A Financial Education Event
 

Tips For Graduates Student Loan Debt

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By now, the hats are tossed, tears are wiped away and the celebratory cake is gone for recent graduates, and now they are beginning their new lives in the real world. Like many of their predecessors in previous years, this year’s graduating class faces a wretched job market where there may be as many as five candidates for every job. Consequently, one of the most daunting tasks becomes the challenge of not falling behind on student loans. While challenging times can build moral fiber, you don’t want to build character by getting involved in the debt trap. Here are common questions I am frequently asked, as well as tips on how to keep student loan healthy:

Q. First of all, what are some of the consequences that graduates face by getting behind on student loans?

Ellie: As a mom of kids in college as well as a recent graduate, I know personally, how difficult the job market is and what a challenge these graduates face. First of all there will be interest charged for late payments as well as fees that will inflate the amount they owe—and chances are good that they owe too much as it is! If you default, the government could garnish your wages and withhold your tax refund. Not to mention a huge hit on your FICOscore, when you’re just starting out and trying to build a good score that will help get lower interest rates on a car or a house. It is also becoming more common for employers to check your credit history when considering which candidate to hire.

Q. But you say there is good news and that these dire consequences are avoidable, as least as far as federal student loans are concerned. The key is to understand your options and take action before you fall behind on payments. The first tip you list is to understand your grace period, when do students have to start paying back these loans and how do grace periods vary?

ELLIE: Borrowers typically have a few months after graduation before they are required to start repaying their federal student loans. For most federal student loans, the grace period is only six months. Most loans have up to ten years to repay. It’s important that you contact your loan provider and find out when the statements begin—especially if you haven’t received notification yet.

Q. What if the graduate has trouble finding work or they find an entry level job that typically doesn’t offer much in the way of compensation? Is there recourse for the amount they are required to pay for their loans?

ELLIE: That’s an excellent point and it brings us to our second tip, they need to find out whether they qualify for the income-based repayment program. Under this program, your loan payment could be reduced, based on the amount of discretionary income you have available. In most cases your loan payments won’t exceed 10% of your total income. After 25 years, anything you still owe on the loan will be forgiven.

Q. Is this income based repayment program an automatic enrollment or does the graduate need to apply for it?

ELLIE: You definitely need to apply for it by contacting the company that is servicing your student loan. If you’ve moved a time or two and your loan papers have not been forwarded to you and you are not sure who services your student loan, then you can go to the database of the National Student Loan Data System  National Student Loan Data System.

Q. Is there some paperwork you need to compile before you apply for the income based repayment program?

ELLIE: Yes, it’s important to have this paperwork on hand in order to streamline the process because you do want to get this filed as soon as possible—especially if you’re in danger of being late on loans and you have a genuine financial hardship due to your current income levels. You’ll need to authorize the IRS to provide last year’s tax return to the Department of Education. If you feel that your tax return doesn’t reflect your current situation, there’s a form you can use to show how your situation has changed. Get info on these forms and criteria, as well as links to major student loan servicers at the Project on Student Debt.

Q. We’ve looked at income based repayment, but what about those who need a quick, temporary fix? Maybe they have to take an unpaid internment at first or they may have a job that will become available in six months. Are there options such as deferment or forbearance available to this class of graduates?

ELLIE: If you are unemployed, still in school or experiencing economic hardship, you can apply to have payments on your federal student loans deferred for up to three years. If you have subsidized Stafford loans, which are provided to students who demonstrate financial need, the government will pay the interest on the loans during deferment. Interest on unsubsidized Stafford loans will accrue during deferment. If you don’t qualify for deferment, then you still might be eligible for forbearance, which allows you to put off payments for up to three years. It’s harder to qualify for deferment than it is for forbearance because in forbearance you will still have to pay interest that accrues.

Q. Does it take a long time for the paperwork to go through for these kinds of programs we’ve discussed: income based repayment, deferment and forbearance? Couldn’t a graduate find themselves in default by the time the paperwork is processed?

