Life is unpredictable, and financial setbacks can happen to anyone. Whether it is a job loss, medical expenses, or unexpected emergencies, these events can disrupt your financial stability and overwhelm you. However, recovery is possible. You can rebuild your credit and regain confidence in your financial future by taking strategic steps.

1. Assess your current financial situation

The first step in recovering from a financial setback is to evaluate where you stand. Take stock of your income, expenses, debts, and credit score. Use a budgeting tool or a simple spreadsheet to list your financial obligations and identify areas where you can cut back.

Understanding your situation is essential for creating a realistic plan. For example, if you have missed payments, check how they have affected your credit report. Knowing the extent of any damage helps you focus your efforts on the most critical areas.

2. Set realistic financial goals

After assessing your situation, set clear and achievable financial goals. These could include catching up on past-due bills, saving for emergencies, or raising your credit score by a specific number of points.

Breaking down your goals into smaller, actionable steps can make them feel more attainable. For instance, if your goal is to pay off $5,000 in debt, aim to pay $100–$300 per month, depending on your budget.

3. Create a budget that works for you

A well-crafted budget is your roadmap to financial recovery. Start by prioritizing essential expenses like housing, utilities, and groceries. Allocate funds toward debt repayment and savings, even if it is a small amount initially. The 50/30/20 rule might be helpful way to divide your income.

• 50% to necessities.
• 30% to discretionary spending.
• 20% to savings and debt repayment.

You can adjust these percentages based on your circumstances. The goal is to ensure you live within your means while making progress toward recovery.

4. Address overdue debts

If you have fallen behind on debt payments, it is crucial to address them quickly. Contact your creditors to explain your situation and explore repayment options. Many lenders offer hardship programs, including reduced interest rates, lower payments, or temporary payment deferrals.

If you have multiple debts, consider using either the debt snowball method (paying off the smallest debt first) or the debt avalanche method (focusing on the debt with the highest interest rate). Both strategies can help you gain momentum and reduce financial stress.

5. Monitor and improve your credit score

Your credit score plays a significant role in financial recovery. Start by checking your credit report for errors, such as incorrect balances or accounts that do not belong to you. Dispute any inaccuracies with the credit bureaus to ensure your report reflects your actual financial situation. Take steps that can improve your score:

• Pay all bills on time. Payment history accounts for 35% of your credit score.
• Reduce your credit utilization ratio by paying down balances. Aim to keep it below 30%.
• Avoid opening too many new credit accounts, which can temporarily lower your score.

Building positive credit habits over time helps you regain financial stability and open up opportunities for better loan terms in the future.

6. Build an emergency fund

Establishing an emergency fund is one of the best ways to protect yourself from future setbacks. Saving might feel challenging during recovery, but even small contributions add up over time.

Aim to save three to six months’ worth of living expenses. Start with a more manageable goal, such as $500 or $1,000, and gradually work your way up. This cushion provides peace of mind and reduces reliance on credit cards or loans during unexpected expenses.

7. Rebuild confidence through financial education

Recovering from a financial setback is not just about the numbers—it is also about rebuilding your confidence. Educate yourself on personal finance topics to feel more in control of your money.

Many free resources are available, including online courses, blogs, podcasts, and books. Learning about budgeting, investing, and credit management can empower you to make informed decisions and avoid future pitfalls.

8. Explore alternative income streams

If your financial setback stemmed from a loss of income, consider exploring additional ways to earn money. A side hustle, freelance work, or selling unused items can provide extra cash to help with debt repayment or savings.

Platforms like Upwork, Etsy, or TaskRabbit make finding opportunities that align with your skills and interests easier than ever. A few hours a week can make a difference in your financial recovery.

9. Celebrate small victories

Recovery can feel like a long road, so it is important to celebrate progress along the way. Whether paying off a credit card, reaching a savings milestone, or improving your credit score, acknowledge your achievements.

Celebrating small wins can boost your morale and motivate you to stick to your plan. Treat yourself to something modest, like a favorite meal or a movie night, to mark these moments.

10. Seek support if needed

Financial recovery can be challenging, but you do not have to face it alone. If you are struggling to create a plan or manage your debt, consider seeking help from a financial advisor or credit counseling service.

Nonprofit organizations like the National Foundation for Credit Counseling (NFCC) offer free or low-cost assistance. A professional can help you develop a customized plan and provide guidance on navigating complex situations.

