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How to Dig Out of a Financial Hole in 5 Steps

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Running into a financial dead-end is no one’s dream. But it is definitely everyone’s nightmare. With the thoughts of lost assets, unpaid debts, and little to no funds, the situation is enough to induce anxiety among the toughest of minds. 

If you find yourself in such a scenario, it can be difficult to find the light at the end of the tunnel. But even though it can be difficult to believe, all is not lost in a financially challenging situation. As long as you keep your wits and perseverance intact, you can make your way out of these difficulties. 

To help you make it through to the other end, here’s how to dig out of a financial hole in 5 steps. 

1. Assess Your Situation

With millions of people struggling with debt, collections, and limited income, you are not alone in your financial problems. But similar to almost every human experience, the challenge looks unique for everyone. Keeping this in mind, make it a point to assess your specific situation. From your existing debts to your current assets, this calls for you to take every detail into account.

From there, you can learn how debt collection laws protect you in your specific situation and how you can manage recovery with your current income. This lets you plan your next steps, such as expense control and debt payments, with a comprehensive picture in your mind. 

2. Speak to a Financial Advisor

While taking note of your specific scenario is a basic first step, its effective resolution calls for professional help. That is where you can speak to financial advisors who specialize in helping people out of financial ruts. With many such professionals now making use of advisor transition services, you can find them running their own private or affiliated practice.

This makes it incredibly easy to reach out to these experts and get the advice that you need for financial stability. These professionals can advise you on aspects such as controlling your expenses and maximizing debt repayments. This ensures that you can recover your finances in a timely manner, while also benefiting from knowledgeable decisions to boot. 

3. Find Ways to Keep Motivated

If you are planning to simply barge on with financial management with no regard to mental health, you might crumble under the process before you have even started. That is why it is important that you find ways to keep yourself motivated. Looking into a mental health app can help you in this regard. 

In recent years, mental health coaching has joined the ranks of flourishing business ideas in the medical industry. This makes it easier for you to reach out to these experts even from the comfort of your home. In many cases, these services also don’t break the bank. This allows you to access them on a budget and lets you follow your goals with their help.

4. Stick to Your Budget

Making your way out of a financial rut requires persistence at every step. This is perhaps more evident in the practice of sticking to a budget, which comes into play in almost all financial recovery plans. That is where a budget planner app can come to the rescue. 

By using these solutions, you can have the information about your financial recovery handy with you at all times. If you ever need to refer to your financial standing before a purchase or a payment, you can simply refer to your phone in your pocket. This convenience is one of the top reasons why you need a budget planner. At the same time, the solution stays critical in terms of following financial recovery plans. 

5. Do Regular Check Ins 

Whether you are going at it solo or getting help from a professional, handling financial management calls for frequent check ins. This not only enables you to determine the efficacy of your budgeting and expense control efforts, but also allows you to tweak your ongoing strategy as you see fit. This particular aspect goes a long way towards helping you out of your financial problems.

Doing so on your own will require intensive calculations and planning. But if you have the help of a financial expert, you can simply hop onto a video chat app to get precise advice about revised strategies. This ensures that you have everything you need to optimize your ongoing plans. 

By keeping these points in mind, you can navigate your way through your financial challenge and towards your ideal recovery. This helps you improve your financial status in a timely manner, while also taking care of your overall well-being.

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Find Out What Big Data Says About You — and Fix It

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I thought I knew all about the information that consumer reporting agencies were collecting on me. Then I discovered The Work Number — a database that reports every paycheck I’ve received from my company, with net and gross amounts, going back to my hire date six years ago.

Another consumer reporting agency shows the results of a 2016 echocardiogram. (It was normal.) Yet another tracks insurance claims on my home and car. If I’d made too many returns at retail stores or bounced a check at a casino, that could show up in a database as well.

“Any data point that someone can track, there’s going to be a bureau or someone gathering information and selling that information,” says Matthew Loker, a consumer protection attorney in Arroyo Grande, California.

Unfortunately, not all the information being reported is accurate — and mistakes can have serious consequences. Loker says one of his clients lost a lucrative job offer because an employment screening company confused her with a drug smuggler. By the time the error was fixed, the position was filled. Other people have been denied insurance, apartments, bank accounts and government benefits because of database errors.

But discovering and correcting mistakes is no small task.

Dozens of companies are tracking us

The Consumer Financial Protection Bureau maintains a list of consumer reporting agencies that’s currently 38 pages long. In addition to the big three credit bureaus — Equifax, Experian and TransUnion — the list includes 22 employment screeners, 10 tenant screeners, six check and bank screeners, four insurance reporting agencies and two medical information companies, among others.

Checking all those reports would be a monumental task, says consumer advocate Chi Chi Wu, a staff attorney at the National Consumer Law Center. Even narrowing down the options to the agency most likely to have relevant information can be tough, Wu says.

“Let’s say you’re applying for an apartment,” Wu says. “There are all these companies and you don’t know which one your landlord is going to use.”

You can ask the prospective landlord, of course, but by the time you spot and fix an error in the report, that apartment may be long since rented.

