. Only 32% of survey respondents currently contribute to an HSA. 

If an HSA is not an option for you, make some space in your budget for emergency medical expenses as if you were creating your own HSA. According to the survey, only 46% of Americans bother to budget $50 or more each month for healthcare purposes. Food, transportation, and debt payments all received higher priority among respondents. Without specifically dedicating funds to healthcare, you are very likely to find other uses for that cash – and even if you don't, $600 a year does not go very far in covering any medical emergency. 

Take advantage of all preventative medical care measures (checkups, etc.) that are covered by your employer and your insurance policy. People sometimes have a tendency to avoid doctors – 19% of survey respondents reported that their main method of avoiding high medical bills is to shun doctors altogether – but by not taking advantage of covered preventative care, you are asking for bigger expenses down the road. 

» How Medical Bill Advocates Can Slash Your Costs

Don't be like the 54% of the survey respondents who had received an unexpected medical bill in the past and were more likely to budget for their healthcare as a result. Start by budgeting a certain amount for healthcare emergencies over and above your known expenses like insurance premiums. Stick with that budget, and resist the temptation to stretch the definition of "emergency." That way, if a medical event does occur, you can concentrate on healing your broken body instead of your broken wallet. 

What is a penny stock? An investment most should avoid

Published: Sunday, June 04, 2017 @ 2:57 PM



Pixabay

Penny stocks sound great in theory: They are inexpensive and have unlimited upside potential. That’s why they draw in investors, particularly those just starting out or looking to make a quick and cheap buck. 

But as with most things, when an investment sounds too good to be true, it probably is. It’s easy to see why penny stocks are inexpensive when you look closer at what you’re actually buying. 

What is a penny stock? 

Despite their name, penny stocks — also called microcap stocks — don’t actually cost a penny per share. Just as not everything in a dollar store is really $1, penny stocks generally are defined as stocks that trade for less than $5 a share. That definition may vary by broker; some put the cap lower, at $3 or $2 a share. 

» How to Detect Scams That Could Ruin Your Retirement

In either case, this is not your typical adventure in buying stocks. Penny stocks trade for that little not because you’re getting in on a good deal but because the companies issuing penny stocks are small and often volatile — in some cases, they might even be heading toward bankruptcy. 

These companies are typically too small to be quoted on the major stock exchanges. In some cases, they’ve been delisted — pushed off an exchange — for not meeting requirements or maintaining a high enough share price. 

Instead, penny stocks are traded over-the-counter, through quotation systems like the OTC Bulletin Board or OTC Link LLC. They can still be traded through many online brokers, though some impose an additional charge or account minimum on penny stock trades. 

When you trade penny stocks, you’re betting that one of these small companies has what it takes to go big. That’s rarely the case. Here’s why. 

It’s a market rife with scams 

Google “penny stock scams” and you’ll find no shortage of results. Even the websites that tout penny stock trading as a viable investment strategy admit that scams run rampant. 

The Financial Industry Regulatory Authority and the Securities and Exchange Commission have issued warnings about penny stocks, specifically about “pump and dump” schemes. In such schemes, scammers buy shares of what FINRA has referred to as “dormant shell companies with little to no business operations” and then promote the stock as the next hot buy. When the price rises, they sell their shares, causing prices to plummet. Remaining investors are left with what is in many cases a worthless security. 

» 5 Awful Reasons to Buy a Stock

These days, the promotion may come via email or as a voicemail. Scammers frequently pretend they’re leaving a message with a stock tip for a friend; it appears to be a wrong number, but the mention of the next big winner piques your interest. This goes for any stock, not just penny stocks: If someone tells you a stock is hot, consider the source and do your own research. 

Penny stocks are hard to vet 

Public companies are required to file regular reports with the SEC, baring the status of their business via audited financial statements. They’re also required to meet minimum standards to be listed on major exchanges, often including a floor for earnings, number of shareholders and the market value of those shares, among other things. (Interested in a little light reading? Scroll through the Nasdaq listing standards.) And then there is intense scrutiny from stock analysts and researchers, who quickly bring any blemishes in the business into the light of day. 

Companies issuing penny stocks may not have to file with the SEC if they hold less than $10 million in assets or have fewer than 2,000 shareholders of record. They are unlikely to be covered by analysts, and while some OTC marketplaces have minimum listing requirements, others don’t. All of this can make penny stock issuers very difficult to research and accurately price. 

Penny stocks can be hard to sell 

Given the above, this point now veers toward self-explanatory. Who would want these things? But if you still do, consider this: You don’t make any money on an investment until you sell that investment and realize a gain on the sale. If you buy a stock for $2 and the share price shoots up to $100 — an unlikely short-term scenario anyway — that $98 is no more than a paper gain until you sell the stock and pocket the proceeds. 

Penny stocks bring together the dangerous combination of low liquidity and high volatility. They’re often hard to unload, due to all of the above and because the market for these securities is smaller. At the same time, they can be subject to wild and rapid price swings, which means the price could shift dramatically before you find a buyer. 

An alternative to consider 

If the low price is the main attraction here, you should know there are other investments that are similarly low-cost but come with far less baggage. We’d steer you toward exchange-traded funds

ETFs track an index, like the Standard & Poor’s 500, and hold shares from the companies in that index. These funds trade like a stock, on an exchange, for a share price, which can be much lower than the typical index fund or mutual fund minimum. 

That means you can get instant diversification for a small investment. Depending on the ETF, you could buy in for as little as $20 or $30 a share. Like stocks, though, some ETFs are priced much higher. That’s more than a single share of a penny stock, sure. But here you’ll get a stake in a basket of listed, regulated companies. 

