5 personal finance goals for your 30s — that I thought up after dominating a 5k

This past weekend, I won a 5k.

OK, that’s not even close to accurate; I won my age division of men in our 30s…among a very small field of runners. Here’s an Instagram picture of me with my trophy (posing with the 5k’s fastest woman in her 30s):

And, of course, the two fastest runners overall beat me by a good three minutes each. I believe the fastest man was in his early 20s and the fastest female appeared about 17.

Hearing their times reminded me of two things:

  1. Humility. Because those two winners could have changed and eaten a peanut butter sandwich by the time I had crossed the finish line.
  2. That people of different ages should have different goals. Because my heart would have jumped straight out of my chest if I ever managed to run that fast (probably not accurate)

Let’s transition to personal finance

Oh, but that’s how I treat my finances too.

I spent my 20s building up skills, making mistakes, learning lessons, having experiences, and doing all manner of things that my body is either no longer capable of or that just wouldn’t make sense for someone in his 30s.

For many of us, the 30s are a time of transition — where we finally start to get it, whatever “it” is. It’s also when more people start depending on us, whether at work, at home, or other places.

Here are the things I’m trying to bang out in my 30s:

1. Advance my career

I spent my 20s developing career skills in entry level work and in school, figuring out what I’m interested in, and what I’m good at. Now that I’m in my 30s, it’s time to apply those skills to increased responsibility, increased output, and increased pay.

And it’s just as important to keep on challenging myself, both to keep those skills fresh and to learn new ones.

Not to mention that I should continue networking, seeking mentorship, and doing all the things necessary to continue growing.

2. Get out and stay out of unsecured debt

I managed to pile on quite a bit of unsecured debt in my 20s.

Now that I’m in my 30s, making money, and building up an emergency fund, there’s really no good reason to get into more debt.

3. Invest for retirement

Here’s a scary thought: if you’re in your 30s, you’re probably closer to retirement than birth.

The good thing is that I’ve still get a good amount of time before I really have to retire. That means there’s plenty of time for the money I put away into a 401(K) or IRA to grow into something real nice, so it’s important to put as much away as possible.

4. Rainy day savings

Back in my 20s, I thought nothing of sleeping on a friend’s couch when times got tough.

That’s slightly less OK in my 30s. Building up an emergency fund will keep that from happening

5. Get health insurance

I never went without health insurance in my 20s, but probably might have had it not been provided by my job, meaning that a couple huge emergencies as I left my 20s could have been even more traumatic.

Ensuring that I have insurance and access to care in my 30s will help keep health problems from turning into a financial catastrophe.

You know what else is pretty good health insurance? Exercising and eating right. It’s a good idea to do that as well.

Don’t inflate your lifestyle

I think not inflating your lifestyle is a pretty good way to sum up all five of these personal finance goals for your 30s.

When you start making more money in your 30s, it could be easy to convince yourself into thinking you deserve to own all the toys you could only dream of in your 20s. Or even worse, you could convince yourself into thinking you deserve all the toys your friends are showing off on Facebook.

Focus on whatever it is that you decide your goals are and be happy living within your means.

40s you will definitely be grateful :)

Alright, these are my five. What goals am I missing for people in their 30s?



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Should you ditch your to-do list for a tending list to maintain the things you care about?

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Source: Alison Christine via Flickr under a Creative Commons license

It’s no secret that I love a good quantifiable goal. As I do every month, I’ve laid out some things I’d like to complete in July here:

And like many of you, I keep a to-do list of the things I’d like to accomplish in a given day or work week. It is very satisfying to knock out a task and the check off a box.

Shortcomings

But if you’re like me, you might get frustrated when items keep re-appearing on your to-do lists, either because they’re difficult to finish in a week — or EVER! — or because they’re the sort of task that really doesn’t have a clear endpoint.

If you’re also like me, you might have already stopped putting these things on your to-do lists for just that reason.

Enter the tending list

For tasks that are ongoing, why not try out a “tending list” in favor of a to-do list?