Pick your targets

Privacy advocate Evan Hendricks recommends you start by targeting some of the larger databases. For tenant screening, that could include RealPage or TransUnion SmartMove.

One of the largest consumer data aggregators is LexisNexis, which provides various types of background screening. The report you get back could be hundreds of pages long, detailing everything from traffic tickets and concealed weapons permits to the amount of every mortgage you’ve ever had, bankruptcies, tax liens, evictions and criminal records. LexisNexis also operates the Comprehensive Loss Underwriting Exchange, or C.L.U.E., which collects and reports auto and personal property claims. You can request your comprehensive report at https://consumer.risk.lexisnexis.com/consumer.

If you’re employed, check The Work Number, which is owned by Equifax and has current payroll data for more than 136 million jobs. If your salary information is there — and it probably is — you’ll also see which companies and government agencies have checked it recently.

Government agencies also consult The Work Number files to fight unemployment fraud and determine eligibility for public benefits, among other uses. That alone is a good reason to check your file for errors, Wu says.

“People have been kicked off or risked being kicked off of benefits or accused of an overpayment because of The Work Number,” Wu says.

Request your ChexSystems report if you plan to open a new bank account or had problems with a previous account, such as not paying an overdraft fee or bouncing a check.

If you plan to apply for individual life, health, long-term care or disability insurance, request your files from MIB and Milliman IntelliScript. MIB collects information about medical conditions, while Milliman IntelliScript collects prescription drug purchase history.

What to do once you have your reports

You typically don’t have to pay to request your data, but you may have to wait to get it. Some companies allow you to see your files online, but many require you to submit a form or call a toll-free number to request a report. A company has 15 days to respond once it receives your request, the CFPB says.

If you find any errors, follow the company’s dispute process. If you can’t get the problem resolved, you can file a complaint with the CFPB.

A few companies — including the credit bureaus, RealPage, LexisNexis, ChexSystems and The Work Number — give you the option to freeze your reports. That generally prevents companies from accessing your data without your permission. Freezes can involve some hassle since you’ll have to keep track of a password or PIN, and a freeze could slow down credit or other applications. The trade-off is more privacy.

Speaking of credit bureaus: You’re currently allowed free weekly access to your credit reports through the end of the year. But many other consumer reporting agencies limit your free reports to one every 12 months. So mark your calendar, since checking your data for errors is likely to be a never-ending task.

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Why You (and I) Should Name a ‘Trusted Contact’

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The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

For the past few years, financial services companies have been bugging me to name a “trusted contact.” Banks, brokerages and insurers increasingly want to have someone to call or email in case they notice suspicious activity and can’t reach the account holder.

I ignored these requests. Trusted contacts are a great idea for older people experiencing cognitive decline, I thought, but that’s not me.

Then a younger friend developed early-onset dementia, and I realized we don’t always get enough warning to put such protections in place.

Clearly, trusted contacts aren’t just good for older people. Anyone’s financial accounts could be vulnerable if they’re displaced by natural disaster, wind up in the hospital, suffer a brain injury or are traveling and hard to reach. Helping your brokerage, bank or insurer connect with someone who knows what’s going on in your life could protect your money and prevent financial catastrophe.

“I love the idea of the trusted contact, because it can really head off any fraud or exploitation before it snowballs out of control,” says Amanda Singleton, a family caregiving expert for AARP and an estate planning attorney in St. Petersburg, Florida.

Trusted contacts can’t make changes

Naming a trusted contact doesn’t give that person authority over your accounts or the ability to see balances or make changes, explains Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority, known as FINRA. FINRA is the nongovernmental organization that regulates the securities industry, including brokerages.

Instead, your trusted contact can help financial services companies reach you (if you’re reachable) or identify others who might help. If you’re incapacitated, for example, your contact might connect the company to your legal guardian or the person with power of attorney over your accounts. If you’ve died, your trusted person could provide contact information for the executor of your estate or the successor trustee of your living trust.

You aren’t required to name a trusted contact, but financial services companies — along with regulators and consumer advocates — recommend it. You can change your trusted contact whenever you want, or name more than one. Ideally, a trusted contact is someone you’re confident will protect your privacy and act responsibly.

“It could be an adult child, a close friend, an attorney or some other trusted person that the financial institution can reach out to for extra help to try to reach you,” says Deborah Royster, assistant director for the Consumer Financial Protection Bureau’s Office for Older Americans.

A trusted contact could thwart fraud

The push to name trusted contacts started out of concern for older Americans being scammed out of their life savings. More than 369,000 cases of financial fraud of older adults are reported to authorities each year, causing an estimated $4.84 billion in losses, according to a January report by Comparitech, a cybersecurity research company.

But this kind of fraud is notoriously underreported, often because victims are embarrassed, worried that others will think them incapable, or protective of the perpetrators, who may be loved ones, caregivers or neighbors. Comparitech estimates the real toll may be 8.68 million cases and more than $113.7 billion in losses each year.

To help reduce that toll, two new FINRA rules were approved in 2017. The first allows brokerages to put temporary holds on withdrawals when financial exploitation is suspected, and the second requires brokerages to “make reasonable efforts” to get customers to name trusted contacts.

