Life After Debt: Debt-free Living

Life After Debt: 7 Steps to Maintain a Debt-free Lifestyle

What You Will Learn:

After completing the Life after Debt online course, you will know how to:

• PREDICT your likelihood of incurring future, unmanageable consumer debt
• PREVENT the pain of future financial emergencies and economic crises
• MAXIMIZE your current paycheck and income to achieve your priorities
• INCREASE your income temporarily or permanently
• RESPOND to any future debt you may incur

Start with this Introduction Video

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7 Steps to Maintain a Debt-free Lifestyle

We are excited for you to join us today. With two of our previous courses having won well-respected awards, we can assure you your experience will be both engaging and enlightening.

As you go through this course, you will learn to set up the second steps for maintaining a debt-free lifestyle:

1. Savings
2. Paycheck management
3. Spending controls
4. Credit building
5. Income growth
6. Setting accountability
7. Dealing with future debt

Earning Your Certificate of Completion

By following the steps through the course, you can master your credit report and score. Whether you would like to know the difference between a credit report and a credit score, or you are looking for specific steps to follow for rebuilding your credit rating, this course is for you.

To move from one module to the next, you will need to successfully complete the final course quiz with a score of 80% or better. Once you have gone through all the modules and successfully passed the final quiz, you will receive your certificate of completion as a PDF attachment by email.

Life after Debt Glossary of Terms

Click HERE to download a Glossary of Terms for this course.

Rating Your Potential for Dealing with Future Debt Problems

Becoming debt-free once does not guarantee you will remain debt-free for the rest of your life. Debt happens, again and again and again in some cases.

The good news? There are many things you can do to minimize the chance of consumer debt showing up again in your future. That’s why we created this course.

This Debt Risk Score evaluation tool can provide insight into the possibilities of dealing with more periods of consumer debt in the future.

Once you have completed the Debt Risk Score evaluation, please click the Complete and Continue button.

*This evaluation is offered for educational purposes only. Though based on our decades of experience with debt management clients and adult learners, the complexities of predicting future debt challenges based on a limited evaluation such as this understandably prohibit truly personalized recommendations.

Debt Risk Score Evaluation

The Money Fit Debt Risk Score Evaluation*

Complete the following to generate your Debt Risk Score that rates your potential for incurring future, excessive consumer debt.

The Debt Risk Score is not used by any lenders but is a self-evaluation meant to help you understand whether you have developed any behaviors that tend to generate excessive consumer debt.

THERE IS NO RIGHT ANSWER. Answer based on your individual experiences and views.

*Your results will be included in the email you receive after completing this course.

Step 1: Start Savings

Experts and households that reach their financial goals tell us that a persistent habit of saving (not spending) some portion of all income sources is central to a stable and satisfying financial life.

Check out the following lessons in Step 1 to learn more about the value of saving and tips for making it happen.

Savings Is the Key to Debt-free Living

Debt that overwhelms household finances typically results from three primary situations:

1. Job loss or household income reduction
2. Overspending on consumer expenses
3. Excessive medical bills

Divorce, addictions, and lawsuits also find their way onto many lists of the top reasons for consumer debt.

Because an ounce of prevention is worth a pound of cure when it comes to debt, we prioritize savings above all other topics in this course. Sufficient savings will…

• minimize the possibility of incurring future debt
• prepare you for expensive medical issues
• secure your finances in times of unemployment

Cultivating a mindset around savings can also move you away from mindless spending (i.e. impulse) and toward purposeful money decisions.

Save for Emergencies

If you’re not sure what emergency savings funds are for, remember this:

The purpose of an emergency savings fund is this: to make up for lost income.

• Job loss
• Temporary income reduction
• Self-employment income troughs

Short-term Savings Goals

Additionally, households should consider saving for future non-emergencies, such as:

1. Vacations
2. Birthday and Christmas gifts
3. Vehicle repair and replacement
4. Appliance and furniture repair and replacement
5. Future splurges and impulses

For more information, check out Money Fit’s ultimate savings guide here.

Is Savings an Amount or a State of Mind?

Start saving by starting small

Creating a habit of saving something - no matter how small - every time you earn or receive money is more important than your final saving goal amount.

Saving 10% to 15% of your income may be your ultimate goal, but most households need to start small. Consider the Money Fit 52-week Money Savings Challenge to kickstart your savings habit. It takes just 30 seconds and will email your savings plan to your inbox.

Take Your Values into Consideration when Deciding Where to Save

Depending upon which value or values you find most important, There is NO SINGLE RIGHT PLACE to keep your savings funds, although each option has its own advantages and disadvantages. Where you save your money will depend upon your values and your priorities. The four primary values that might influence your savings decisions include follow following, with savings options after each

Anonymity and privacy

• Savings receptacle at home (e.g. piggy bank, jar, safe, etc.)
• Prepaid debit card
• Coffee can buried in the backyard

Ease of access

• Savings account at bank or credit union
• Money Market Account (MMA)
• Savings receptacle at home (e.g. piggy bank, jar, safe, etc.)
• Prepaid debit card

Interest earned

• Certificate of Deposit (CD)
• Money Market Account (MMA)
• Treasuries (savings bills and notes)

Security of funds

• Savings account at bank or credit union
• Certificate of Deposit (CD)
• Treasuries (savings bills and notes)
• Prepaid debit card

How Much to Save and for What

You already know saving for emergencies and short-term goals should play a critical role in your household finances. Sometimes, though, knowing something does not equate to doing something.