ELLIE: It’s important that you continue to make full payments until you’re notified otherwise. It takes longer for income based repayments and doesn’t take as long for deferment and forbearance because the latter two are temporary relief from loan payments. Whereas income based repayments could be longer term, depending upon how long you are in that job, making that salary. It’s important to look at forbearance and deferment as short term fixes and not long term—that’s why it’s really important to file for these right away, while you’re looking for a job. But if it looks like your payment problems will last longer than a few months, you definitely need to look at income-based repayment.

Q. Some graduates have huge student loans, in some cases, they have more than $30,000 in principal and interest. It is especially difficult for these grads to face this mountain of student loan debt. Can they extend the payment term in order to get through the first few years?

ELLIE: If you are a borrower who owes more than 30K , most lenders will allow you to extend the term beyond the standard 10 years, thus reducing monthly payments. The amount of interest you pay will increase, though, particularly if you extend payment over the maximum term of 25 years. And who wants to spend the next 30 years paying off a student loan? So I would only recommend this option as a last resort. Try to pay it within the standard 10 year term so that you can avoid thousands of more dollars in interest.

Q. Finally, we’ve discussed federal student loans, but a lot of viewers may hold private student loans that they have to repay. What are their options?

ELLIE: Well, the outlook is not as sunny for those who have private loans. They have fewer options. Private education lenders don’t participate in the income-based repayment program and they’re not required to allow you to defer payments, even if you’re out of work. If you’re having trouble with your private loans, read your loan agreement. It may require that the lender grant you forbearance under certain conditions. Even if your contract doesn’t include an economic hardship provision, your lender may be willing to provide relief. Some lenders have become more flexible in this post-great recession environment. You could ask for interest only payments or even to change the terms of the loan. For more information, go to Student Loan Borrower Assistance

Ellie Kay
America’s Family Financial Expert (R)
http://www.elliekay.com/

Seven Steps to Thrive and Survive Financially

Today, many families are facing the same issues that Bob and I faced when we were first married—paying bills, stretching paychecks, and still trying to maintain a reasonable quality of life. We read in the news that homes are being foreclosed upon in unprecedented numbers across the country. Consumer confidence isn’t very high these days, sub prime rates are fluctuating and wages are remaining relatively constant—which usually means more inflation. Let’s face it, the headlines aren’t all that cheerful in the midst of a recession. If most families aren’t concerned about losing their homes in uncertain times, they’re certainly concerned about rising food and fuel costs, keeping their kids in clothes, or the freedom to go on vacation. But there are answers for those who are willing to do something about it. Here are seven basic tips to help you beware and prepare:

Investing with Ellie – Mid Year Investment Thesis

 

I’ve been on television and radio, as well as in live conferences lately giving my mid-year investment update. Due to so many requests, I’m posting the update today. Just remember that there’s no such thing as a safe investment and that any investment advice is something that must be evaluated by individuals as to what will work best for them personally.

Also, remember that before you invest in the stock market, an ETF or buy Gold as an investment, make sure that you’ve paid off all consumer debt, have funded your 401(k), built up a basic savings account with six months of income and funded an IRA.

What we know is true:

 

  • The bloom has falloff the rose in Europe. The market seems to be pricing in a 50% chance of a “bad outcome” –thus the current market pricing.
  • The end of disparities has seemingly brought US eco numbers down to earth. (Still not terrible).
  • US corporate balance sheets are at a 50-year high.
  • US equity valuation multiples are at a multi-decade low.
  • US GDP now estimated @ 2%. GDP is simply NOT in recovery mode yet.

 

 

 

 

  • Although things appear bad, keep in mind two things:  First, a lot of terrible news has already been digested in the market (and the market has adjusted to receive that news). Two, setting yourself up for Armageddon has, thus far, never worked out very well.
  • Housing Market:  The sheer fact that median rental yields are more than 1.5% higher than the average 30-year fixed rate mortgage should help support property prices. This suggest more residential property investment is becoming cash flow positive meaning there is scope for rents to cover interest and principal. I would recommend the SPDR Homebuilders ETX (XHB) for passive exposure to the US housing recovery.
  • Oil:  Brent crude prices have fallen $25 (WTI 40%) per barrel from the recent highs earlier this year. The recent price drop has been driver by: soft global supply demand, risk sell off due to global macro uncertainty, liquidation of substantial derivatives positions. I expect global crude prices will recover and would recommend: BP
  • Gold:  My friend, Larry Shover, author of Trading Options in Turbulent Markets  (Bloomberg Financial) says: “Gold is the end driver of global liquidity” and he is right. Industry consolidation and supply potential in western China provides a lot of expansion opportunities. In addition, bear in mind that China’s jewelry consumption per capita is less than 10% of the US. Everyone should have some exposure to it. I recommend the ETF (GLD).