Recovering from a financial setback takes time, effort, and resilience. By assessing your situation, setting realistic goals, and adopting smart financial habits, you can rebuild your credit and regain confidence in your financial future.

Setbacks are a normal part of life, and recovery is part of the process. With patience and persistence, you can turn your financial challenges into an opportunity for growth and long-term stability.

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Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

The post How to recover from a financial setback appeared first on Credit Sesame.

Wealth gaps between different population groups occur for a variety of reasons. However, one clear-cut factor, if addressed, could open the door to economic opportunity for traditionally disadvantaged members of the American community.

A new Credit Sesame survey found strong links between personal finance education at school and economic success. People who reported receiving financial education during their school years are more likely to earn high incomes and use credit responsibly later in life.

Access to financial education is unevenly distributed across the United States. Credit Sesame’s survey indicated that financial education, or a lack thereof, has a material effect on future financial outcomes for individuals. A financial education for all may help level the future economic playing field for all Americans.

It is possible for individuals to receive this education at home or educate themselves later in life, but teaching household finance basics more evenly across US schools seems a relatively easy way of giving all students an equal opportunity.

Non-white groups less likely to receive financial education in school

Financial education is not provided to every student in America. In particular, non-white students are far less likely to receive it than white students. The Credit Sesame financial education survey found that nearly twice as many white respondents as non-white respondents reported receiving personal finance education in school. Though the difference is greatest between white and non-white students, there are also discrepancies among different non-white groups. Percentages of respondents who received a financial education at school have been rounded to the nearest 1% for ease of reading.

• 59% White
• 41% African American
• 33% Asian
• 31% Hispanic
• 35% all non-white

It seems clear that non-white students are less likely to receive a financial education at school.

Financial education and future financial success

To investigate future impact, the financial education survey also asked respondents about their current household income and credit scores.

People who received financial education in school are more likely to achieve higher incomes.

It seems financial education in schools is also a predictor of future credit scores. 670 is often used as a dividing point between good credit and subprime credit. A higher percentage of individuals who received a financial education have scores of 670 or above.

• 85% of those who received a financial education
• 72% of those who did not receive financial education

The impact of poor credit on personal finances

The impact on credit scores is important because having bad credit has a direct impact on the credit products available to individuals. Bad credit makes it tough to get approved for credit. The survey found that people with low credit scores are roughly twice as likely to be rejected for a credit card and more than twice as likely to have a loan application rejected. In addition to credit products, a lower credit score can influence your ability to rent living accommodation.

States-level financial education in schools

Some states recognize the importance of financial education in closing financial gaps and make it part of the standard high school curriculum. However, this is far from universal.

According to The Economist, since 2020, seventeen states have added financial literacy coursework as a requirement for high school graduation, bringing the nationwide total to 25 states.

This means half the states do not provide this instruction to their students, which could mean that students in those states are at a financial disadvantage later in life.

Parental role in financial education

The survey found that many people get this valuable instruction at home. When asked how much financial education parents impart, responses were split fairly evenly.

• 34% Yes, very much
• 32% Only a little
• 34% No, not really

Optimistically. this means nearly two-thirds of parents pass on some financial knowledge to their kids. A more pessimistic view would be that only a little over one-third of parents provide substantial financial knowledge. Parents may not have the knowledge or time to give their kids a sound financial education, making it all the more important for schools to step in and fill the gap.

Financial education beyond childhood

The good news is that individuals who do not receive a financial education during childhood can go on to have high credit scores and high incomes. There are many government resources aimed at financial literacy, for example:

• Consumers Financial Protection Bureau (CFPB)
• Federal Deposit Insurance Corporation (FDIC)
• MyMoney.gov

Credit Sesame also provides personal finance and credit management resources, including its Knowledge Hub, blog, free credit score, and free credit monitoring services.

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You can see your credit picture at a glance with Sesame Ring. The unique user interface enables easy and intuitive review of TransUnion data. Credit report information from all three bureaus is available if you choose to upgrade to Premium. In addition to data and information, the app provides a measure of overall credit health with your Sesame Grade, and provides alerts, personalized action plans and AI-driven customer support. As you embark on your journey of credit and financial health improvement, knowledge is your most potent asset. Insights from all three bureaus can help you make sound financial choices, negotiate from a position of strength, and nurture your credit health. Regular reviews enable you to maintain accuracy, detect discrepancies and shape your financial future with confidence. Remember that credit is a tool that, when used wisely, can open doors to financial opportunities.