The following hacks can both simplify the savings process and increase your chances of successfully reaching your savings goals:

1. Calculate what you need
2. Allocate how much you need to save for each goal from each paycheck
3. Separate your savings into multiple accounts
4. Automate your savings deposits
5. Communicate your savings activities and goals with other adults in the household
6. Celebrate your s4avings achievements

1. Calculate What You Need

You need to know how much you should be saving. To know that, you need to understand what you are saving for.

You can easily determine how much you need for short-term goals like vacations and birthday gifts. However, deciding how much to save for emergencies gets a bit tricky. You don’t know when and how extensive the emergency will be. In general, you want enough money in your emergency savings to replace your income in case you find yourself without income (due to unemployment or an accident) for several months. Use the following formula to get a more practical savings goal than the 3-6 months often recommended in the media.

1. Add up and write down your monthly living expenses, including housing, food, necessary clothing, required transportation, and a phone plan.
2. Divide your estimated annual income by $20,000. Example: $70,000 ÷ $20,000 = 3.5
3. Multiply your monthly living expenses from line one by the result of line 2. This is your target emergency savings fund amount.

If your monthly living expenses add up to $3,800 (step 1) and your annual income is $70,000 (step 3 results in 3.5), then you multiply $3,800 by 3.5 to come up with a target emergency savings goal of $13,300.

2. Allocate

Besides your emergency funds, you should plan to save for various short-term goals.

• Make sure you have identified which goals you want to save for. Examples might include emergencies, your next vehicle, a vacation, appliance and furniture replacements, landscaping, etc.
• Determine how much money you need to earmark from each paycheck to go to each goal. Use the savings goal HERE to set your monthly saving amounts for each goal.
• Place a portion of each paycheck or other income into each savings account. The following Savings Pie provides an example:

3. Separate

Many households add money to savings every month but transfer it back to their checking mid-pay period because they need it for impulse purchases, splurges, or unexpected bills. If you have ever found yourself in such situations, consider the following ideas for this hack:

• Keep your savings funds in accounts that are separate from your checking (spending) account.
• Move your savings funds to a savings account in a separate bank or credit union to minimize the temptation to transfer your savings funds back to checking between paychecks.

If your goal was to stop eating junk food, would you keep a pile of it on the kitchen table? Of course not. Move your savings away from your spending account.

4. Automate

The most powerful of all our hacks, this suggestion can put your savings on autopilot so you can stop stressing about how much to save and, even more importantly, stop trying to make the decision to save every month. Make the decision once, and then let automation do the rest. Here are three options to consider. Match your situation to the one that will seem to work best for you:

• Option 1: Set up a direct deposit from your employer into your emergency savings account
• Option 2: Set up an automatic transfer from your checking account to your savings account
• Option 3: Set up an automatic bill pay from your checking account to your savings account at a separate financial institution

5. Communicate

Sharing your savings commitment and goals with others can help in several ways. First, if there is another adult involved in your finances (spouse, partner, etc.), consider the following hack:

1. Set up a 15-minute weekly “financial huddle” with the other adult.
2. Balance your spending/checking account before the meeting.
3. Review your mutually agreed-upon savings goals to begin the meeting.
4. Note the current balance in your spending/checking account.
5. Identify all upcoming bills and expenses between now and the next paycheck.
6. Decide who will pay each bill or expense and how (online, app, cash, etc.).
7. Discuss how to save more money to put toward your goals.

The next hack, as simple as it sounds, has been proven to increase your chances of success for achieving goals by nearly 80% over simply identifying your goals:

• Find a friend, family member, or mentor to share your savings goals with.
• Report your savings progress to this confidant weekly by phone, in person, by text, or via email.

6. Celebrate

To find a little extra motivation to save, consider celebrating your successes. Here are a few ideas to help:

• Identify savings milestones that you want to reach and can celebrate. For example, when getting started, set a $500 or $1,000 milestone goal.
• Incorporate a small amount of “fun money” into your savings to celebrate when you reach your savings goals. For example, celebrations might include a movie or dinner out for smaller goals or a staycation for larger goals. If dinner out costs $50, set a goal to reach $550 and then celebrate with a dinner out once you’ve hit $550.

6 Ways to Ensure Your Savings Success

You already know saving for emergencies and short-term goals should play a critical role in your household finances. Sometimes, though, knowing something does not equate to doing something.

The following hacks can both simplify the savings process and increase your chances of successfully reaching your savings goals:

1. Calculate how much you need (use our free Calculator)
2. Allocate how much you need to save for each goal from each paycheck
3. Open a separate savings account for each specific goal
4. Set up automatic transfers into your savings accounts
5. Coordinate your savings goals with a spouse or partner
6. Celebrate your savings achievements in fun but affordable ways

Additional resource: Money Fit’s Ultimate Savings Guide

Your Commitment to Save

Use the following 1-question survey to commit to yourself that you will start or continue saving:

Call it a budget or a spending plan, in the end, how you manage your paycheck matters. If you do not set up a plan for what to do with your money, you set yourself to spend your money on unexpected and impulse purchases.