 

Ellie Kay

America’s Family Financial Expert (R) 

 

Good News for Those Who Need Debt Consolidation!

This week on ABC NEWS, I was able to share GOOD NEWS for those who are in need of help!

Consumers in a post recession economy are easy prey for advertisements that claim their company can reduce your debt by 50% or more in just a few months. Thousands of those who have been battered by the recession have succumbed to the ads and dialed the toll free numbers featured in these ads. They’ve also signed up for debt-relief services, often at considerable expense. Sadly, many of these consumers have ended up even deeper in debt than before they made the phone call. Today, let’s look at the facts.

Q. First of all, how bad is the situation among debt relief agencies—are most of those firms out to take advantage of consumers?

ELLIE: The situation is pretty bleak, the Better Business Bureau reports more than 3500 complaints about debt-relief companies since the beginning of the recession. Granted, it’s probably out of line to make gross generalizations and say that all debt relief agencies are out to take advantage of a debt ridden consumer. There are some out there that are doing a good job with minimal fees attached. But unfortunately, there are many more that are adding to the debt woes of those they say they are trying to “help.”

Q. Would you say that the debt consolidation industry has thrived during a down economy?

ELLIE: Absolutely, it’s one of those industries that tends to do very well during financially challenging times. All of the sudden, people can’t pay their bills and they hear about others who have gone to a credit union or a debt consolidation company that has combined their debt in order to reduce monthly payments. But I believe, personally, that this industry, which tends to be opportunistic at best—is about to see a major change.

Q. A rule approved by the Federal Trade Commission last week will make it much harder for debt settlement companies to make a living. How does this FTC ruling help consumers?

ELLIE: It’s primarily wrapped up in the way that debt consolidation companies can advertise. No longer can they promise to “wipe away your debt” or “reduce it by 50%.” These dubious claims about their success rates are coming under close scrutiny. But even more importantly, the rule will prevent them from charging upfront fees for their services, which is expected to put a lot of debt-settlement companies out of business.

Q. Do you think it’s a good thing that many of these debt settlement companies could go under?

ELLIE: Yes! As a financial expert for the last 20 years, I’ve seen a lot of businesses that are out to stick it to the consumer. I’m all about helping families get out of debt and in my opinion, the majority of these companies are adding so many fees, that a lot of the people I’ve talked to are actually in debt 3 to 5 years LONGER after going to these kinds of companies. It’s been a wild, wild west for debt settlement and it’s about time the sheriff showed up and put some of those guys out of business.

Q. But the problem is greater than just dealing with the debt settlement firms, right? Aren’t there other companies that contribute to this problem and what is the FTC doing about them?

ELLIE: Excellent point, and I’m glad you brought it up. There are others that contribute to the issue and the FTC is cracking down on those companies as well. For example, there have been marketing agencies that earn big commissions for signing up as many customers for debt settlements as they can. These businesses have no interest in determining whether consumers are good candidates for debt settlement—they are just going after the bucks. In fact, many of those who signed up for debt settlement end up in Chapter 7 bankruptcy.

Q. It almost sounds as if there are no good options when it comes to debt settlement—are there any “good guys” out there in the wild, wild west? Is debt settlement ever a good idea?

ELLIE: There are legitimate companies that don’t charge an upfront fee and they offer full disclosure about what they can and cannot do for the consumer. You can go to the National Foundation for Credit Counseling, a non-profit organziation that can direct you. There are consumers out there who have large credit card balances, need debt consolidation and are not good candidates for bankruptcy. In fact, a 2005 bankruptcy reform law created a “means test” that has made it more difficult for some individuals to file for Chapter 7 bankruptcy. And a bankruptcy filing will stay on your credit report for 10 years, which could make it difficult for you to get a job, particularly one that requires a security clearance.