Survey Methodology

Credit Sesame commissioned this survey with the research company, SurveyMonkey.com to discover what financial inequities exist among marginalized communities. The data was collected between May 15th, 2024 and June 1st, 2024 from a sample of the general population of 748 participants based on a statistical distribution derived from the United States Census, ensuring a proportional representation of various demographics. Credit Sesame adhered to ethical guidelines throughout the data collection and analysis process and ensured participant confidentiality.

Disclaimer: The article and information provided here are for informational purposes only and are not intended as a substitute for professional advice.

The post Financial education survey highlights inequality appeared first on Credit Sesame.

The three Rs in education are Reading, wRiting and aRithmetic. Most people agree that those basic skills are necessary for life. What about money management? Knowing how to spend, borrow, save and invest wisely. It could be argued that financial knowledge is as important as the three Rs. Since April 2023 is Financial Literacy Month, it’s a good time to discuss why financial literacy should be taught in schools.

Why financial literacy as a 4th basic skill?

Why do we need to improve our financial literacy? Because in the US, financial ignorance is taking a terrible toll, and financial problems tend to spill into other parts of life. Researchers reported in the Journal of Marriage and Family that money stress often leads to health problems, emotional issues and poor marital relationships.

Poor credit ratings

Being uneducated about money is linked to lower credit scores, and failure to build credit can deny families home-buying opportunities. Harvard University’s Joint Center for Housing Studies claims that homeownership is the most reliable way to build wealth and that the average homeowner’s wealth is 40 times that of the average renter.

In addition, consumers without good credit pay much more for everything they finance, including autos, homes, credit card balances, and education. Credit card rates for people with excellent credit run about 10% lower than those with fair or poor credit (just under 19% vs nearly 29% as of March 2023). When families spend more on financing costs, less money is available for savings or other purchases.

Student loan balances

Researchers at Old Dominion University surveyed over 1,000 grads and most said they were unprepared for the impact of their loans and wished that they had received “more financial literacy” during the college decision process and at college orientations. “I had no idea what I was getting myself into at the age of 18 signing all those forms for financial aid,” one grad said ruefully.

Today, it takes students who finance college education an average of 21 years to repay their student loan balances. The difficulty in repaying their loans completely blindsides many grads because they don’t know how much the accruing interest will increase their balances. In addition, students often choose degrees without considering their earning potential or even if they can successfully complete the program. It is clear why financial literacy may be useful before enrolling at college and taking out a loan.

Financial insecurity

According to a recent LendingClub survey, two-thirds of Americans lived paycheck to paycheck in 2022. And nearly three-fourths of those consumers experienced difficulty just covering their bills. Living paycheck to paycheck means nothing is left over after paying your living expenses. In addition, half of Americans have under $500 in an emergency fund. This is far less than the three months of living expenses recommended by experts.

Spending without a budget or emergency savings leaves households vulnerable to unexpected costs or hiccups in their income. In the NPR article Paycheck-To-Paycheck Nation: Why Even Americans With Higher Income Struggle With Bills, exasperated consumer Rhonda Alvarez said, “I make decent money now, and I shouldn’t have to live paycheck to paycheck.” Rhonda also said that she wished schools would teach children money management. “It’s way more important sometimes than algebra or geometry.”

Excess debt

People without much financial knowledge are more likely to experience excessive debt loads, credit problems and bankruptcy. Getting a grasp as to why financial literacy is important may help to avoid these basic financial mistakes.

On the other hand, studies have shown that financially literate consumers are less likely to have credit card debt and more likely to pay off their balances each month. They also refinance their mortgages when it makes sense to do so to minimize interest expense. In addition, financially savvy adults avoid borrowing against their 401(k) plans and are less likely to resort to expensive loans from payday lenders, pawn shops and auto title lenders.

Unprepared for retirement

A recent McKinsey study found that 80% of Americans are financially unprepared for retirement. That’s a serious problem because those who fail to save for retirement may depend on Social Security payments to survive, and the average Social Security check in 2022 was $1,656.30.

Why would so many be setting themselves up for poverty once they stop working?

Theresa Ghilarducci, professor of economic policy analysis at The New School for Social Research in New York, claims few of us have the financial literacy needed to retire successfully under our current system. “The U.S. is the only industrial country that depends on untrained individuals supplementing their own basic Social Security and long-term savings with a system of voluntary contributions and retail investment products,: she said. “It’s like requiring everyone to do their own home electrical wiring and dental work.”