Think about it like a garden; no one ever says, “Welp, I’m off to go finish my garden!”

Nope, you plant some seeds, pull a couple weeds, prune a few leaves, perhaps; but you’re never really “done” with it.

Now, think about some of the tasks in your life: maintaining your relationships or doing nice things for people. For personal finance, these could be keeping your resume up to date, making sure your tax documents are in order, or staying abreast of economic news.

Each of these might not fit on a to-do list, and yet, you might still want a gentle reminder to work at them from time to time.

A tending list, updated yearly or monthly, might make more sense for those things that you want to give a little bit of time to, perhaps every time you pass a list on your fridge or check the Notes app on your smart phone.

And you’d be surprised, if you devote 15 minutes to something on a tending list every day, why, that’s almost a couple hours a week, and a couple hours can definitely make a dent in making some progress on these never-ending tasks.

Anyhow, it’s an idea that I believe I’ll try out.

How about you? What would you put on your tending list?



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Some hot, sweaty July 2014 goals, including selling off some stuff

How I'll treat my debt this month. Source: Imgur

How I’ll treat my debt this month. Source: Imgur

Good morning and a happy Friday to one and all. It is time for me to lay out some goals for the month of July.

You know what I like about goals? That even as I get older, they stay the same age. Actually, it would probably be more accurate to say that as I get older, my goals grow with me.

And get older I did, this past month. Having just had a birthday, of course I can’t help but reflect a bit on what’s really important. Here’s one thought that’s been bouncing around my head quite a bit: I’ve noticed that when a lot of people talk frugality, they usually talk about how or what you should buy. Maybe sometimes, frugality should be about not buying things at all.

It’s an incomplete idea that I need to mediate on a bit, but let’s use that as a starting point for some goals.

Goal #1: Sell off some stuff

Man, there is a good amount of stuff just always around here. Maybe things would be simpler — and I’d have a bit more cash — if I just managed to sell off some of this stuff. $150 worth; let’s say that much.

Goal #2: Pay off 1% of my student loans

Man, a lot of the time, it feels like the one life goal I have is paying off this student loan debt. Sure, knocking my student loan debt down by 1% may not seem like much, but considering that I’ve got six figures worth and that they’re always accruing interest, knocking off 1% of the principal feels pretty challenging.

Goal #3: Lock down an investment plan

It’s been a while since I’ve audited my investment plan. I’ve been sending a lot of money that way over the last several months, and it only makes sense that I should make sure it’s going somewhere good.

Goal #4: Keep adding to my emergency fund by doing the 52-week savings challenge

I’m doing the 52-week savings challenge!

For the last 26 weeks, I’ve been adding an increasing amount to my savings account every Wednesday. It started with $1, then $2. In the last week of June, I deposited $26!

My goal for July is to keep on just keeping on, by putting $27, $28, $29, $30, and $31 into my savings account. That will bring me to a cool $496 added to my emergency fund for the year.

Goal #5: Update my renters insurance

It’s getting embarrassing that I haven’t taken recent pictures of what I’m insuring. Gotta do that this month for sure.

Oh, and those are my personal finance goals for the month. What are yours?



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Small Business Tip: 10 Steps to Cash Flow Heaven

labRunning a small business means having to cut costs and keeping a constant eye on expenses to just to turn a modest profit. There are several low and no-cost strategies which small business owners can utilize to realize much larger profits. Here are the top 10 tips used by seasoned small business professionals to increase their cash flow to heavenly proportions.

1. Have a Gross Profit Goal

Measure and set a gross profit goal. Be sure the accounting system that is being implemented is properly categorizing costs. This will help you to properly do a comparison with competitors in the same industry. Review this information to ensure the costs of goods and services is not more than the costs being spent by competitors. Data for this type of comparison can be obtained from trade associations, according to the Houston small Business Chronicle. This allows business owners to set gross profit margin goals. Having access to this type of comparative information on a regular basis can help business owners take quick action to adjusting practices and have more control over profit increases.