Q. So, how to you find a company that can truly help consolidate your debt without taking advantage of your difficult situation?

ELLIE: The key is to ask them the right questions such as:
“What’s your success rate and what percentage of people drop out of your program?”
Before the FTC rule came into play, companies could cherry pick examples of successful customers to inflate their results. But now if the company claims it can reduce your debt by a certain percentage—for example 40% to 60%–then the consumer has the right to ask for objective evidence to support those claims. If they can’t provide the information, then they probably belong to the unscrupulous crowd.

Q. What are some other questions consumers should ask?

ELLIE: Besides asking about their success rate, the next most important question is: “How much will it cost, and how long will it take to settle my debts?” The biggest misconception that people have about debt settlement is they’ll get a service in exchange for an advance payment. Most of them do not do that. In fact, the new FTC rule now bars debt settlement firms from collecting any money until they’ve settled or reduced your debt. But you should still make sure you understand how much the service is going to cost and how long you’ll have to wait before you see results.

Ellie Kay
America’s Family Financial Expert (R)

Prioritize Your Debt – What to do With Unpaid Bills

Recently, on ABC NEWS, I talked about the fact that some parts of the country still have unemployment in the double digits while other employees are facing cutbacks in hours and salaries. More and more people are having a hard time paying their bills in these economically challenging times. If you only have a certain amount of money available and you know you won’t be able to pay all the bills, you need to know that not all bills are created equal. There are certain bills that have greater penalties than others. Today, I want to help you look at how to tackle those unpaid bills as well as grace periods and the variable consequences for not paying bills on time.
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Q. Are people still having a harder time paying their bills? I mean, we hear about new jobs being created and the recession is officially over. Why are some families susceptible to continued financial difficulty?

ELLIE: Obviously, unemployment is a big issue as well as the fact that many workers have had to accept pay cuts or work fewer hours to keep their jobs. With these come a contagion effect in that if you are unemployed or you go part time, there’s additional costs involved such as purchasing health insurance. Even if these workers find new jobs, they still have the residual effect of having less income for many months. In other cases, some may have had homes foreclosed upon and it’s cost them a lot to get established in another place of residence, plus these individuals has tanked their credit ratings—which means that rental property will require a larger down payment. A poor credit score also means these renters have to pay more down to even get basic utilities hooked up to their rental property. All these expenses start to add up and eventually, families are finding that they don’t have enough to pay all the bills.

Q. So if someone is between jobs or had some unexpected expenses such as medical bills, then what bill should they pay first?

ELLIE: When it comes to paying the bills there are always consequences for not paying. However, it’s the severity of the consequences that people need to consider when they are rank ordering which bills they should pay first, second, and so forth. The rule of thumb is to look at how fast your creditors will be likely to move against you. Which brings us to the most important bill and first bill you should always pay—your mortgage. If you fail to pay, the bank can begin foreclosure in as little as three months. Plus, this is the most significant debt you have when it comes to influencing your credit score. And with a poor credit score, the bills will just stack up even more quickly as we know that those who have bad credit have to pay more for deposits, for auto insurance some times and a poor score can even influence whether you get a new job or a job promotion at your existing place of employment. So protect your score and your financial future by paying the mortgage first.