Creating a plan gives you a financial roadmap and gives your income a purpose.

Read the following lessons to learn more about paycheck management.

In case you didn't download it before, you can access the course glossary by clicking here.

How Paycheck Management Prevents Future Debt

Properly and regularly managing your paycheck maximizes the power of your earnings. Mismanaging it, on the other hand, can lead to years of stress and frustration resulting from the accumulation of consumer debts. You may be among those who already manage money well, balancing your accounts regularly, budgeting monthly, and tracking your spending, yet you still ended up in debt, perhaps for some of the reasons beyond your control as mentioned in the previous lesson. Maybe your household lost income, you were involved in an accident, experienced major health challenges, or went through a divorce.

Regardless of the source of your prior debt, you likely already know that when consumer debt mounts in your household, you can lose the financial ability to achieve some of your top priorities.

Important Steps

Managing your paycheck involves just three general steps:

1. Secure access to your funds
2. Prioritize your expenses
3. Systematize your spending

Securing Your Funds in a Federally-Insured Account

While it seems unbelievable that nearly a quarter of the way through the twenty-first century there would be any business that does not offer direct deposit, this sad truth remains. Many employers still have not set up a direct deposit option for their employees.

The resulting problems are twofold:

1. Employees are disincentivized to open and maintain a checking account.
2. Employees end up losing between 3% and 10% of their paycheck to fees for loading prepaid cards, cashing checks, and taking on non-traditional loans like payday and vehicle title loans.

Prioritize Your Expenses

Also known as budgeting, prioritizing your expenses means you identify which of all your possible purchases and bills for the upcoming month should be paid before others. A complete commitment to this way of thinking can make a formal budget unnecessary in many households.

Payroll taxes that are taken out of most paychecks before the employee even sees their paycheck typically include the following:

• Income Tax (Federal): 10% to 37%
• Income Tax (State): 0% to 12.33%, depending upon your state
• Income Tax (Local): 0% to 10%, depending upon your city/town
• Medicare: 1.45% of your gross pay**
• Social Security: 6.2% of your gross pay

Sometimes, the Medicare and Social Security taxes can show as a combined FICA tax (Federal Insurance Contributions Act). FICA simply add the 1.45% Medical tax to the 6.2% Social Security tax to equal 7.65%.

Additional deductions many employees might see from their paycheck into contributions to their employer’s retirement program (401k, 403b, pension, etc.), a flex spending account or health savings account (HSA) deduction, and life insurance premiums. Less common deductions include garnishments, charitable contributions, and job-related expenses such as union dues, uniforms, and meals.

Maximize Your Paycheck

While the FICA taxes are the same for every employee across the country, your income taxes will vary depending upon two figures:

1. Your income. Most, though not all, states have tax brackets, meaning that the more income you earn, the higher the percentage of your income you will pay in taxes. The alternative in a few states is known as a flat tax where everyone pays the same percentage of their paycheck in tax, regardless of income.
2. Withholdings claimed: Each year, you should complete the IRS’s W-4 form, specifying how many qualified dependents and other dependents you claim. Each dependent you claim will lower your taxable income by a set dollar amount, meaning the government will take fewer taxes out of each paycheck. You may also identify an additional amount of deductions to lower your taxable income if you expect to claim any deductible expenses beyond the standard deductions on your tax returns.

*Figures based on 2021 publications

** High-income earners pay an additional small percentage in Medicare tax

In its simplest form, a budget is a plan for your monthly spending and requires just three steps:

1. Add Net Income
2. Subtract Expected Expenses
3. Adjust Income or Expenses or Both

Most spending plans will include these three steps to one extent or another.

Spending Plans

We offer three budget calculators below that you can choose from if you prefer a formal budget. We highly recommend you choose at least one and that you include your email so you can receive a copy in your inbox.

50/30/20 Budget

This percentage-based budget takes your paycheck (or any source of income) and divides it into three sections:

50% goes to pay for your living expenses

30% goes to lifestyle choices

20% go to saving and investing

To keep it simple, you get to decide what constitutes a “living expense” (e.g. housing and food), what a lifestyle choice is (e.g. dining out), and what you save and invest for.

Money Pie Budget

Money Fit developed the Money Pie budget to offer a little more guidance for using a percentage-based budget. Instead of just three categories, it offers six:

10% GIVE (Generosity)

50% LIVE (Housing and Utilities, Transportation, Food, Cell Phone, Internet…)

10% PREPARE (Save for Emergencies and Short-term Goals)

10% PLAN (Invest for Retirement and Long-term Goals)

10% IMPROVE (Invest in Yourself, Start a Business, Get a Degree/Certificate)

10% ENJOY (Have Fun)

Simple Budget

A pared-down version of the traditional budget, our Simple Budget asks you to estimate your monthly expenses in just 10 possible categories. It then totals up your expected expenses.

The calculator then displays your likely total spending for the month. Your task becomes one to earn enough money to pay for those expected expenses.

