Debt Bytes Blog

If you’re in debt, you may be able to break free just by making some smart moves with your budget. Slashing expenses that you don’t need, finding ways to lower fixed expenses such as auto insurance and utilities bills will free up more room in your budget.

And so will the plain, old task of taking a close look at your monthly income and expenses. It will take a little bit of time to get organized, but it will be well worth the effort. It’s hard to see where the money you make is going when you don’t have a clear budget. Not having a clear and airtight budget makes it even tougher to rein in and pay down the debt you’ve acquired.

How much are you spending on food each month? How often do you fill up the gas tank? How much are your utility and cable bills? Just tracking your expenses for a month will help you to slow down spending and free up more money for debt payments.

Revamping Your Budget

Start with your fixed expenses. Tally up your fixed expenses such as rent or mortgage payments, utility bills, cable bills and cell phone bills. Add in any other monthly bills as well. Are you paying a little extra for auto insurance coverage each month rather than each quarter? Include this in your fixed expenses for now but know you can save money if pay this bill every six months or even yearly.

Short of moving or getting a roommate, there is little you can do to lower your monthly mortgage or rent payment, but those utility bills and cable bills and phone bills should be scrutinized. Keeping the temperature in a home just a few degrees cooler in the winter and warmer in the summer can help with utility costs. So can turning off lights whenever you leave, and doing without air conditioning on low-humidity summer days. Letting the fresh air into your home or apartment can do wonders for your budget.

Cable bills can be expensive. Weigh the pros and cons of keeping your current cable package. Can you get by with a less expensive option? Could you get by without this option altogether for a few months to free up more money to pay for your debts?

Cell phone bills are another big monthly expense. Do you have the best plan for your calling, texting and data needs? If you talk on the phone infrequently, opting for a less expensive voice plan than unlimited may make sense. Take a look at your text and data usage too. Could you get by without unlimited data? Ask your mobile phone provider just how much data you used last month. If you are nowhere near the lower data limits on cheaper plans, why not switch?

Making changes to your fixed expenses, the bills you pay each month, is a fast way to have a little more green in your pocket for that debt you are keen on paying off.

Reining in Variable Expenses

Variable expenses may change from month to month, or they may be a big expense such as homeowner’s insurance that you pay once or twice year. Making sure you get all the deductions you qualify for with your homeowner’s insurance is one way to lower what can be a very expensive bill. A quick call to your insurer may save you money, so don’t hesitate to reach out. Be honest with your agent. There may be ways to lower your bill that you didn’t realize.

This strategy works with car insurance too. Your insurance company wants to keep you as a customer so they may help to lower your costs with just a quick phone call. Shopping around for a better deal from another insurance company may save you money too. Loyalty and having a good relationship is certainly nice if an accident should happen and you need to file a claim, but when the priority is paying down debt, you may want to double-check that you’re getting the absolute best deal.

Food and gas are common variable expenses that may shift from month to month. A few dinners out can make food costs soar, while a few more nights in can have the opposite effect on your wallet, so take a close look at your food spending and make adjustments accordingly. If your food costs are burdened by meals eating out with friends, plan lunch or happy hour dates instead. Even better, invite friends over to your home instead, and savor a night in for a change.

Gas is another variable expense. If you travel the same route to and from work and do little additional driving, your variable gas expenses may not be all that different month to month. If you look back at a couple of months worth of spending and see big swings in what you’re paying to fill up your gas tank and it’s just more than you want to be paying, it may be time to re-assess your driving habits. Running errands all in one day can save on gas, as can carpooling with friends. Walking more and leaving your car behind to stroll a couple blocks works well too.

Apply the Cash You Save to Debt

Once you recognize and act on the spots in your budget that are costing you more than you’d like, you can apply the savings to your debt. Continue this habit and you have a strategy and the cash for paying down your debt.

But there is a big caveat; all that fun and impulsiveness is curbed back for awhile until your debt is paid in full, and you can build up some savings too. It’s more fun to spend money on an impulse when you have plenty of green in your account to handle it.

Plus, no regrets.

With a reverse mortgage, a senior homeowner can withdraw a large chunk of the equity in their home for cash, spend it how they wish and wait to pay it back.

Reverse mortgages are special types of home loans that are available to homeowners aged 62 and older. Unlike home equity loans, with a reverse mortgage you can wait to repay it until after you leave your home. Leaving your home could simply mean no longer using the house as your principal residence, selling or relocating to a new home, or moving to a senior living facility, or upon the homeowner’s death.