Q. OK, so we understand that the mortgage is the most important bill, what would come second?

ELLIE: The next most important bill to pay is your car loan. Not only because you need a car to go to and from work, but also because as the second most significant loan you have, it will also impact your credit score in a more significant way than a department store charge card or a utility bill will. As for the consequences of not paying, a lender can begin repossess your vehicle if you’re a day late, but in all actuality, most will wait about sixty days. If you are serving in the military in a combat zone, there’s a little more leeway for vehicle repossession, you should contact your base’s financial office if you’re in danger of repossession while on active duty. But for the rest of us, not paying this important bill will cripple your ability to remain gainfully employed as having a vehicle is essential in most cases.
Q. So we’ve paid the mortgage and the car loan, now we pay credit cards, right?
ELLIE: Yes, that’s right. As you know, credit cards payment are very important because if you don’t pay on time, you’ll get hit with late fees. But there are more consequences than just a late fee. You might be faced with a hike in your APR if you’re tardy and then it could spread to other cards as well. You might find your average APR going from 9% on your credit cards to 24% or more in just a month. After about six months of missed payments, credit card companies start to send your account to collections and then you have an entirely new set of headaches to contend with. Concentrate on paying bank cards first such as Visa, Mastercard and American Express. You can even go to www.bankrate.com and look for lower interest rate cards that offer a promotional for transferred balances which can help your overall liability on credit cards. A final option is to go to your local credit union to see about a consolidation loan.
Q. Let’s say you have a little bit of money left, what’s one of the lower priority bills that you can tackle?


ELLIE: The next bill to concentrate on just happened yesterday—taxes. While technically, there is no “grace period” you can ask about an installment plan. The IRS can eventually garnish your wages and seize property or bank accounts. The old saying, “death and taxes are inevitable” exists, it’s because you WILL have to pay that tax bill some day—whether you’re a celebrity dishing on talk shows and making 25 million dollars a picture or whether you dish up ice cream part time at Coldstone making $25 a day!

Q. Thus far, we haven’t mentioned student loan debt, isn’t that an essential bill as well?

ELLIE: Yes, it does seem kind of crazy that student loans haven’t made it into our priority list yet, but I think that it illustrates the fact of how quickly the money goes for more “essential” bills and how there’s often more month left at the end of the paycheck Lenders for student loans will wait about nine months before placing a federal loan in default. As of last July, graduates can opt for a loan program that bases payments on up to 15% of your annual gross income. If you have these kinds of bills, then you can go to www.IBRinfo.org for help in how to pay your student loans more efficiently.

Ellie Kay
America’s Family Financial Expert (R)
www.elliekay.com

When Two Incomes Become One – WIN A BOOK!

Here is another chance for you to win a copy of Ellie’s newest book, The Little Book of Big Savings (Waterbrook, 2009) by having Ellie answer your question on ABC News Now.

Do You Fear Unemployment?
Are you a two income family, that is suddenly down to one income?
Are you afraid your company’s cutbacks might include your job as well?

If so, then we want to hear from you! What question(s) would you like to ask Ellie about your situation?

The producer(s) of ABC News Now will select the questions for Ellie to answer on the “Good Money” show to air on October 27, 2009.

Please email your questions to: assistant@elliekay.com or posted it on today’s blog (below).

The deadline for your questions is: Monday, noon PST, October 26, 2009

Remember the ABCs of past prize winning questions:

  • Accuracy– Questions that accurately fit the show’s theme for the day are most relevant. This week’s theme is “When Two Incomes Become One.”
  • Brevity – If it takes two minutes to ask the question, then it won’t be selected. A question that can fit into a 10 to 15 second soundbite is ideal.
  • Clarity – The world of TV news revolves around questions asked in a way that is easily understood by viewers.

We look forward to hearing from YOU as you join Ellie on ABC News!

Is the Recovery for Real?


One of my favorite musicals is The Phantom of the Opera. I’ve seen it on Broadway, in Spokane and in Los Angeles and it’s always a powerful reminder of the phantoms we struggle with in life. This recession has been a formidable foe for many Americans as they wonder when (and how) it will end.
Recently, Federal Reserve Chairman, Ben Bernake, announced that he believes the recession is over. How do we know if this is the real deal or just a phantom? Here are some signs that the recession is really over:

  • Retail Sales – With the holidays right around the corner, retailers are forever watching to overall gains and losses. Any signs that retail sales are on a sustainable upward trend (3 or more quarters of growth) are good signs for a recovery.
  • Corporate Profits — We will need to see genuine revenue growth from US Companies in order for us to say this area is picking up. We can’t just look at profits that result from cost and job cuts or stimulus incentives. Real growth means real revenue.
  • The Market – When investors move away from safe havens such as low yielding CDs and money market funds and they instead go back to investing in stocks–then we can be sure that confidence in the stock market has been restored.
  • Jobs — Just try to tell the guy who is unemployed, “hey good news! The recession is over!” He’s still without a job–it doesn’t feel like it’s over for him. We’ve lost almost 7 million jobs since the beginning of 2008. Signs that companies are creating jobs, done firing and even looking to hire mean that their cash flow is improving and so is our economy. When there’s a drop in the number of jobless claims (getting below 500,000), then we can believe we’re in recovery.