2. Make the Right Small Investment

Making a small investment in a bar code scanner from premium companies like Shopify can make a huge difference in the bottom line of a small company. These devices do much more than just make the retail checkout experience more efficient and accurate, according to Social Media Today. These bar code scanners can be an excellent tool for keeping track and managing inventory. Having an easy method to do this is a great way for a small business to track the investments they are making into products and to increase sales.

3. Review Historical Growth

After getting a handle on reviewing gross profit margins, small business owners are ready to take their business analysis to the next level. This entails doing something called the “drill down”. This means taking a look at historical growth profits by looking at profits in way most business owners would consider being the reverse order. First, look at the total gross margin, then the gross margin by department, gross margin by product and then the gross market by SKU number. Looking at the information in this order allows the business owner to clearly view and identify which aspects of a business are helping to meet profit goals as well as which are hindering the process.

4. Analyze Pricing and Product Strategies

Find ways in which to add value or customize products and services which are being offered. Following industry related journals and trade publications which review the latest trends can offer suggestions for how this can be done. Once a plan has been devised, the cost of products and services can be increased. This is a simple way to increase cash flow into a business and remain ahead of the competition.

5. Try Purposeful Discounting

Any small business needs to discount goods and services from time to time to remain alive in the marketplace. Small businesses need to offer discounts strategically, as advised by the Small Business Authority. Businesses which offer discounts by habit, instead of doing so with a purpose, tend to make their consumer base numb to their efforts. This means they do not generate the full sales they could from discounting products and services. Instead a discount should be scheduled and advertised in such a way that it seems rare and special for the discount to be offered. This creates a sense of urgency in customers and can do a lot to increase sales.

6. Purchase Smarter

When making inventory purchases, a small business owner always needs to keep purchases within a target margin that is in alignment with their consumer’s price points. This may mean taking the time to negotiate with vendors. When negotiations don’t yield the proper margins, business owners need to look into other vendors who might be willing to work with them at the price point they need to make their profit goals.

7. Try Counter-Cyclical Products

When a business experiences a slow season, it is a good time to introduce counter-cyclical products or services to the business core. This can be done to generate incremental profits and increase cash flow. A wise business owner should take the time to study which of these types of products in their industry would work for their business during times of traditionally decreased sales.

8. Learn What Others are Doing

Business owners need to take the time to get in touch with their industry leaders and learn from their experience. Often, people who have been successful in a particular industry are willing to share their knowledge with those who are newer to that industry. Listening to the wisdom of these experienced individuals can do a lot for a business’s bottom line.

9. Get Creative

Getting a fresh perspective can be one of the most profitable moves a business can make. Business owners should take into consideration suggestions from their customers and their employees. These individuals offer a perspective that is often lost on business owners. The information obtained from this form of research could yield some very profitable ideas.

10. Be Bold

Always seek a new positive risk. Not doing this can make a business and its profits stagnate. Stepping outside comfort zones and taking chances is where successful business owners find new profits.

Do student loans affect my credit score?

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Source: Images Money via Flickr under a Creative Commons license

Oh hi.

When talking with friends, I hear this sort of statement all the time: “I’ve been paying my student loans on time for years now; why isn’t my credit score going up?”

It’s an important question! And one that takes some digging to get the answer to.

A couple truths

Before continuing, here are a couple things that are true.

  1. Having good credit is important. My credit score determines the interest rate I’ll borrow at when buying homes, cars, and other things. Not only that, bad credit may make it tough get a cell phone, rent an apartment, or even secure a job because one in seven employers checks applicants’ credit reports. (Source: MSN)
  2. Less debt is better than more debt. To use specific numbers, being $100 in debt is better than being $200 in debt. An extension of this truth is that no debt is better than some debt and there are many reasons why I should pay off debt.

