Ask the Expert: Managing Debt

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AARP Money expert Martin Booker returns to the Online Community the week of October 4th to answer questions around reducing debt during challenging times. Martin will share tips, tools and resources to manage debt, create a debt-reduction strategy and budget for your financial future.

Please note that experts do not answer a Member’s personal questions, but offer insights and general guidance into best practices, tips and resources, including AARP Money Map.

Learn and Earn! Ask a question of our expert to earn 50 points awarded via code emailed to you after you participate (one entry per week given points). Ends October 11.

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What is the best way to approach finding insurance that covers for a reasonable price?

[MartinBooker]

Throughout the process of debt management, there are certain actions and terms that will be helpful to know. To start this series, let’s ground ourselves in some of the important terms that would be good to know during your debt management journey:

• Lender/Debtor is the institution or person that you will be obligated to pay for your loan. Your lender can be a bank, credit union or a lending company. Depending on the type of loan, your lender can sell your debt to another lender. This happens often in the case of Mortgages.

• Annual Percentage Rate (APR) is the yearly percentage amount that you will pay to borrow money from your lender. Typically, loans with longer terms will have a lower APR. For example, a mortgage loan will be lower than an auto loan, which is lower than a credit card. It is important to aim for a lower APR. This is also commonly known as an interest rate. Please be aware that predatory lending companies will charge you interest rates that are above normal interest rates. If you accept a predatory loan, you may be paying monthly minimum fees that are high and accruing interest at a high rate.  

• Due date refers to the date in which you make your minimum payment on your loan balance.

• Reporting date is the date that your lender reports your loan to the major credit bureaus. This date is not typically shared with the borrower (you) unless requested. If you call customer service for your loan provider, you can receive the date that is reported to the credit bureaus. Knowing this date can avoid your score from being lowered if you are not able to make your payment by the due date. Making a payment before it’s reported will not avoid late fee penalties, but you can avoid a negative hit on your credit score

• Interest accrued refers to the amount in dollars that you will pay for the month for holding your debt. You can find this amount on your monthly statement. It’s good to monitor this amount to ensure that you are not paying more money in interest than you’re paying on your minimum balance each month.
  
  
• Minimum Payment is the amount that you must pay to fulfill your minimum debt obligation for the month. This amount will often fluctuate for credit cards, but can be a set price for auto loans and mortgages.

While there are many more terms that are used when managing debt or handling your credit, this is a list of terms that you may see or will want to know while you’re managing your debt.

What other terms have you seen that would be helpful to add to this list?

[MartinBooker]

AARP Money Map offers an opportunity to organize your day-to-day finances while creating clear plans of action for various financial challenges. From your dashboard, you can get assistance with unplanned expenses, debt management, build a budget and access a financial goal tracker, so you can map an action plan to your financial goals such as reducing expenses, paying off credit cards, or saving for a rainy day. 

AARP Money Map is completely free and getting started is simple. Start by going to moneymap.aarp.org. When you access the tool, select what you would like to get help on. You get even more value by creating an AARP login; so, you can check your progress on your goals!

Unplanned Expenses helps you plan for that unexpected bill, find the right people who could provide assistance such as credit counselors and non-profit organizations, and compare your options for resources such as funding, free aid, and grants, if applicable.

Debt Manager will provide you with a plan customized to your income, debt, and expenses, with actions you can take to eliminate your debt in the smartest way possible. We will also show you what you are saving by sticking to the plan, and you can view progress to see how long it will take to eliminate your debt, and the money you are saving by doing so.

The Financial Goals Tracker lets you set goals and provides activities to help you achieve those goals, such as getting on a budget, tracking your spending, and creating a savings account, all depending on what you are hoping to achieve.

Budget Builder allows you to select the expenses that you want to budget for today, shows where you spend your hard-earned money, and compares those expenses to your income. By using Budget Builder to proactively set your spending priorities and identify opportunities to reduce spending, you’ll be able to free up funds to put towards reducing your debt, saving for the future, or another financial goal.  

The more you leverage the AARP Money Map, the better it can help your journey on the road to financial freedom.

[MartinBooker]

A good first sign that you need to get serious about managing your debt is if you feel stressed thinking about your debts. 

Another sign that your debt may be getting out of hand is how reliant you are on credit cards. Don’t confuse that with “you can never use a credit card,” but if small daily expenses require those cards, and you don’t have the money to cover the monthly charges when they come due, that’s likely going to get those balances out of control. You run the risk of not being able to afford unplanned expenses like medical services or home or car repairs, without going into more debt. 

A more objective sign is your credit score, which is a number between 300–850 that depicts your creditworthiness. The higher the score, the better you, as a borrower looks to potential lenders. A credit score is based on your credit history: number of open accounts, total levels of debt, repayment history and other factors.

A sinking credit score is a big indicator that you’re losing control of your debt. There are many services online that can help you keep track of your credit score. Nowadays, if you have credit cards, the provider may have a credit score checking tool on their website. Though this isn’t the most accurate of resources, it does give you a good rough idea of your standings. If you want something more accurate, you are entitled to a free credit report through annualcreditreport.com every 12 months, or you can call 877-322-8228, toll-free. 

Remember, a credit report and a credit score are two different things. A credit report will give you details on what is impacting your credit score, such as what loan accounts are open. You can get these free weekly through annualcreditreport.com through April 2022.  

For your credit score, you’ll want to reach out to the three credit bureaus: Experian, TransUnion, and Equifax, though those could incur a fee.