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The smartest money moves are for Black Americans in Financial Distress

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The smartest money moves are for Black Americans in Financial Distress

by Sean Pyles Senior Writer | Personal finance, debt Sean Pyles leads podcasting at NerdWallet as the producer and host of the NerdWallet’s «Smart Money» podcast. The show «Smart Money,» Sean talks with Nerds across the NerdWallet Content team to answer the questions of listeners about their personal finances. With a focus on thoughtful and actionable money advice, Sean provides real-world guidance to help people improve their financial lives. In addition to answering listeners’ financial questions on «Smart Money» Sean also interviews guests outside of NerdWallet and produces special segments on topics like the racial wealth gap, how to start investing, and the history of college loans.

Before Sean took over podcasting at NerdWallet the company, he also wrote about topics that dealt with consumer debt. His work has appeared on USA Today, The New York Times as well as other publications. When he’s not writing about personal finance, Sean can be found working in his garden, going on walks, or taking his dog on long walks. Sean is located in Ocean Shores, Washington.

Feb 5, 2018

Edited by Hanah Cho Vice President Personal finance Hanah Cho is Vice President of Content. She was the leader of several NerdWallet teams that were focused on personal finances before being promoted to deputy director and then director. She originally was hired by NerdWallet as a journalist, covering small businesses. Prior to that, she wrote about startups and business for The Dallas Morning News, as well as a prior business writer for The Baltimore Sun. She was also treasurer for The Texas Chapter of the Asian American Journalists Association.

Many or all of the products we feature are provided by our partners, who pay us. This influences which products we review as well as the place and way the product is featured on the page. However, this does not affect our assessments. Our views are our own. Here’s a list of and .

The record-breaking credit card debt and fluctuating incomes cause financial problems in many American households, especially those who earn less. These effects can be particularly acutely felt in black households, where historic and systemic discrimination based on race has resulted in more disparities in wealth and debt.

However, there are steps that families who are struggling can make to better their financial situation, such as increasing their credit score and seeking alternatives to the risky products like .

Insidious disparities between wealth and debt

Disparity in wealth and debt can be a source of friction according to Pamela Chan, project director of human insights at Prosperity Now, a non-profit located within Washington, D.C.

«If you are a person with a lack of money to begin with … then when emergency situations arise, it usually leads to people having to rely on borrowing to help through those periods,» Chan says. «Then when someone is in debt, if they don’t have a lot of money, they’re more vulnerable if something happens while trying to pay off your debt.»

The discrimination imposed by institutions against the generations of black Americans and the ramifications of this have contributed to black households facing greater financial hardship than white households, Chan says.

This wage disparity is a prime example. In 2015, black men made 22 percentage points less than white people with, for example, the same education, experience and area of residence, as a 2016 report from the Economic Policy Institute found.

In 2016 the median family wealth for whites was more than 10 times the amount of wealth for black families — $171,000 compared to $17,600 as per the Federal Reserve’s Survey of Consumer Finances.

How can you improve your finances to increase wealth

is the initial step to building wealth. Before you take action an accredited financial advisor from Michigan Weslia Echols recommends planning a long-term strategy.

«The first thing I’d like individuals to do is to take deep breaths. When you do that and look at the situation thoroughly, you won’t look for a quick answer like a payday loan,» Echols says. «Getting rid of your debts is a long-term process.»

Echols recommends establishing a clear budget and payoff plan. Here are some tips for improving your financial situation.

Build credit: Your credit score and report is among the top important factors in your financial health. If they’re in good condition, you’ll be more appealing to lenders, increasing your access to credit at lower interest rates. NerdWallet offers both a and a credit score, which is updated every week.

Check your credit card for any incorrect information, such as an account that’s not really yours that could be lowering your score.

Start to improve your credit score by making timely payments on all accounts, including loans and credit card loans; payment history is the largest single aspect that affects the score. Credit bureau Experian recommends keeping your — or the percentage of your credit limit you use credit limit below 30%..

Be aware of your debts and debt management: It’s 2017 and the Survey of Consumer Finances shows that black families are more likely to carry debt-to-income ratios — which refers to how your debt compares to your income — greater than 40%, which is an indicator of financial trouble as per the Federal Reserve. Nine percent of black families were carrying DTIs higher than 40%, while it was 6% for white households.

Take care of your debt as economically as you can and pay it off quicker by lowering your interest rate. Transferring the balance to a zero-interest credit card could be an alternative for borrowers with good credit.

If you’re not eligible for a credit card with this type of qualification Consider whether a could help you pay off the credit card debt more quickly and cheaper. If your monthly installments exceed your income by half, you may want to seek legal advice on whether makes sense for you. Though it doesn’t erase all kinds of debt but it can give you a fresh start and assist you in achieving other financial goals, like saving for retirement. Websites like LawHelp.com can point you to local legal aid.

Avoid products that are risky A majority of black Americans tend to utilize high-interest loans such as payday loans, compared to 21 percent of white Americans in an assessment from the Financial Industry Regulatory Authority. These loans may have rates of interest up to 300%, and can lead to repeat borrowing, trapping the customer in a cycle debt.

If you’re in need of money, you can find lower loan rates through the local credit union. Additionally, apps such as Earnin can give you an advance on your pay without fees or interest. If you’re in a bad credit situation, a — also accessible at numerous credit unions can provide the cash that you require as you build your credit.

For further assistance, contact the free guidance of a non-profit organization, such as for instance the National Foundation for Credit Counseling.

This piece was written by NerdWallet and first printed by The Associated Press.

The author’s bio: Sean Pyles is the executive producer and host of NerdWallet’s Smart Money podcast. His work has appeared on The New York Times, USA Today and elsewhere.

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