Take a Break to Budget

See how easy budgeting can be by clicking on one, two, or all three of the links below. They will take you to our free budget calculators where you can create a personal or household budget in no time:

• Money Fit’s 50/30/20 Budget
• Money Fit’s Money Pie Budget
• Money Fit’s Simple Budget

Having a bank and planning your expenses will help you prepare for your spending, but putting a system in place will greatly increase your chances of living below your means. Such a budgeting system might include the following:

1. Automating your bill payments through your bank or credit union
2. Setting up direct debit payments with your lenders, utility companies, and phone service plan provider
3. Setting up automatic deposits or transfers to various savings and investment accounts
4. Adding reminders to your calendar so you won’t forget important bills and expenses
5. Dividing your paycheck into categorized envelopes that you use for very specific purposes throughout the month

Look for or develop a system that works for you and your situation. No system works perfectly for everybody, so plan to make adjustments over time. With practice and modification, your system can make saving, investing, and spending as easy as waking up in the morning.

Creating a spending plan is critical, but it certainly does not guarantee you will spend according to your plan.

Complete the following steps to learn how to set up your spending and create habits that will increase your chances of living by a budget.

How Spending Fits into Long-term Freedom from Debt

Living debt-free requires both self-discipline and a certain amount of luck. Perhaps better stated, you need to have the discipline to prepare your finances so you can weather life’s bouts of bad luck, such as job losses and medical emergencies.

We’ve helped hundreds of thousands of consumers pay off 100% of their debts that had come from overspending on credit cards. However, we’ve also helped similar numbers of consumers pay off debts that they incurred following divorces, hospitalizations, job losses, and other events they did not directly or, in many cases, even indirectly choose.

Now that you are debt-free and have committed in the previous lessons to saving (paying yourself first) and have set up a personal or household budget, your third key to debt-free living and surviving difficult financial times without going into debt will include setting up controls to manage your spending. Otherwise, living in a consumer society, we become much more likely to spend our money on impulses and splurges we did not plan for.

Basic Spending Barriers

Your basic spending barriers include:

1. Setting up your financial accounts
2. Separating your savings from your checking
3. Matching the appropriate spending method (cash, debit, credit, online bill pay, direct debit, digital wallet, etc.) to your planned purchases

Financial Accounts

When it comes to choosing the right financial account for your household, you have several key options. While we introduced the pros and cons of each of the most common savings accounts during Step 1 (Where to Save Your Money), the following list provides information about how some of these accounts differ in purpose:

Checking Account

• Used for everyday spending and bill paying
• Typically federally insured up to $250,000 per account
• Monthly administrative or maintenance fees can be waived with direct deposit of your paycheck
• Can have two or more checking accounts to separate your spending activities (e.g. one for paying regular bills, another for groceries, and a third for dining out, entertainment, and other discretionary expenses)

Savings Account

• Used for storing money over the short-term
• Limited number of monthly withdrawals and transfers
• Return a very small amount in interest
• Typically federally insured up to $250,000 per account
• Can open multiple savings accounts to separate your funds based on their purpose (e.g. emergencies, birthdays, Christmas and holiday gifts, vehicle repairs, furniture and appliances replacement, vacations and travel…)

Certificate of Deposit (CD)

• For short-term goals
• For a specific “term” ranging from one month to five years or longer.
• Small penalty for accessing before the end of their term
• Often automatically renew for another term (at a different interest rate)
• Slightly more interest paid than savings accounts

Money Market Account (MMA)

• For short-term savings
• Federally insured account meant
• Typically invested in secured bonds
• Minimal interest rates
• Usually come with limited checks and/or a debit card

Financial Institutions

You can use three basic financial institutions for your accounts:

• Banks: Offer checking, savings, CDs, MMA, loans, and other financial products, usually insured through the FDIC. Typically owned by shareholders.
• Credit Unions: Offer checking, savings, CDs, MMA, loans, and other financial products, usually insured through the NCUA. Typically owned by members.
• Brokerages: Offer many types of retirement investment accounts, but few are federally guaranteed.

Understanding Pros and Cons of Different Payment Methods

How you pay for purchases or pay your bills matters. Some methods charge fees while others are more likely to lead to overspending. Consider the following common forms of spending:

Cash

Pros

• Ideal for limiting your spending
• Highly accessible

Cons

• Very insecure
• Susceptible to overspending at retail stores without controls (“burning a hole in your pocket”)
• Can’t use online

Debit Card

Pros

• Convenient
• Accepted in person and online
• Limited liability if lost
• No interest charges
• Purchases are limited to the funds in your account (although many consider this a Con)

Cons

• Can takes weeks to recover from fraud
• Studies indicate you spend 15% more with plastic than with cash

Credit Card

Pros

• Convenient
• Accepted in person and online
• Provides a record of all your purchases

Cons

• Studies indicate you spend 15% more with plastic than with cash
• High-interest rates lead to more expensive purchases if you carry a balance

Bill Pay

Pros

• Control over when you send your payment
• Pay anyone anywhere in the country
• Can be automated

Cons

• Delivery dates are estimates, not guarantees
• If payment arrives late, you may be liable for late fees

Direct Debit

Pros

• The creditor or company is responsible for initiating payment
• Can be automated
• Secure payment

Cons

• If you forget about payment, you might incur bank fees for overdrafts
• Payment changes may require four or five business days or more to make
• Albeit rarely if ever, duplicate charges can happen, though are usually immediately reversed.