Student loans are installment loans

My credit score is determined by the three consumer reporting agencies (or credit bureaus), who look at a number of factors to come up with the number, including the following five (Source: Equifax):

  1. The number of accounts I have.
  2. The types of accounts.
  3. My available credit.
  4. The length of my credit history.
  5. My payment history.

Student loans really come into play under #2 and #3 (and #5, but I’ll discuss that later).

Under #2, the two types of accounts are revolving credit and installment credit.

  • Revolving credit is an arrangement where I have a set limit up to which I can borrow, which once repaid can be re-borrowed again until the terms of the arrangement expire. Credit cards are an example of revolving credit.
  • Installment credit is made up of loans for a fixed amount of money, paid off under terms set when I get the loan.

Student loans fit into installment credit.

Now, under #3, my available credit is measured by looking at my balance-to-limit ratio, which compares, as a percentage, the money I’ve borrowed to the limits I’m allowed to borrow. Obviously, a lower percentage is better here. Importantly, according to the consumer reporting agencies, the “balance-to-limit ratio applies only to revolving accounts.” (Source: Experian)

And this answers my friends’ original question; paying off your student loans on time doesn’t make your credit score go up very much because your student loan balances don’t factor into your balance-to-limit ratio.

And now, to go back to the second of my truths, there are many great reasons that I should pay off my student loans and even do so early; however, that it might increase my credit score isn’t one of them.

Student loan delinquency is treated like any other delinquency

Wait, but that’s not really the end of the question, because there is a way that student loans can affect your credit score.

Going back to #5 on the list of things that make up your credit score, your payment history is determined by how many accounts of yours go delinquent.

The Department of Education considers your student loan delinquent as soon as you miss a payment, and your loan servicers report all delinquencies of at least 90 days to the three consumer reporting agencies. (Source: Ed)

And once those consumer reporting agencies know about a delinquency, they’ll keep it on your credit report for seven years. (Source: Experian)

In other words, while making student loan payments on time may not help your credit score very much, missing student loan payments can hurt your credit score a whole lot.

Welp, have a great day!

July 2014 net worth update — the birthday edition wherein I cross $50,000 in total debt paid off

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Source: Anton Novoselov via Flickr under a Creative Commons license

Well hello and welcome to the month of July. And sorry for the long title.

Today, I’ve completed another month of my long journey toward my debt paydown and completed another year of life, and so think this a fitting time to do a reality check with a little bit of net owrth update..

It’s crazy to think how much my personal finance outlook has changed over the last year. In that vein and just for fun, I pulled up the net worth update from the last time I had a birthday, right here: http://debtblag.com/july-2013-net-worth-update-june-goal-results/.

I was working hard at paying off debt, but was definitely in far more dire straits; I still had credit card debt — to the tune of $12,000! — and my net worth was an even more cartoonishly negative six figures. Yikes!

Today, I’ve paid off all of my credit card debt and have yet to go back, and my net worth is only half as negative as it was back then.

What’s more, one of my goals was to become less terrible at blogging. It’s sad to see that even a year on, I still haven’t accomplished that :(

Let’s just look at the numbers.

The numbers

July 2014 numbers

Click to enlarge

Good stuff: I crossed a huge milestone this month; the total amount of debt I’ve paid off since starting crossed $50,000, which feels like an unreal amount. This was indeed a big month for paying down debt — a very big month indeed. I have been slipping recently on paying down my student loans, but managed to knock $1000 off their principal balances in June.

Another good thing? I mentioned it earlier, but at -$66,700 my negative net worth is only 58% of where my negative net worth was the last time I had a birthday. Negative net worth is bad, of course, but I’m happy that I’m quickly pushing it in the right direction.

Bad stuff: I wouldn’t call it necessarily bad, but I spent a solid amount of money on birthday celebrations and prepaying for wedding travels later in the summer. Actually, on second thought, that’s definitely good stuff, but it is money that I didn’t send to debt paydown.

Questionable stuff: You may have noticed that I added percentage changes to my monthly changes. I think this helps with understanding how big the changes are relative to the small (for retirement) or big (for debt) bases I’m starting with. I’m not sure whether a percent change for net worth makes sense while it’s negative; thoughts?