Many seniors may turn to reverse mortgages for an infusion of much-needed cash, strengthening their monthly budgets and giving them a greater sense of financial security from month to month. You may use the money from a reverse mortgage to bolster your Social Security benefits, which may not be enough each month.

You may turn to a reverse mortgage for help in dealing with the diagnosis of a long-term illness for yourself, or a loved one, which may require money beyond their current income or for help in dealing with the costly aftermath of a lengthy hospital stay and its subsequent recovery.

For example, you may need to pay for additional people to help you at home, in-home aides, someone to help with laundry, meals and housekeeping. And your health insurance may not cover the full extent of your on-going medical costs and expenses.

Other people may decide to take out reverse mortgage to simply pay for home repairs or home improvements. The money could be available in a lump sum in a single disbursement, through a line of credit or monthly cash advances or a combination of a line of credit and monthly payments.

With a reverse mortgage, you keep the title of your home and you are still responsible for paying property taxes, homeowner’s insurance and maintaining your home, so it’s not as if your homeowner costs vanish, as convenient as the cash may seem.

In general, with reverse mortgages, the older you are and the greater the equity that you have in your home, the more money you can receive. How much you can borrow with this type of mortgage depends on a homeowner’s age, the type of reverse mortgage you choose, the appraised value of your home, available interest rates and a financial assessment of your ability to continue to pay property taxes and homeowner’s insurance.

The amount you owe with a reverse mortgage comes due when the homeowner dies, sells the home, or no longer lives there as a principal residence. Most of this loan type have a “non-recourse” clause, which means you or your estate if you should you die while living there, would owe no more than the value of your home.

A reverse mortgage may be a good option for people who own their own home and  have few if any other savings to tap or for those simply looking to get some additional cash for expenses. But it is important to consider your individual situation carefully and to understand the pros and cons of a reverse mortgage.  Seniors with other assets may wish to tap those instead and leave their home and its full equity as an inheritance for their heirs.

Here is a look at the pros and cons of getting a reverse mortgage as a senior homeowner.

Advantages of reverse mortgages

Tapping home’s equity for cash. Converting some of the equity in your home to cash through a reverse mortgage is a key advantage and selling point for these types of home loans.  You’ve got equity in your home but you’re short of cash. A reverse mortgage is one way to convert that equity into cash. 

Tax-free money. Believe it or not, the money you receive through a reverse mortgage is tax-free, an advantage for people with limited incomes.  Rather than income earned, a reverse mortgage is considered a loan advance so the money you receive through a reverse mortgage isn’t subject to taxes.

No impact on federal benefits. Getting a reverse mortgage will not affect your eligibility for Social Security or Medicare so you can tap into the equity in your home and bolster your monthly budget and not impact those important federal programs.

Disadvantages of reverse mortgages

Fees. With a reverse mortgage, you will pay an origination fee as well as closing costs and continuing servicing fees. So there are plenty of costs to consider when tapping your home’s equity through a reverse mortgage.

Interest adds up. As you receive money through a reverse mortgage, interest gets added to the balance you owe so the amount you owe through a reverse mortgage increases over time. Some reverse mortgages have fixed rates and other come with variable rates.  With a variable rate reverse mortgage, an increase in interest rates will increase the interest you pay on your reverse mortgage, bumping up your overall balance.

Fewer assets. A reverse mortgage could use up much of the equity in your home, leaving fewer assets for you and your heirs.  So you and your descendants will have less outright value in your home after signing on for a reverse mortgage.

Shop smart for a reverse mortgage

If you think a reverse mortgage may be right for you and your family. It is important to shop around.  Consider offers between lenders carefully.  You’ll also want to learn more about the different types of reverse mortgages.

Single purpose. Single-purpose reverse mortgages are available from some state and local government agencies and non-profit organizations.  These types of reverse mortgages may only be used for specific purposes such as home repairs and home improvements.

Proprietary. Proprietary reverse mortgages are private loans back by companies that develop them.  Homeowners with high value homes may qualify for more cash through a proprietary reverse mortgage.

Home Equity Conversion Mortgage (HECM). These federally insured reverse mortgages are backed by the U.S. Department of Housing and Urban Development. Before applying for this type of reverse mortgage, you must meet with a counselor from a government-approved housing counseling agency.

Choosing the best health plan for you and your family takes time and a little bit of work. But before getting lost in the details of each plan, sit down and take a close look at your family’s medical needs and expenses.

What medical services will you and your family need in the next year? Not sure? Take a look back at your health expenses in the previous year and use it as a guideline.

