If you are like me, chances are you have some form of debt and at least one bank account. Or I as I should say like most Americans you are in this situation. But there are ways to minimize this situation and put yourself on the track to becoming financially independent. First, let’s look at these two components individually and then how you can overcome them and get on top of your finances. It can be done with some hard work and due diligence on your part.
Debt is extremely common in this country and is a foreign concept in many others. Take my lovely wife and me; she is from Peru, and we got married last year. For me, debt is a part of everyday life thought I am working on changing that as we speak. My wife on the other hand and her family in their native Peru go about living their lives with no debt what so ever. This is quite a change from the American culture.
In fact, when my wife bought her car last year I had to convince her to finance a small portion to help establish her credit. She, of course, had no idea why she needed credit or why she should take these steps to establish it. I explained to her that is how most things that cost large sums in America were purchased, on credit. Though she does not completely agree with this, she does understand that a credit history is important here while it is a foreign concept in her native Peru.
On the other hand, she has me paying down my consumer debt at a mush higher rate than I was before and I am getting out of this type of debt and not adding any more of it to my bottom line. I have avoided adding to my consumer debts since we got married, and we are in a much better place than I was before getting married. My wife was lucky enough to have had an excellent career in Peru and has enough money that she is not reliant on me why I tackle the debts I have. Together we are working on becoming consumer debt free.
She also does not understand student loans and the mortgage on our condo. I told her these loans were the better types of debts as they are appreciating debts in theory. An education will lead to more job opportunities and hopefully a higher salary. This is a debt that can help pay for itself while a consumer debt is generally one that is a depreciating debt meaning the value will be less than the purchase price. A mortgage is the same as most real estate appreciates in value over time and the debt also may have tax advantages as well.
Currently, we pay an extra amount on our mortgage that goes only towards the principal. This over a twelve month period is about an extra payment a year if not more. This can take a few years off our 30-year mortgage without even trying and lower the principal more each and every month. Which leads to lower interest payments on the outstanding loan balance as well. Even if you can add an additional $25 or $50 a month extra towards your principal that could make a world of difference. Though my wife does not like the debt, she understands that we are paying the debt off faster than originally planned and that there are some tax advantages to a mortgage as well.
My student loans are another issue altogether. She did not finance her education in Peru just as her parents did not finance their house or car. But after explaining to her that I have three useful masters degrees that I financed through student loans there was indeed a method to my madness. After working out a payment plan with my loan processor, I will pay the loans for ten years, and all that I owe after that point will be written off due to the fact I am a federal government employee. This is also true for some non-profits, state, local and even Native American Tribal employees. Not a bad deal if you want to further your education and plan on staying with a public service job for at least ten years. So now my wife sees the reason I got the three degrees as I will end up paying about a third of the total price of the costs for all three degrees.
As for banking, this is not as complicated as many people make it out to be. Here is what I recommend to everyone as far as banking. If possible use a credit union as they offer higher interest rates on the money you deposit compared to a regular bank. Also, they will offer loans for cars, mortgages, and some credit cards at a lower interest rate that are charged to you for having the credit source. And with the Shared National Credit Union network, you can do most regular banking activities at one of any number of locations throughout the country. My credit union is in Washington, DC but I can do just about everything at another credit union here in Nashville, TN.
Then after you have a regular account established where you can write checks and such I highly recommend establishing an on-line savings account as a bank such as Capital One 360. They allow for automatic transfers from your regular checking to your on-line savings account. The reason you want to do this is these on-line accounts tend to pay several times what even a credit union will pay in interest to you. There are many on-line banks to pick from, and I recommend Capital One 360 because I have been with them for over ten years. And to be honest, I have never had one issue with them in all that time.
Also, I have a brokerage account with Sharebuilder and Capital One 360 purchased them a few years ago making my investments even that much easier. You can link the accounts and transfer funds instantly between the two as they are now basically one entity running both sites.
On the downside if you need money taken out of your on-line account you may have to wait three business days before the funds are back in your checking account. But Capital One 360 also offers checking accounts that even come with a debit card. In the beginning, they did not have paper checks, but now you may even order them for your convenience. And if you need to deposit a check the app is a great way to do that with minimal effort on your part.
While debt and banking are important, it is also important on how you tackle your debt. That is a topic for one of next week’s posts so make sure you come back for information on that. And as always, if you have any questions or comments, please leave a message or send me an email.