Responses to #creditchat questions by Dr. Barbara O'Neill

1. #CreditChat Questions: The Road to Financial Wellness
Barbara O’Neill, Ph.D., CFP®, oneill@aesop.rutgers.edu
· Q1: How do you define financial wellness?
♦ Groups are using the words financial “well-being” (CFPB), “health” (CFSI), “capability” (FINRA). and “wellness” (Phroogal) to
describe a collection of positive financial behaviors; all agree that future-mindedness and planning are the key to success
♦ CFPB Four Elements: http://www.consumerfinance.gov/blog/four-elements-define-personal-financial-well-being/
♦ Wellness: Ability to pay current expenses, absorb “shocks,” avoid money errors, set/achieve financial goals, and have life options
♦ Phroogal Road to Financial Wellness summary (Rutgers): http://sebsnjaesnews.rutgers.edu/2015/06/advice-from-the-road-to-
financial-wellness-planning-is-a-key-to-success/#more-14684
· Q2: What are bumps people may encounter on the road to financial wellness?
♦ Poor health, injuries, disability, divorce, unemployment, underemployment, financial losses (e.g., natural disasters, lawsuits,
robberies, bear markets), costs of raising a child, family care-giving expenses, poor spending habits, and outstanding debt
· Q3: What are some common debts people struggle with?
♦ Mortgages (especially if “underwater” on a house), car loans, student loans, alternative financial services loans (e.g., payday loans,
car title loans, pawn shops, rent-to-own), income and property tax debt, personal loans from family and friends
· Q4: What are steps people can take to get out of debt?
♦ Negotiate concessions from creditors yourself before you are late making payments
♦ Contact a licensed non-profit consumer credit counseling agency (debt management program or DMP)
♦ Use PowerPay to accelerate debt repayment by adding money from paid-off balances to remaining debts (for more information, see
https://powerpay.org/), typically add extra money to debts in descending order by APR
♦ Replace a higher interest rate (APR) debt with a lower rate debt (debt consolidation)
♦ Increase income and/or reduce expenses (or both) to apply more money to debt; even $1/day more makes a difference!
· Q5: How important is budgeting on the path to financial wellness?
♦ Budgeting (spending plan) is the key to financial wellness; can’t do anything else (retirement saving) unless you manage cash flow
♦ Rutgers Spending Plan Worksheet: http://njaes.rutgers.edu/money/pdfs/fs421worksheet.pdf
· Q6: How does credit affect financial wellness?
♦ Wise use of credit is an indicator of financial wellness (good credit score, low debt-to-income ratio)
♦ Conversely, overspending, high debt ratios, and growing debt balances are indicators of problems; “financial illness?”
♦ Rutgers Wise Credit Management Quiz: http://njaes.rutgers.edu/money/wise-credit/
· Q7: What are ways to save when struggling with debt?
♦ Struggling with debt or not, the best way to save is automatically is via payroll deduction (e.g., credit union or 401(k) deduction)
♦ 3 sustainable ways to improve cash flow: increase income, decrease expenses, do both (analogy to weight control)
· Q8: When should you seek help from a financial expert? Any non-profits you can recommend?
♦ When you are overwhelmed or inexperienced and/or or time-pressed; CFP Board, NAPFA, FPA, licensed credit counselors
· Q9: What websites and resources would you recommend to help people achieve financial wellness?
♦ Rutgers Personal Finance web site (http://njaes.rutgers.edu/money/), Mymoney.gov, NEFE Smart About Money, eXtension
Q10: Any final tips to help us stay financially well?
♦ Do one thing every day and learn something new every day about personal finance; save early and often; live below your means
♦ Maintain good physical health; health “issues” are a major financial “shock” and make it difficult to build wealth or repay debt