Digital Wallets

Pros

• Ultra-convenient with access to multiple cards and accounts
• Use online
• Use at many in-person stores
• Earn rewards
• Encryptions mean they are secure

Cons

• Still not available everywhere
• Can’t use if your device is not charged
• Rewards may include transfer fees
• Convenience leads to overspending

Now that you’ve gone through lessons on how to manage your savings plan, your paycheck, and your spending, let’s turn to managing your credit.

Complete the following three steps to learn more about how credit affects your life and what you can do to improve it.

Credit and Living Free of Debt

• Credit is NOT money.
• Credit is NOT a status symbol.
• Credit is NOT the same as debt.
• Credit is NOT a loan.
• Credit is NOT a representation of your personal character.

While related, credit and debt are not the same thing. You can use credit wisely and responsibly while staying out of debt. However, incurring excessive credit card, retail, auto, and other debts will almost always lead to lower credit ratings.

Typically, as your debt balances and any missed monthly payments increase, your credit score decreases. Conversely, as you pay off your debts and get caught up on your monthly payments, your credit rating inevitably goes up.

So What Is Credit?

Lenders use credit to minimize financial loss by forecasting the potential risk in lending to a specific borrower.

Credit score models like FICO and VantageScore base their predictions of future behavior on the consumer’s past behavior. Some of our past actions are better predictors of our future behavior than others. Credit scoring models digitize these actions and run them through their algorithms to produce a reliable risk rating.

Credit is also a tool to minimize the interest you pay on future loans.

Your credit rating is just a statistical number attempting to predict how likely you are to miss future debt payments. The higher your score, the more the prospective lender can trust you will pay as agreed. Thus, the lender feels more confident offering you lower interest rates and better repayment terms.

Using credit wisely does much more for the consumer than just qualifying him or her for the best interest rates on future loans. The following list includes other services and products that usually involve a check of your credit rating or report:

• Insurance premiums for vehicles, homes, apartments, and private life policies
• Apartment applications through property management companies
• Many banks and credit unions for opening a new checking account
• Job Application, especially in government, finance, and law enforcement
• Utility Companies to establish the need for a security deposit
• Cell Phone Service Providers to determine eligibility for monthly plans
• Elective medical procedures (those not covered by healthcare insurance)
• Private elementary and secondary school applications

Generally, having a good credit rating increases the likelihood of approval and/or decreases the cost of the service.

Because federal law prohibits the use of your credit history or credit rating except for legitimate business purposes, few other organizations look at your credit report or your credit score. No private individual should ever have access to your credit.

To build and maintain a clean credit history and good credit score, consider following what we term the four pillars of credit:

1. Apply Sparingly
2. Use Strategically
3. Pay Consistently
4. Protect Systematically

1. Apply Sparingly

If you’re new to credit or have a poor credit rating, minimize account application to just 2-3 annually.

2. Use Strategically

A single, small purchase on each account each month followed by its full repayment by the due day can help you build excellent credit.

3. Pay Consistently

If you use a credit card or you have a loan in repayment, consider setting up your payment to happen automatically.

4. Protect Systematically

To protect your credit, you will need to access, review, and understand your credit report regularly and for free at AnnualCreditReport.com. This will have no negative effect whatsoever on your credit rating.

Besides managing your paycheck, spending, and credit, you will likely want to consider ways to increase your income.

Check out the following three screens to find opportunities to improve your income, whether temporarily or on a long-term basis.

How Income Affects Your Chances to Remain Debt-free

Human nature and the realities of life tend to lead most consumers to increase their lifestyle over time (called “lifestyle creep”) and the costs associated with it, often leading to an ever-increasing amount of consumer debt.

If your previous debt resulted from such lifestyle creep, you already understand how this works. Even if it didn’t, you want to build your defenses against future debt, including how to avoid lifestyle-related spending and its related debts.

What can employees do to increase their income potential, both before and after securing a permanent job?

Increasing Income Potential BEFORE Getting a Job

Prior to your job search, whether looking for your first job or twenty-first, the following list contains proven methods for increasing your potential income:

1. Earn a bachelor’s degree: A 2015 report in Demography found that a bachelor’s degree nearly doubles your expected lifetime earnings (86% increase for men and 124% for women).
2. Earn a technical certificate: As an alternative to a college degree, a certificate can also dramatically increase your potential income. Depending on the program, you might earn a skills-based certificate in four months to two years.
3. Complete online and community courses: While less valuable to a potential employer, any certificates of completion you earn, whether online or from a local community college or school district, will demonstrate to a potential employer your hunger and your drive to succeed. They might even be worth a few extra thousand dollars a year, especially if they are related to the position you apply for.

Increasing Your Income Potential AFTER Getting a Job

The following suggestions may increase your potential income BEFORE and AFTER getting a job. Many companies have established and automatic pay increases tied to additional certification and education levels.