Also, check out this chart I made:

Click to enlarge

Click to enlarge

Easy enough to understand, right? Every month my net worth goes up by a certain nominal amount, and some of it is because my debt went down and some of it is because my retirement savings went up.

You may notice that the orange portion of each is growing each bar has gotten bigger this year. I’m questioning that strategy right now. Any thoughts on it?

I think I’ll continue making this graph, with the hopes that the total nominal amount trend upward as my base gets bigger (or less negative). I’ll note that I don’t quite see that happening yet and it’s making me want to dig into why that is.

It looks like I’ve got lots of thinking to do.

How did everyone else do in June?

Halfway through the 52-week savings challenge, how are you doing?

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Source: Ken Teegardin via Flickr under a Creative Commons license

Good morning, y’all.

A huge goal of mine for 2014 is to increase my savings by taking part in the 52-week savings challenge.

The premise is simple — in theory, at least.

The first week, you save $1; the second, $2, and so forth for all 52 weeks of the year.

If, like me, you saved $1 at the beginning of the first week — January 1, 2014 — then today is the day that you should have made the halfway deposit of $26.

Why it works

The 52-week savings challenge is tougher in practice than you might think. Sure, it might seem easy or even trivial in those first few weeks. But all the while, you’re building habits.

And not just building habits; you’re building your savings. I just passed $300 in additional savings a couple weeks back! This morning’s deposit brought me up to $351 for the year already. Not bad!

And as the amounts have gotten higher with every week, it’s become very noticeable. If I’m eyeing something that might be frivolous, I just think about not being able to add that week’s savings and ease back. I started by setting up calendar alerts for each time I had to add savings, but now I even keep a list in the notebook I carry with me of the next week’s coming deposit.

Checking off that box is very satisfying!

So, is anyone else doing this challenge? If so, how is it going? Got any encouraging words?



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How renters can avoid losing your security deposit — to me (a landlord’s perspective)

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Source: Dirk Wüstenhagen via Flickr under a Creative Commons license

Plenty of anxieties come along with moving from one place to another.

For many people, high on this list of worries is whether or not you’ll get your security deposit back after all those ridiculous week-long parties you threw and keeping an alpaca as a pet.

As someone who is a rental property owner (on top of being a renter) here’s how I treat repairs when I’m greedily eyeing your security deposit.

Do a thorough walk-through

It may seem obvious, but you would be surprised how many renters don’t participate in an initial walk-through before signing a lease. If I’m going to live there, not only do I want to make sure that the space is livable, I want to give myself the opportunity to make note of any damages that I might be charged for if I were to be mistakenly blamed for them when I move out.

Damages I and some other landlords will overlook

As a landlord, I am generally very forgiving when it comes to charging outgoing renters for repairs that could be attributable to normal wear and tear. This might include having to replace a set of blinds because a few of the slats have gotten warped or having to re-paint the walls after several years. Because some of my units are in the southern U.S., I also err on the side of being more generous when it comes to repairing or replacing air conditioner units.

Damages I won’t overlook

My exception to this is where the renter has made a very clear violation of the agreed upon terms of our lease.

A couple real life examples are that I have made a renter pay for pretty extreme cigarette smoke damage in the bedroom, and have also made a renter pay extra to have the carpets cleaned using pet-specific products.

For the latter, I think this is still pretty reasonable considering that in the situations where I have allowed pets, paying to clean with these products has been part of the contract.

Tips to use during move-in and move-out to avoid losing your security deposit

Having experienced this from both sides, I would say that the most important factor in getting your security deposit back is having a landlord who is a reasonable person.

In that regard, Check out Home Start.

That said, in terms of things that are more within your control, I would suggest being meticulous with your rental agreement. Don’t be afraid to cross out lines on the document to make it accurate, and make note of damages that are already there as you’re moving in. And take pictures of everything as you’re moving in.

