This Week In Your Wallet: Reduce Medical Debt, Defy the Wage Gap & Boost Your Credit - Jean Chatzky - Making money make sense
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This Week In Your Wallet: Reduce Medical Debt, Defy the Wage Gap & Boost Your Credit

What do you think the leading cause of bankruptcy is in the United States? Credit card debt? Job loss? Unpaid mortgages? Nope. It’s medical debt, and it pushed an estimated 1.7 million people into bankruptcy in 2013. Enter Money Rule #78: The Biggest Threat to Your Financial Security is Your Health.

According to research from the Kaiser Family Foundation, one in three Americans reports difficulty paying their medical bills. And this isn’t limited to the uninsured population. In fact, 70 percent of people with medical debt are insured – 54 percent through their employers. What they’re having trouble with are co-pays, co-insurance, deductibles and out-of-network charges. In my recent video for Bankrate.com, we go over steps on how to handle these costs. For example:

Step 1: Get insured already! Purchase the best health insurance policy you can afford. (FYI Open Enrollment for the government’s health exchanges starts on November 15.) If that turns out to be a high deductible policy, it’s important to pair it with a health savings account that you can dip into if unexpected bills come your way. Bonus: This money grows tax free just like retirement account funds. In fact, if you can fund one continually – and stay healthy – your HSA may turn out to be a valuable supplemental retirement account.

Step 2: Stay healthy. Yes, it sounds trite, but anything you can do to keep yourself out of the doctor’s office (or hospital) is worth the effort. For example, if you know the number on the scale should be lower, also know that a loss of just 10 percent (of body weight) can reduce your lifetime medical expenses by up to $5,300, according to the Centers for Disease Control. Still smoking? Quit. Quitting smoking will save you not just the cost of cigarettes, but as much as $20,000 in medical bills.
Watch the rest here.

Leveling the playing field

Despite women being more diligent and aggressive savers, they’re still (or I guess I should say we’re still) losing the retirement savings game to men. According to research from Vanguard (which assessed over one million 401(k) savers), women are 10 percent more likely to enroll in their employer options – and save bigger percentages of their paychecks overall. Yet, the women surveyed have an average retirement balance of $78,000, while men have an average balance of $121,000. In other words, it’s not a fair game.

You can blame that on the wage gap, which Jean Young, a Vanguard senior research analyst told CNNMoney, plays a big role. (The men surveyed earned an average 40 percent more than women.) There’s also the fact that – on average – women work 12 years less than men do. That’s because they’re more likely to leave the office for childcare and eldercare. These balances aren’t the only indicators for retirement savings success. As Young points out, you can have multiple retirement accounts (i.e. IRAs). I suggest that you do.  Even if you’re not earning an income, if you have a spouse in the workforce you can still make a full IRA or Roth IRA contribution – for you.  And until the playing field is leveled – as frustrating as it is – women need to do more. It’s all about priorities and finding areas where you can save more.

The question is, are you willing to do that? In too many cases the answer seems to be, ummmm, not really. A study  from Bank of America shows that nearly 60 percent of mass affluent women (women with $50,000 to $250,000 in investable assets) are concerned with the possibility of not having enough to support themselves for the rest of their lives. Yet, a full third of them aren’t willing to consider cutting back their spending on entertainment, 30 percent won’t sacrifice the money they spend eating out and 28 percent won’t mull compromising on vacations. And even if they were to win $1 million (woo-hoo!) just 19 percent would set money aside for retirement.

Maybe your financial life needs some tough love

If you’re in the market for a financial adviser – or are on the fence about your current one – then consider research from business advisory firm CEB that suggests an effective and fruitful adviser-client relationship should come with some tension. A good adviser should be focused on helping you achieve your specific goals. In doing so, he or she should consistently challenge you, says Matt Dixon, an executive director at CEB. You don’t want an order taker or a friend. In fact, “Ask yourself: ‘Is my financial adviser a bartender or personal trainer,’ says Dixon. “It’s the difference between somebody who tells you what you want to hear versus what you need to hear.”

CEB suggests evaluating your current or potential adviser on how much they emphasize planning – and the planning should be simple. For example, your adviser should provide you with a financial game plan of sorts of around five – not 100 – pages. As a client, you should also expect regular meetings to measure your progress. CEB research shows just 19% of (high net worth) clients reported that their advisers knew their goals and regularly measured their progress. This shouldn’t be the case. Dixon says to consider, “When was the last time your adviser taught you something new? When was the last time they said something surprising to you – something that you couldn’t get for free?”

Debt doesn’t have to cripple credit

At least, not entirely. As USA TODAY reports, 30 percent of your credit score is influenced by your credit utilization ratio (the account balances you carry, and how they compare to the credit lines you’ve been issued), which means the smaller the balance, the better your score will likely be. But life happens and sometimes it’s difficult to keep your utilization at or below 30% (i.e. on a card with a $5,000 limit, your balance should never cross the $1,500 line). If you don’t have the extra cash to pay off the bill in full each month, then there are some moves you can make to keep your credit score as unaffected as possible. Even better, these moves can even raise your score, despite the debt.

If anything, make sure you pay your bills on time: 35% of your credit score is dependent on your payment history and the bureaus don’t like tardiness. If you’re forgetful, then set up calendar reminders on your email or phone – or set up auto-pay from your accounts. Next up, review your credit report. Regularly pull your credit report to look for score-lowering errors (i.e. incorrect personal information, missed payments and fraudulent activity). You’re entitled to one free report, each year, from each of the three bureaus – Trans Union, Equifax and Experian. Twenty percent of consumers found a mistake on at least one of their three credit reports, according to a last year’s research by the Federal Trade Commission. It’s worth regularly checking.

Have a great week,

Jean

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