So far, other financial services companies such as banks, credit unions and insurers don’t have similar rules. Even so, some are offering the opportunity to name trusted contacts on accounts, Royster says.

Beware fraudulent email requests

One thing you shouldn’t do is respond to emails that seem to be from your financial institution asking you to name a trusted contact. Those may be scams to steal your passwords or create other havoc, FINRA’s Walsh says. Instead of replying to those emails, consider calling your financial institution or looking on its website for a form that lets you name a trusted contact.

If your financial institutions offer the option, it’s a relatively quick and easy way to add a layer of protection on your accounts, says Abby Schneiderman, co-founder and co-CEO of the end-of-life planning site Everplans and co-author of “In Case You Get Hit by a Bus: How to Organize Your Life Now for When You’re Not Around Later.”

“People should take two minutes out of their day and name a trusted contact,” Schneiderman says.

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Personal Finance

3 Times You Need Money Advice From a Human

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You can now manage most aspects of your money without ever consulting another human being. You can budget, borrow, save, invest, buy insurance, prepare your tax return and create a will — among many other tasks — by using apps, websites and software.

But technology still has limitations, especially when you’re facing a money situation that’s complex or involves judgment calls. Consider consulting a human expert in the following situations:

1. You’re dropped by your homeowners insurance

Insurers typically can’t cancel a policy after 60 days unless you fail to pay premiums, commit fraud or make serious misrepresentations on your application, according to the Insurance Information Institute, a trade group. However, insurers can decide not to renew your policy when it expires.

With auto insurance, you often have many options after such a “non-renewal.” Even if you’ve had accidents or multiple claims, you typically can find coverage with companies that specialize in higher-risk drivers.

If a homeowners insurance company dumps you, however, you may have trouble finding coverage, says insurance consumer advocate Amy Bach. That’s especially true if you were dropped because you made too many claims, or your area is considered high risk because of wildfires, extreme weather or crime, for example.

How would other companies know? Insurers share such information in databases, and application forms typically ask if you’ve been “non-renewed” by another insurer, Bach says.

Bach’s nonprofit organization, United Policyholders, recommends seeking out an independent agent or broker who has relationships with several insurance companies. The agent or broker should know which insurers may be more receptive to your application and can put in a good word for you, Bach says. While most underwriting decisions are made by computers, there are still ways for human beings to override the algorithms.

“It will make a difference if [the agent or broker] can call an underwriter that they know and vouch for you as a good bet,” Bach says.

If your area has been labeled high risk, ask your neighbors for referrals to agents or brokers who helped them find coverage. Otherwise, you can ask an accountant, attorney or financial planner if they have recommendations. Friends and family may be able to provide leads as well.

2. You’re facing a “face-to-face” tax audit

Most IRS audits are conducted through the mail and are relatively routine. The IRS sends a letter requesting additional documentation to support a deduction or other tax break you’ve taken. If you mail back sufficient evidence, your case will be closed with no taxes owed. Otherwise, the IRS will mail you a bill.

However, if the IRS wants to meet with you, the stakes get much higher. In fiscal year 2020, the average amount of additional taxes recommended in face-to-face audits was nearly 10 times larger than the average for a correspondence audit: $72,210 versus $7,658, according to IRS statistics.

Even tax pros hire someone to represent them in face-to-face audits, says Leonard Wright, a San Diego certified public accountant and financial planner. Wright has plenty of experience: He was chief financial officer of a company that was audited, and his personal tax returns have been audited four times. In each case, he hired another CPA to represent him.

It’s all too easy to say something you shouldn’t when you’re under scrutiny, Wright says. You could volunteer information that might not be helpful to your case, or get defensive or confrontational.

“You don’t want it to become personal, and you don’t want to ruffle the feathers of the auditor,” Wright says.

If you used a tax preparer, you may assume that person can represent you in an audit, but that’s not always the case. Typically CPAs, attorneys and enrolled agents can represent clients in IRS audits, but other tax pros usually can’t. Your tax preparer may be able to refer you to someone who can represent you, or you can get referrals from friends, family or financial advisors.

3. You’re creating an estate plan

Will-making software and estate-planning sites can help you create essential legal documents if money is tight. Otherwise, you should probably consult an attorney, says Betsy Hannibal, senior legal editor for self-help legal site Nolo.

“Why not get personalized advice that’s tailored to your situation, if you can?” Hannibal says.

Getting help is particularly important if you need or want to do something complicated with your estate like putting conditions on a bequest, providing for someone with special needs or creating a trust, she says. You’ll also want an attorney’s help if you have a lot of debt, because there may be ways to protect your assets from creditors. Finally, consult an attorney if you think someone might contest your will. A lawyer can put additional protections into place and serve as a professional witness that you knew what you were doing, Bach says.

“If someone doesn’t think you were in your right mind, going through an attorney can help make sure that (a legal challenge) can’t go forward,” she says.

This article is meant to provide background information and should not be considered legal guidance.

This article was written by NerdWallet and was originally published by the Associated Press.

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