Additionally, consider the following list of activities, behavior, and situations that will increase your value to your employer, leading to greater leverage when it comes time for a raise:

1. Long-term stability: The longer you stay with the company, the better the employer’s investment in you becomes.
2. Additional training: Stay aware of opportunities to acquire additional skills and knowledge related to your work, including courses offered by your employer, online and in-person training and continuing education programs through industry trade groups, and even training sessions offered by schools, colleges, and businesses.
3. Take the initiative: By taking the initiative to improve your company’s product or service, you show your commitment to the business.
4. Take responsibility: In general, the two positions that a company pays the most are leadership and sales. Watch for and express interest in opportunities to grow your leadership experience.
5. Become a subject matter expert: Take advantage of opportunities to speak at conferences, publish articles for industry journals, and be interviewed by traditional and social media. The more you can do to develop your reputation as an expert in your field, the more valuable you tend to be to the company.

Side Hustles and Income

At times, taking on a second job or seeking opportunities to earn money outside your full-time job can make sense. However, some side hustles (also known as side gigs) can waste your time or lead you down a path that traps you in even more difficult financial situations.

Timing and Purpose

Take advantage of a side hustle or two for very specific, short-term purposes. Such goals might include:

• Taking a vacation
• Buying birthday or Christmas gifts
• Replacing a vehicle
• Fixing up your yard
• Doing some home improvement

Unfortunately, many households take on side hustles in order to plug holes in their budgets, most often created by overspending or impulsive consumerism. Without controlling the household spending, taking on a side gig will almost inevitably lead to even greater overspending. The old maxim holds true:

The more your earn, the more you spend.

Be very clear with yourself about the reasons you are taking on a side hustle and the expected timeframe for doing it. Otherwise, you may find yourself feeling stuck in a life that overworks your physical energy, places too many demands on your diminishing time, and offers less and less satisfaction in social relationships and personal passions.

Side Hustle Possibilities*

You can find scores of “Top Side Hustle” lists online, but most such side hustles take months or even years to begin producing income. The following list includes side hustles with the proven potential to produce significant income (e.g. above minimum wage) within weeks:

• Do freelance photography (e.g. weddings, graduation portraits)
• Do freelance writing (e.g. Fiverr, Upwork)
• Design and sell t-shirts or accessories (e.g. Teespring, Bonfire)
• Donate plasma** (e.g. BioLife, BioMat, Grifols, KedPlasma, etc.) NOTE:
• Never use this hustle to finance ongoing bills, loans, or other obligations, since a cold or other illness may disqualify you for several weeks.
• Food delivery (e.g. Doordash, UberEats, GrubHub)
• Offer virtual assistant services (e.g. Upwork)
• Provide handyman/handywoman services (e.g. HomeAdvisor, Thumbtack)
• Rent out an asset (e.g. Airbnb, Turo)
• Ridesharing (e.g. Uber, Lyft)
• Walk neighborhood dogs (e.g. Wag, Rover)

Approach with Caution

Some of the side gig ideas you will find listed online can actually waste your time or, worse, require you to purchase equipment or products, actually leaving you worse off than before.

• Get Paid to Shop or Play
• MLMs or Multi-level Marketing (also known as network marketing, referral marketing, and home-based demo sales, etc.)
• Online Surveys
• Yard Sales and Online Sales

*Examples serve educational purposes only. They do not constitute recommendations or reviewed suggestions.

**If you become sick or otherwise unable to “donate,” you will not be able to earn extra income with this option.

 

Legal Business Organizations and Entities

Although most Americans seek the traditional path to stable income through employment, America still stands strong as the land of opportunity for entrepreneurs and small business owners. In fact, according to the Small Business Administration, 99.9% of all businesses in the US are small businesses, meaning they usually have less than 750 employees or less than $16M in annual revenue, depending upon their industry.

If you run your own business or are thinking about starting one, deciding on a business structure is an important early step. It's also best done after lots of personal research and even a discussion with a legal expert.

Here are your basic options:

Doing Business As (dba)…

Starting your own business does not need to involve attorneys, state corporate filings, business plans, or marketing consultants. In the US, starting a business can be as simple as doing work for others that they are willing to pay you for.

Sole Proprietorship: Doing business under your personal name means you are doing business as a “sole proprietor.” Examples of sole proprietorship business names are:

• Landscaping by Riley Evans
  Ethan Hill’s Plumbing Service

Downsides include the potential for incurring legal liabilities of your work (meaning if you're sued, your personal property and assets could be at risk) and limitations on what you can call your company.

Partnerships: If you do business with the help of another individual, you have formed a partnership, whether you have a written or verbal arrangement. A general partnership (informal) means you both leave yourselves open to unlimited liability for the debts and mistakes by the business. If you want to limit your liability, you must file a certificate with your state authorities, such as your state’s department of state.

Limited Liability Companies (LLC): LLCs offer tax advantages to the business owner(s) while also limiting the liability of the owner(s). For this reason, LLCs have become the most popular form of most small business start-ups. You can set up an LLC on your own or, if you do not understand the process and requirements, seek the advice of legal counsel.

C Corporations: A C corporation (C corp) is a legal business entity that is separate from its owners, so it limits the owner's liability and protects shareholders. It also offers the ability to raise capital by issuing stock. However, it does create what's known as "double taxation" since profits are taxed at both the corporate and shareholder levels.