Did you visit the doctor often? Or just for standard check-ups? Does someone you love have asthma or another condition or disease that requires routine attention and care? Did you spend a lot on prescription drugs or hospital visits?

Tally up all of your medical expenses over the past year and look at the costs. Take the time to go through each month thoroughly. You want to have a firm grasp of your actual health care expenses before choosing a plan. Once you know just how much you spent on health care in the past year, it will give you a good estimate of what you are likely to spend on health care in the upcoming year.

And, if there is an additional health care cost on the horizon, a possible operation, or medical procedure that may be needed, factor that into your future medical costs as well.

Once you know your medical costs and expenses and what you spent your money on, it’s time to look at health plans.

Finding the Right Plan

Some health plans offer greater choice of medical providers and tend to cost more. These more traditional health plans are called indemnity plans.

Indemnity plans tend to have higher out-of-pocket expenses and higher deductibles. After paying an annual deductible, most indemnity plans cover a percentage of a patient’s medical costs, often 80 percent. Most indemnity plans come with a cap of how much you would pay as the patient in an upcoming year.

With other health plans, you have fewer health provider choices. And you’ll need to select physicians within a specific network of care providers but the costs also tend to be lower.

These types of plans are called managed care plans, and include preferred provider organizations, (PPOs) or health maintenance organizations (HMOs). With a managed care plan, your choice of doctors and hospitals are more limited but you also tend to have lower out-of-pocket costs and lower premiums.

Of course, if you can find a doctor that you like within an affordable network of physicians, it can be the best of both worlds.

Managed care plans are available in many employer health plans and through HealthCare.gov.

Think About Your Savings

Looking at your own personal savings is another important aspect of choosing a health plan.

Higher deductible plans mean you’ll pay more money out of your own pocket before the benefits and coverage of your health plan kicks in, but you’ll also pay a lower premium or payment amount each month.

Weigh the pros and cons of paying a little more each month out of your own pocket, with a lower deductible plan, but paying less if a serious medical condition or expense should occur. Would a higher deductible or lower deductible plan work best for your family?

An Uncertain Future

For people with health plans through the Health Insurance Marketplace, the future is not clear.

The new President-elect pledged to repeal Obamacare, but an all-out repeal will be difficult, without having 60 votes in the U.S. Senate. And Republicans have 51 seats, with a seat representing Louisiana to be decided in a run off election in December.

Sections of the Affordable Care Act that will be difficult to repeal or change are the reforms made to the Medicare program, the provision that allows young adults to be on their parents policies until the age of 26, and the provision that requires insurers to sell policies to everyone, including people with pre-existing health conditions.

Under the Affordable Care Act, those under the age of 26 may be added or stay on a parent’s health insurance policy even if the young person gets married, does not live with a parent, is not financially dependent on a parent, is attending college, or is eligible for an employer plan. And this may be a good option for families if other areas of the law are repealed.

There are portions of the Affordable Care Act that can be changed or eliminated through a process called reconciliation, and if Republicans vote along party lines in 2017 they have enough votes to make those changes.

These include ending the expansion of Medicaid coverage, eliminating the federal subsidies that make it more affordable to buy health care through the Marketplace and doing away with tax penalties for not buying health insurance. They also could eliminate a number of taxes that were created to pay for the Affordable Care Act under the Obama administration.

These were all provisions of a bill passed by Republicans in 2015 in the House and Senate and vetoed by President Obama.

When and if those changes take place is unclear. One bill proposed by Republicans in 2015, called for the end of the federal subsidies assisting people buying insurance through the Health Insurance Marketplace at the end of 2017. The deadline for enrolling in 2017 health plans in the Health Insurance Marketplace is Thursday, December 15.

Laws typically take a long time to change and implement, so it is possible there may be a year or more before changes to the Affordable Care Act take effect. But nothing is certain other than the new President’s plan to take apart Obamacare and replace it with something else.

Trump released an outline of his health care plans on Nov. 11. He has a very different plan for health care coverage in America, including a return to high-risk insurance pools and more Health Savings Accounts.

According to Greatagain.gov, “A Trump Administration will work with Congress to repeal the (Affordable Care Act) and replace it with a solution that includes Health Savings Accounts (HSAs) and return the historic role in regulating health insurance to the States. The Administration’s goal will be to create a patient-centered healthcare system that promotes choice, quality and affordability with health insurance and healthcare and take any needed action to alleviate the burdens imposed on American families and businesses by the law.”

The outline also calls for allowing people to purchase insurance across state lines and re-establish high risk insurance pools “for individuals who have significant medical expenses and who have not maintained continuous coverage.”