There has been at least one occasion where a departing renter wasn’t sure whether damage existed when he moved in, my property manager was pretty sure that it was new damage, the prior damage wasn’t documented anywhere, and that the renter paid in the end.

Oh, and this too may seem obvious, but at least do a quick surface cleaning when you’re moving out. Filling and painting over nail holes that you used to hang frames is nice, as is mopping and vacuuming.

At an absolute minimum, don’t leave all kinds of trash on the floor — including food waste. I wish I could say that this was a hypothetical request…

Anyhow, anyone have horror stories when it comes to losing a security deposit?

What to do if you saved too MUCH for college (and how to prevent it in the first place) — 529 plan, part 2

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Source: Kevin Dooley via Flickr under a Creative Commons license

Good morning!

Onward and forward to part two in my lightly read, three-part series on avoiding penalties with a 529 plan.

Today, let’s discuss what to do when you’ve saved more with a Qualified Tuition Program (henceforth, 529) than your child needs for school, and how to prevent it happening in the first place.

It’s a good problem to have, for sure!

But because taking money out of a 529 account for reasons other than qualified higher education expenses (QHEE) can lead to getting taxed on the gains and getting hit with an additional 10% penalty, it makes sense to want to avoid this, if possible.

I’ll come at it from the before, during, and after; that is:

  1. Strategically contributing to a 529 account to avoid penalties later
  2. Strategies on taking distributions from a 529 you may not use up while at school
  3. What to do with a 529 account once the time has come and gone to use it for QHEE

So let’s get this going.

And as usual, jump in you think I’m way off. And for that matter, you might as well verify anything you read in the original IRS documents here: http://www.irs.gov/publications/p970/ch08.html

Strategically contributing to a 529 account to avoid penalties later

In this case, your target when contributing to a 529 strategically is very clear: you want to save the most you can in a 529 account to take advantage of tax-free earnings as much as possible, without going over the amount you’ll spend on QHEE.

The absolute ideal situation would be putting away exactly what your child spends on school.

So how do we get close to this number?

Estimate better

Yes, estimating better is the obvious answer and no, it doesn’t make guessing about tuition 18 years into the future any easier.

That said, there are ways to make that guess a little more educated; you can steer your child toward a particular school, you can look at current numbers and project out average growth, and you can ask the school directly what they think tuition will be.

And what if that leaves the picture still pretty cloudy?

Aim for the low end

Yes, if forced to choose between over-funding a 529 and under-funding it, for this case, it makes more sense to under-fund it.

Of course, the asterisk to this choice is that if you under-fund it, you should still not spend the money you would have put into the 529 otherwise; rather, you should put it into other tax-advantaged savings accounts such as a 401(K), IRA, HSA, and so forth.

Set up multiple accounts, that invest in uncorrelated asset classes

This will make more sense in a bit, but opening up multiple 529 accounts invested across uncorrelated asset classes will help take advantage of the proportional distribution aspect of 529s — that is, if you withdraw from a 529 account to spend on something other than QHEE, then the amount subject to taxes (including the 10% penalty) is relative to the proportion of that 529 account achieved from earnings rather than contributions.

Strategies on taking distributions from a 529 you may not use up while at school

So, your child has arrived at school and through whatever circumstances, you think you may not go through all the money you’ve saved in a 529 account.

First off, make sure you’re aware of this:

If your child gets a scholarship, you can take as much as the amount of the scholarship as a distribution from your 529 without penalty

Here’s a link on that.

Beyond that, this is where your multiple, uncorrelated accounts come into play.

During school, take disbursements from the 529 account of which the highest proportion is attributable to earnings

This will make more sense in a minute. For now, the reason you’re doing this is to take as much advantage of the tax-free earnings as possible.

What to do with a 529 account once the time has come and gone to use it for QHEE

Suppose now that, try as they might, your child’s school expenses stayed under what you’d put away into a 529 account. What do you do with this money to avoid taxes?