S Corporations: If you get to the point of seeking investors (shareholders), you will need to consult an attorney, who will assist you to set up the best legal form of your company.

Fortune tends to favor those with a plan.

The following three lessons will help you not only set relevant and motivating goals but will also provide you with tips for significantly increasing your chances of achieving those goals.

Commitments and Goals Play Important Roles in Remaining Debt-free

If you’ve been in excessive consumer debt before, writing down your goals to live without debt can provide motivate you to stay away from debt.

Studies clearly show that the more formal, detailed, and official you make your commitment to any goal, the more likely you are to achieve it.

Write It Down

Remember that financial goals are not about money. Money is secondary. Money is the tool you will use to achieve the goal.

The goal has to be something meaningful. The goal should also be achievable within the coming 6 months to 3 years so that it does not become too abstract or distant. Make it something you can relate to each day.

Write down your goal and include three to five steps you must take in the next six months to three years in order to achieve your goal.

Example of a Meaningful Goal

On July 31, 20XX, I will have saved $4,500 to take the family on a 5-day vacation to the Oregon Coast.

Sample Next Steps

• I will set up a separate savings account just for my vacation funds.
• I will set up a direct deposit at work to deposit $125 per paycheck into the vacation savings account.
• I will reserve a room at the Signet Lodge by January 1, 20XX.
• I will set alerts today in my phone calendar to remind me of these steps.

Optional Activity – Your Turn

1. Write down what you want to achieve financially with a brief explanation of why it matters to you.
2. Write three to five relevant and required steps

Be specific. Then, complete and sign the form to indicate your commitment to start your journey.

My Financial Goal and Steps

Complete the following fields to set a goal and a list of necessary steps to take based on a timeline. You can include up to 5 steps. You MUST complete the description and at least ONE STEP. The rest of the steps are optional.

The next critical step that increases your chances of achieving your goal by 60% involves sharing it.

Pick a goal mentor. Look over the list below to think of someone appropriate in your life to share your financial goal(s) with. The person must be trustworthy, understanding but not too dismissive, available weekly, and completely supportive.

Possible Goal Mentors

1. Spouse
2. Parent
3. Grandparent
4. Best Friend
5. Faith leader
6. Exercise partner
7. Social media group

Explain to your would-be mentor the importance of the goal to you personally, and ask if they would be willing to be your goal mentor by listening to an explanation of your goal, receiving a weekly report on your progress, and providing a positive, encouraging attitude when you miss some steps along your way.

It’s time to move to step three. Report your progress every week to your goal mentor. Include one or more of the following pieces of data:

The step you are working on

1. Your progress (or lack thereof) on the step
2. Your overall progress toward the goal
3. What you have done to address a missed step
4. How you are thinking of changing a step or even the goal

The method you use to report your progress actually matters less than the fact that you report on it regularly. You can report by phone, in person, via email, by text messaging, or on social media.

That’s it! By taking these three steps, you have just increased your likelihood of achieving your goal by nearly 80%.

Not the least important of your financial tasks to address, getting out and staying out of debt makes up the final four lessons of this course.

Common Causes of Debt

Debt can happen after an unexpected job loss, upon the birth of a child, or following a major accident that requires hospitalization. Even if you take the best of precautions, such situations may still occur. If they do, this chapter should become your daily reading and guide.

The most common factors leading to excessive consumer debt include:

• Insufficient emergency savings fund
• Uncontrolled spending with credit or store cards
• Excessively large mortgage or car payments
• No written spending plan (aka budget)

DIY Debt Relief

Good First Steps

First, reach out directly to your creditors and ask them to lower the interest rate on your accounts. Any reduction in your annual percentage rate (APR) will lead to a lower monthly payment and less interest paid overtime on credit cards and store cards.

For temporary financial struggles, you might consider contacting each of your creditors and asking them about their own internal hardship programs. Many have short-term options to lower interest rates or suspend even suspend a minimum payment due.

3 Principles of DIY Debt Relief

In order to maximize the effectiveness of your do-it-yourself debt relief program, ensure that you follow these three principles:

1. Use the Avalanche, Landslide, or Snowball to focus on ONE debt account at a time.
2. Make minimum payments on ALL other debt accounts.
3. When you pay off any debt account, move that account’s former monthly payment into the Avalanche, Landslide, or Snowball.

= = = = = = =

The Debt Avalanche

Your Focus Account: HIGHEST INTEREST RATE
By focusing your extra payment on your account with the highest interest rate, you will:

1. PAY LESS interest over time than any other method.
2. Pay off your debts EARLIER than any other method.

The Debt Landslide

Your Focus Account: NEWEST ACCOUNT

By focusing your extra payment on your newest account, you will:

1. Build your CREDIT RATING faster than any other method.
2. REBUILD your bad credit score faster than any other method.

The Debt Snowball

Your Focus Account: SMALLEST BALANCE

By focusing your extra payment on your account with the smallest balance, you will:

1. Get an easy, early win that some people need to stay MOTIVATED.

The Debt Cascade

The Debt Cascade takes a little different approach. Even the name seems to insinuate something a little more calming. We developed the Debt Cascade to help cash-strapped consumers make enough progress in their debt repayment to even have the option of choosing between the other DIY debt relief methods.