You can also find ETFs at many brokers commission-free, which will save you on the transaction costs that come from a penny stock trade. 

If you must buy, buy cautiously 

If you still feel called to penny stocks, at least follow a few rules that can help curb risk: 

  • Stick with companies that are registered with and regularly report to the SEC
  • Research the company and its key officers before you purchase. (Here’s how to research a stock.) Understand the industry, how the company makes money and its chief competitors.
  • Train your eyes for red flags. These include financial statements that haven’t been certified by auditors or that contain unusual loans or other transactions; frequent changes to the company name or business direction; prior SEC suspensions; and an outsize ownership stake in the company by an office or promoter.
  • Use a reputable broker. A good broker will help you act quickly if you do encounter a scam. NerdWallet maintains a list of brokers for penny stocks.
Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea. 

Related

8 ways to get the cheapest car insurance possible

Published: Sunday, May 07, 2017 @ 2:16 PM

Most of us need car insurance, yet few of us fully understand it. 

Dozens of car insurance companies may be vying for business in your area, including nationwide players and local insurers. Each offers an eye-glazing assortment of policy options, making it hard to compare policies and figure out what is the best and cheapest car insurance.  

If you are looking for the lowest prices, there are some guidelines worth following as you do your research. Here are eight things you can do to ensure that you’re getting the best coverage at the best possible rate. 

1. Don’t assume any one company is the cheapest 

Some companies spend a lot of money on commercials, trying to convince you that they offer the lowest car insurance rates. 

The truth is that prices individuals will pay for the same coverage at the same company vary widely, and no single company can claim to be the low-price leader. The insurance company that’s cheapest for one person in one place might be the most expensive option for a driver in another state. Some insurance companies have also developed complex predictive models that may charge you higher rates if they show you are unlikely to switch providers. This practice, called “price optimization,” is banned in 16 states. 

>> 6 Reasons to Leave Your Car Insurance Company

And there’s quite a bit of savings at stake: A recent NerdWallet analysis found a difference of $859 a year between the average insurance quote and the lowest available quote. 

The only way to ensure you’re getting the best deal is to shop around.  

2. Don’t ignore local and regional insurance companies 

Just four companies control nearly half the nation’s car insurance business: Allstate, Geico, Progressive and State Farm. But smaller, regional insurers, such as Auto Owners Insurance and Erie Insurance, often have higher customer satisfaction ratings than the big names — and they may have lower rates, too.

>> 10-Word Answers (or Less!) to Your Biggest Car Insurance Questions

3. Check for discounts 

Insurers provide a variety of discounts, including price breaks for customers who: 

     
  • Bundle car insurance with other policies, such as homeowners insurance
  • Insure multiple cars with one policy
  • Have a clean driving record
  • Pay their entire annual or six-month premium at once
  • Agree to receive documents online
  • Own a car with certain anti-theft or safety features
  • Are members of particular professional organizations or affiliate groups

Discounts vary by company and location. Check insurance company websites or consult with agents to find out which ones might apply to you. 

4. Pay your bills on time — and not just your insurance bills 

Your credit is a significant factor in the car insurance quotes you’ll receive — except in California, Hawaii and Massachusetts, which don’t allow insurers to consider it. Insurance companies say that customers’ credit has been shown to correlate with their risk of filing a claim. 

Improve your credit — and lower your premiums — by paying your bills on time and reducing your debt. Track your progress by checking your credit reports at least once per year. 

5. Consider insurance costs when buying a car 

You probably already pay attention to factors such as fuel efficiency and repair costs when deciding which car to buy, but you should also consider insurance premiums, which can vary between popular models. A NerdWallet review of rates for best-selling vehicles in 25 cities found that the Toyota Camry, for example, cost an average of $187 per year more to insure than the comparable Honda Accord. Similarly, a Toyota RAV4 cost an average of $201 more to insure than a Honda CR-V. 

6. Skip collision and comprehensive coverage for your clunker 

Collision coverage pays to repair damage your vehicle receives in an accident involving another car or an inanimate object. Comprehensive pays to repair vehicle damage caused by weather, animals or vandalism, or reimburses you for your car if its stolen. But both will only pay up to the value of your car. If yours older and has a low market value, it may not make sense to shell out for the two policies. 

7. Consider raising your deductible 

If you need to carry comprehensive and collision — because your car is a later model or your lender requires it — you can save a substantial amount of money by raising the deductibles. A NerdWallet study of rates in Florida and California found that customers who increased their deductibles from $500 to $1,000 saved about $200 per year on premiums, while those who increased them from $500 to $2,000 saved $362 per year. Keep in mind that this will mean you’ll pay more out of pocket if you do make a claim. 

>> Avoid These 6 Mistakes When Switching Car Insurance

8. Consider usage-based plans, especially if you don’t drive much 

If you’re a safe driver who doesn’t log very many miles, consider a usage-based insurance program, such as Allstate’s Drivewise, Progressive’s Snapshot or State Farm’s Drive Safe and Save. By signing up for these programs, you allow your insurer to track your driving electronically in exchange for possible discounts, based on how much you drive, when you drive and how well you drive. 

If you drive less than 10,000 miles per year, you might be able to save money with a mileage-based insurance program, such as Metromile or Esurance Pay Per Mile. Metromile is currently available in seven states, while Esurance Pay Per Mile is only available in Oregon.  

Aubrey Cohen is a staff writer at NerdWallet, a personal finance website. Email: acohen@nerdwallet.com. Twitter: @aubreycohen.