If you must withdraw for non-QHEE, do so from the account which has proportionally made less gains

Let’s toss out an example to better illustrate that awkward title. Suppose you had two 529 accounts for your child who had already finished school:

  • One, invested in a stock mutual fund, had doubled in value,
  • While the other, invested in a bond mutual fund, had not made any gains at all.

Because taxes and penalties are assessed on the gains of your account, taking a distribution from the 529 account that contains the bond mutual fund would not lead to additional taxes.

But is there a more surefire way to ensure you’re not penalized on distributions?

Change beneficiary to a spouse, younger child, nephew, niece, or grandchild, or use it yourself for another degree

Just because you had earmarked those funds for your oldest child’s education doesn’t mean they wouldn’t work just as well for your next child, or a sibling’s kid you really like.

Or, you can leave it in for many years, watching the gains pile up, then name a grandchild as the beneficiary. Or, if it suits you, you or a spouse can use the 529 for another degree en route to a late-life career change.

Or, if you’re really in it for the long haul and you’re intent on passing along the funds in that account, there’s one other option.

Ensure that your successor owner is up to date, and wait until you die

Thinking about death is no fun at all, but passing along a 529 account isn’t a bad option if neither of the above make sense. If you name a successor owner, the 529 account will head straight to them upon your passing, bypassing probate.

An important note: The successor owner is different from the beneficiary — i.e. the person whose college costs you opened the 529 account for. Ensure that you’re looking at the right fields.

And we’re done here. Questions? Thoughts?

Should I have attempted to discharge my debt by declaring bankruptcy?

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Source: Hartwig HKD via Flickr under a Creative Commons license

Well this is a fun topic.

Having written Friday about sock bankruptcy, it got me thinking about regular bankruptcy.

You may have noticed that I talk about paying off debt from time to time on this blog. I also talk about how I try to keep a clear head, stay positive, and find motivation all while paying off that debt.

But what if an objective, clear-headed look had shown me that the numbers didn’t add up?

Declaring bankruptcy would have been an option.

What were my options for declaring bankruptcy?

Bankruptcy isn’t just a thing that cities and big corporations are allowed to declare.

To the extent that I understood it, in the U.S., my options as an individual were filing either Chapter 7 or Chapter 13 bankruptcy.

Under Chapter 7, I would have had to submit to a judge a list of all my assets that could be liquidated, all the debts I owed, as well as my income. Provided that I hadn’t committed actual fraud, the following would have happened to my debt:

  • All unsecured debt not considered “priority debt” would have been discharged
  • I would have been able to choose between either keeping secured debt and keeping the asset securing it (e.g. The mortgage and the house), or losing both

For Chapter 7, the Bankruptcy Code sets a soft limit for income of the state median, meaning that if I made more than that, I’d have to be means tested.

According to Experian, Chapter 7 bankruptcy would have stayed on my credit report for 10 years.

Chapter 13 is different in that I would have gotten to keep my property, but would have been put on a payment plan for three to five years where I still pay off almost everything (some cram down could happen), but I’d get protection from garnishment and collections during that time.

Oh, also, there would have been no income limit and it would have only stayed on my credit report for seven years.

Source for both Chapter 7 and Chapter 13: U.S. Courts

So why didn’t I declare bankruptcy?

There were plenty of reasons.

For one, my credit report was already pretty good when I started paying this off, so having the blemish of a bankruptcy on there for seven to 10 years would have been a big deal.

Not only that, remember how I mentioned “priority debt” up there? Priority debt is generally not discharged in bankruptcy and this includes stuff like back taxes and yes, student loans. Because the great majority of my debt was student loans, bankruptcy would not have helped me very much at all.

All in all, the benefits didn’t outweigh the costs for me.

As a reminder, I’m not a lawyer, so you should consult your own lawyer, dig deep into the Bankruptcy Code yourself, or get more info from Prime Lawyers, if bankruptcy is something you’re considering.

So, did I miss anything that may have tipped the scales in either direction? Does anyone have their own stories regarding bankruptcy?