American retirement is unlikely to change in the near term, so future generations need a better understanding of how savings, investing, and compounding interest work. The sooner, the better, since the earlier you start, the easier it is to save enough for a secure retirement.

Understanding why financial literacy is important

Financial literacy means acquiring these important basic financial skills, which may be considered life skills.

• Establish a savings habit.
• Avoid unnecessary debt.
• Create and stick to a budget.
• Borrow wisely when necessary.
• Establish and protect a good credit rating.
• Plan for retirement.
• Invest correctly for different life stages.
• Insure against catastrophic losses.

Studies have shown that students with higher financial literacy are less likely to incur late fees, use payday loans or make only the minimum payments on their credit cards. And states that have deployed financial literacy programs are getting good results. For instance, within three years, Georgia, Idaho and Texas saw credit scores rise and delinquency rates fall. These are good reasons why financial literacy should be part of a high school, or even younger, curriculum.

Financial literacy coursework

What should be taught in a high school financial literacy class? The Federal Reserve Bank has developed this standard personal finance curriculum for older students. Our kids should know these things, and so should we.

Unit 1: Decision making

• Lesson 1.1: The Art of Decision making
• Lesson 1.2: Opportunity Cost
• Lesson 1.3: Making Choices and Identifying Costs

Unit 2: Earning Income

• Lesson 2.1: It’s Your Paycheck: Invest in Yourself
• Lesson 2.2: Investing in Yourself
• Lesson 2.3: Teaching Human Capital and the Importance of Postsecondary Education
• Lesson 2.4: What Are Taxes For?
• Lesson 2.5: Understanding Taxes
• Lesson 2.6: It’s Your Paycheck: “W” Is for Wages, W-4, and W-2
• Lesson 2.7: Individual Income Tax: The Basics and New Changes

Unit 3: Buying Goods and Services

• Lesson 3.1: Making a Budget—It’s All Spending
• Lesson 3.2: Budget Trade-Offs—A Penny Here and a Penny There
• Lesson 3.3: Big Spenders
• Lesson 3.4: Smart Phones and Budget Changes
• Lesson 3.5: Advertising: Dollars and Decisions

Unit 4: Saving

• Lesson 4.1: Time Preference—Why It Is Hard to Save
• Lesson 4.2: Simple and Compound Interest—Why It Is Great to Save
• Lesson 4.3: Time Value of Money
• Lesson 4.4: No-Frills Money Skills: Growing Money

Unit 5: Using Credit

• Lesson 5.1: The Three Cs of Credit
• Lesson 5.2: Evaluating the Benefits and Costs of Credit
• Lesson 5.3: Credit Bureaus: The Record Keepers
• Lesson 5.4: Cards, Cars, and Currency: The Car Deal Package
• Lesson 5.5: Bankruptcy: When All Else Fails
• Lesson 5.6: On the Move: Renting Basics
• Lesson 5.7: Fast Cash and Payday Loans

Unit 6: Financial Investing

• Lesson 6.1: Meeting Financial Goals—Rate of Return
• Lesson 6.2: Managing Risk—Time and Diversification
• Lesson 6.3: Evaluating Investment Options
• Lesson 6.4: No-Frills Money Skills: Get Into Stocks
• Lesson 6.5: Diversification and Risk
• Lesson 6.6: No-Frills Money Skills: Understanding Bonds

Unit 7: Protecting and Insuring

• Lesson 7.1: Insurance: Coverage and Cost Basics
• Lesson 7.2: Is Insurance Worth Buying?
• Lesson 7.3: The Three Ds of Identity Theft

Parents can take control now

While only about one-third of students have access to financial literacy content at school, parents don’t have to wait to help their kids. The FDIC has created financial literacy coursework that you can download for every grade from K through 12.

Here’s an example of a budgeting activity a parent can do with kids in the third through fifth grade:

“Ask your child to save your grocery store receipts for a week. At the end of the week, to help with the family budget, have your child add up how much money was spent on food.

Discuss ideas to save money on future food shopping trips to meet budget goals. You can also
invite your child to collect the receipts for a longer period of time (several weeks or months) to keep
track of progress toward goals. Check in regularly to discuss as a family.”

That exercise seems like it would be good for most adults as well.

The good news is that with the right personal finance skills, most people can build a decent credit score, learn to budget, avoid excess debt and save for retirement. With the right tools, you can live better today and enjoy more security tomorrow.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Beyond the 3 Rs: Why financial literacy should be a 4th basic skill appeared first on Credit Sesame.