The Debt Cascade is ideal for consumers who have absolutely no cash available to make extra payments on any focus account. Here are the steps to take in order to build enough of a cushion in your debt payments that you can then move to the Avalanche or the Landslide.

1. Month 1: Identify your current minimum monthly payments and set them in your mind as your payments for all future Debty Cascade payments.
2. Month 2: Your credit cards and retail accounts will slightly lower your monthly minimum payment because you made a payment in Month 1 and haven’t used your account(s) since. Still, you will make the same size payments you did in Month 1.
3. Month 3: Again, your credit and store card(s) will request lower minimum payments than they did last month. You will again make the same size payment as you did in Month 1.
4. Month 4: Because your credit and store cards ask you for even less this month, you should have enough of a cushion (perhaps $20 to $50) between your Month 1 payments and your Month 4 minimum payments to allow you to switch to either the Avalanche or the Landslide*, depending on your goals. Congratulations!

*Don’t switch to the Snowball since you’ve already proven to yourself that you can stay motivated for four months.

If you’ve tried repaying your debts on your own without much progress, your next step should include contacting a nonprofit credit counseling agency like Money Fit.

Benefits of a DMP

• Lower APRs: Typically between 2% and 8%
• Lower Monthly Payments
• No direct effect on your credit rating: FICO acknowledges this fact here
• Debt-free in 5 years or less

Considerations

• Fees: Credit counseling agencies do charge reasonable fees, regulate and capped by each state.
• Timing: The 2005 BAPCPA federal law requires anyone seeking bankruptcy protection to first meet with a nonprofit credit counseling agency, so talk to a credit counseling agency now if you’re at all considering bankruptcy.
• Debt Types: Credit counseling agencies can help with most types of unsecured debts but not usually with mortgage and car/truck loans.

Debt settlement companies attempt to force your creditors to accept less than what you own. In some cases, creditors might feel that accepting 50% of the balance in cash is better than the risk of their customer potentially filing for bankruptcy, in which case the creditor often gets nothing.

Debt settlement comes with significant downsides: the low likelihood of success, the high likelihood for extensive fees, the possibility of being sued by your creditors, and the certainty of long-term damage to your credit rating.

Pros

• When it works, you end up paying only a portion of your original debt balance.

Cons

• Difficult and time-consuming if you do it yourself
• Account reported as “charged off” or settled for 7 years
• Added fees and demands if using a third-party, including:
  • $10,000 minimum of debt
  • 15% and 25% fee (based on written-off debt)
  • Risk of a lawsuit by the creditor
  • Possible tax on written-off amount income

Bankruptcy is a legal federal petition meant to keep your creditors from confiscating or repossessing your assets, including, but not limited to:

• A home (protect from foreclosure)
• A business (allow to reorganize and continue functioning)
• An income (protect from a wage garnishment)
• A vehicle (protect from repossession)

Assets that are already partially or completely protected from creditors even without bankruptcy* typically include:

• Retirement investments, particularly company-sponsored plans like a 401(k)
• Social security benefits
• Disability benefits
• Unemployment benefits
• Veterans Administration income
• Individual Retirement Accounts (up to an amount “reasonably necessary” to support the IRA owner and dependents)
• Child support or alimony
• Federal Railroad benefits (retirement, unemployment, sickness)
• Federal and Civil Service Retirement System benefits

*Meet with legal counsel to get individual advice

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) requires all individuals or couples filing for personal bankruptcy filers (typically Chapters 7 and 13) to meet with an approved nonprofit credit counseling agency for a budget briefing prior to filing their petition with the court. Find more details here.

Thank You!

We are so glad you have stuck with this course to complete it. We hope you have found practical help in addition to the continued motivation to live a meaningful life free from consumer debt.

Please complete and submit the following course evaluation. Your honest feedback will help us gauge the program’s success in meeting our own financial education goals while also guiding our efforts to improve and refine the course to help others in the future.

To find additional information and courses on personal finances, please visit the Money Fit Academy at https://www.moneyfit.org/academy. You’ll find courses, calculators, blog posts, and webinars on a variety of personal finance topics.

To receive a Certificate of Completion for this Life after Debt course, you must complete the Final Quiz. After submitting your evaluation, you will be taken to the final quiz page.

Again, thank you for your time. We wish you all the best

The Money Fit Team

Course Evaluation-Life After Debt (optional)

No personal information included in this course or feedback will be used by Debt Reduction Services/Money Fit for any purpose without your permission (below).

Please rate the extent to which you agree with the following statements?

The final quiz is composed of 20 multiple-choice questions. To pass and receive your certificate, you must answer at least 14 of the questions correctly.

If you do not pass the quiz, you may retake it as many times as you choose by clicking on the “Back” button.

Congratulations!

Click the "Submit" button below to complete A Credit to You: Credit Basics course and receive your certificate of completion!

You’ve taken important steps toward improving your financial future by learning key strategies to build and improve your credit. Keep up the great work, and remember that building strong credit is a journey. This certificate marks a significant milestone along the way!