Whether the recovery is real or we’re still in a recession, it’s important to practice the basics of good financial management: get on a budget, live a more frugal lifestyle, pay down debt, and follow the seven steps to thrive and survive during a recession. If you allow this recession to be a wake up call as to how you manage your money, then your personal recovery will last a lifetime!

Ellie Kay

America’s Family Financial Expert (R)

http://www.elliekay.com/

Is the New Frugality Here to Stay? — Ellie on FOX NEWS – Neil Cavuto

A new study by research firm AlixPartners indicates that when a new normal sets in after this recession is over, Americans will spend at about 86 percent of their pre-downturn level. Today, I was on Neil Cavuto to discuss with guest host, Stuart Varney, whether this new frugality is lasting or just a passing fancy.

I believe it’s here to stay for several reasons. I think that the hard-earned, hard-learned lessons of the recession are not likely to fade as soon as our economy shows its first two quarters of growth. Some of those lessons came through job loss, foreclosures and underemployment and if you weren’t directly impacted–you know someone who was.

Secondly, I think that we’re not going back to those pre-recession spending levels because there will be what I call a forced frugality. While there will always be spenders out there, it’s going to be harder to spend because:

· NO MORE EASY CREDIT the days of easy credit won’t be so easy as lenders continue to scale back on available lines of credit. One of the reasons Americans could spend beyond their means was because of the ready availability of easy credit.
· NO EQUITY – there’s not going to be the equity in your home to leverage in order to pay for consumables. The people who used home equity to pay for vacations, get out of consumer debt or add a new kitchen are now wishing they had the equity instead. Some of these people are even upsidedown in their homes because of leveraged equity.
· EMPLOYMENT ISSUES – Because spending is down, more job sectors are going to continue to be impacted. As people spend less, more folks lose jobs and unemployment may continue to rise even after the recession if officially over. It’s going to take a while for the job market to bounce back—unemployment and underemployment are going to be continued problems.

Thus, the need to adopt the new frugality as a classic style rather than a passing fad. People like me, who have been preaching the gospel of living within your means, paying cash, paying down consumer debt and letting your kids go to a college you can afford—are now in high fashion.

I hope this kind of fiscal sensibility never goes out of style!

Ellie Kay
America’s Family Financial Expert (R)
http://www.elliekay.com/

MAJOR MEDIA – Couples Money Workout

One of the most requested files I have is for my “Couples Money Workout” as it is helping save marriages by giving couples a tool to discuss money matters without throwing food or calling in the SWAT team. I recently recorded a segment with a fabulous couple, Chris and Kathy Hansen, for a major media news show. Once it’s going to air (later this month), I’ll announce the show and the date.

When Bob and I were first married we didn’t like to say that we “argued” about money. Since he was a born spender and I was a born saver it was natural that learning to manage money as a couple would require a certain amount of give and take—but the word “argue” was just kind of negative for newlyweds like ourselves. So we called it “intense fellowship” instead! We learned that there was a right way to approach this dreaded topic and a very, very wrong way.
One of the things I did before I talked about the One Hour Money Workout for Couples, with the Hansens was to play a game—the Newlywed game, in fact! You can do this by getting 12 pieces of paper (or cardstock) and two big markers (like they use on the show) and get ready to learn some things about your mate! Answer each of the following for yourself and your mate and have your partner do the same thing.

1. Complete the sentence, when it comes to money, I wish my partner would stop _______.
How do you think your spouse answered this question? ___________
2. If you won $1000, what would you do with it? ____________________ How would your spouse spend it?____________________________
3. How would you answer this statement (circle one) “I would rather have: money * beauty * brains.
What would your spouse circle?________________
As you answer these questions, I think you’ll find that you and your spouse are different. You may discover that you didn’t know as much about your mate as you thought you knew or vice versa! But part of any healthy relationship is realizing we are different and we can give each other permission to have their own thoughts and feelings about financial matters. The goal, whether you are a newlywed or you’ve been married forever, is to communicate effectively about money, get on the same team and find financial freedom!
As we prepare for the workout, it’s important to establish boundaries and do a little bit of preparation work as well. Here are some things to keep in mind as you set up boundaries and prepare:

  • table all financial talks until your couples money workout time
  • no condescension or negativity
  • no interrupting your partner when they are talking
  • no name calling
  • no throwing food
  • start by saying one positive thing to each other
  • end by saying one positive thing to each other
  • create an environment that encourages comfort and success
  • have a timer on hand – for each segment in the workout

Bob and I developed a one hour money workout because we thought that if our “money talks” had a start and a finish they would be a lot less painful. We knew we wouldn’t get all our problems solved in just one hour, but we also knew that if we kept at it, we’d make progress. Email me and ask for the “Couples Money Workout” and you’ll find a miracle happen in your marriage, too!

Ellie Kay

America’s Family Financial Expert (R)

Ellie on Neil Cavuto — Financially Pinched Companies Pinch Employees

Goodyear Tire announced that they were reinstating their 401(k) program after cancelling it in 2003. But it’s not the “good news” it appears to be because at the same time they froze more traditional pensions, thereby saving hundreds of millions of dollars at employee’s expense! So what do YOU do when your company cuts benefits–do you have a recourse?
Basically, you take charge. You don’t rely on your company to be your uncle sugar, you realize that you have to rely on other resources that are available to you. Today, I shared this on Neil Cavuto
1) TAKE ADVANTAGE WHILE YOU CAN: Invest in your 401(k) if/when it comes back into play. Companies are reinstating formerly suspended 401(k) plans. These may come back for six months, a year or longer. TAKE ADVANTAGE OF THE MATCHING PORTION up to the the % the company allows (usually 4% or 5%). Even if they are only matching 25%, that’s a much better percentage than what you can make on your money in today’s market.
2) TAKE MATTERS INTO YOUR OWN HANDS: One of the things that companies are doing is kind of a bait and switch tactic. For example, they may be reinstating 401(k)s but they are coming in the back door and cutting pension programs that are far more costly. It used to be that you could cound on social security and your pension to retire, but that is no longer true during a recession. Therefore, you need to fund your own retirement through Roth or Regular IRAs or even a SEP IRA (Simplified Employee Pension) if you or your spouse own a small homebased business. Max out the amount you contribute to your IRA based on your age (up to $5,000 for a traditional IRA or $6,000 if you are over 50) and don’t trust your company to fund your retirement.
3) TAKE CARE OF YOUR OWN HEALTHCARE: Just about the time we find out that healthcare costs are rising 7% to 8%, we also find out that more and more companies are cutting healthcare benefits. Yesterday was the time to check into a high deductible individual or family plan with an HSA (Health Savings Account). For example, if you’re an individual and have a $2900 deductible on your health insurance, you can tuck up to $2900 into a tax favored HSA account. If you’re a family you can contribute up to $5800 per year. These tax favored funds are not the old fashioned “use it or lose it” rather they are your funds that will be rolled over from year to year and can eventually be used at retirement. Premiums for this high deductible plans are about half what a costly group plan can cost you and your family, so now is the time to have that safety net of covering the big medical expenses while not trusting your employer to be there for you when it comes to healthcare.
4) TAKE IT TO THE TOP & BE THE TOP: Employers still want to attract and keep the best talent. Show them you are not the weak link and make yourself indispensable. Go the extra mile, do quality work, bring in business, get along with your peers, support your boss and make sure that YOU are the talent they want to keep.
5) TAKE THE HIGH ROAD: If you are in the position of having to accept a severance package realize that you can still negotiate it. You can often test the wiggle room to get a higher amount and you can determine whether you take a lump sum or a longer payout. You also need to be sure to negotiate for longer lasting health and life insurance benefits. Don’t sign any papers the day you are let go and don’t make any rash or emotional decisions. Take a breath, take your time and realize that you still have options.

Ellie Kay

America’s Family Financial Expert (R)
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