Finance Xpress

We are an indebted nation thanks to our desire for more and our financial system’s ability to grant us more. When used appropriately, debt can help provide for a better life and make us wealthier. When used indiscriminately, however, debt can destroy our financial dreams.

Below is a list of the most indebted nations according to Trading Economics. Currently, America is at ~104% debt-to-GDP and historically ranged from a low of 31.7% to a high of 122%.

Whenever your country’s debt is greater than its GDP, it’s probably a good idea to encourage your politicians to exercise fiscal restraint lest they take your country to hell during the next financial crisis.

Notice how many of the most indebted countries such as Greece, Italy, and Portugal continue to struggle since the 2008-2009 financial crisis.

Let’s review the following types of consumer related debt and rank them from worst to best. We’ll also take a look at the latest interest rate by debt type.

Ranking Debt From Worst To Best

1) Credit card debt. The average APR on a credit card is ~15%. Some go as high as 29.99% if you’ve got terrible credit. This is such a ridiculously high interest rate which not even the annual returns of the great investor, Warren Buffet, can match.

If you carry a balance, credit card companies are ripping you off. They’re secretly hoping you spend more than you make or forget to pay off your balance each month. No Financial Samurai should ever have revolving credit card debt. Use a credit card for rewards points, insurance, a free 30 day loan, and concierge service, but that’s it.

I highly recommend reducing the time spent playing the 0% APR balance transfer game. Instead, focus on making more money instead. Don’t use the credit card as a crutch to support irresponsible spending habits.

2) Automobile debt. Borrowing money to buy a depreciating asset is a really bad move. Some people justify their auto debt by saying it’s so low at 1.9% or whatever. But 1.9% is still too much when you’re losing money on a vehicle every month. If you are able to spend 1/5 – 1/10th of your gross income on a car, then you shouldn’t have to go into automobile debt. If you buy a car that’s 1/5 – 1/10th your gross income and can get a 0% loan so you can invest the difference, then fine. Otherwise, just say no to automobile debt.

3) Student loans. The older I get, the more I realize how vitally important education is for achieving financial freedom and happiness. When you have the knowledge and skills to make things happen, life gets so much easier. That said, there’s nothing you learn in college that you can’t learn for free on the internet. Therefore, skyrocketing college tuition seems more like a scam, especially since higher tuition doesn’t guarantee you a well-paying job upon graduation.

Unless your family is rich, choose a college that provides enough free grant money so that you’ll be able to pay everything back within four years of graduation. I’m highly biased towards state schools having attended The College of William & Mary for undergrad and UC Berkeley for business school. You can deduct up to $2,500 of student loan interest paid in any given year if your modified adjusted gross income is under $80,000 or $160,000 for married couples filing jointly.

Related: Average Student Loan Debt Is At A Record High, But Where’s The Crisis?

4) Mortgage debt. Mortgage debt is considered the least egregious debt because it’s tied to an asset that historically appreciates. Not only that, the American government allows you to write off all mortgage interest on debt up to $1,000,000 plus the interest on $100,000 of a home equity line of credit. The government allows for tax free profits of up to $250,000 for individuals and $500,000 for married couples if you live in your property for two out of the last five years. Finally, the government allows you to defer taxes by allowing you to use the sale proceeds to buy another property under the 1031 exchange program.

Take a look at this US housing price chart by Zillow and The Economist. The clear trend is up and to the right with some cyclical downturns on the way. The massive gap in price performance between Dallas / Houston and other major cities is one of the biggest reasons why I’m buying heartland real estate. With the remote work trend, technology, and strong job growth, I believe the spread will narrow.

You want to be on the right side of a tank, inflation, the Fed, and the government. The government is pro-housing so you might as well take advantage. You’ll want to pay off your mortgage before you no longer have the desire or energy to work. For those of you who’ve been waiting to refinance or take out a loan after the rate ramp post Trump victory, now is probably time to inquire about the latest rates. See the chart below.

Debt Is A Tool For Financial Freedom

For those who don’t have debt, I commend you for living so fiscally responsibly. The feeling was incredible when I paid off one of my rental property mortgages in 2015. Despite a further rise in the stock market since, I have no regrets.

But to shun debt completely when you’re still trying to build your financial nut is a sub-optimal move. If you can borrow for cheap and earn a greater return on your money, such arbitrage should be pursued until you have enough.

In an upcoming post, I’ll introduce my Debt Optimization Framework to help people achieve greater wealth while minimizing the chances of financial destruction.

Related: Embrace Your Debt To Boost Your Organic Motivation

Readers, do you agree with my debt rankings? What do you think about taking on debt to achieve financial freedom sooner? Is that an oxymoron? Why do people have revolving credit card debt when the risk-free rate of return is only ~2.5%?

from Financial Samurai


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I know it’s a little soon to be talking about filing your 2017 tax return (though, it’s never actually too early!), but a bit of news happened this week that could drastically change the amount of taxes you’ll pay next year.  Donald Trump recently released his plan to cut taxes for the upcoming filing year, and if his plan becomes legislation, it means a full overhaul of the current tax code.

It’s important to note that the below table is not official and the information within it is only conjecture at this point because no law has been passed. It’s likely to take a bit of negotiating to get something done, so the final result may look different.  But it’s still fun to look at now, and see what’s potentially around the corner.

2018 Federal Income Tax Brackets (Single)

If Taxable Income Is ...	The Tax Is ...
$0 - $37,950	10% of the taxable income
$37,950 - $191,650	$3,795 + 25% of the taxable income over $37,950
$191,650 +	$42,220 + 35% of the taxable income over $191,650

2018 Federal Income Tax Brackets (Married)

If Taxable Income Is ...	The Tax Is ...
$0 - $75,900	10% of the taxable income
$75,900 - $233,350	$7,590 + 25% of the taxable income over $75,900
$233,350 +	$46,952.50 + 35% of the taxable income over $233,350

If you’re wondering where the rest of the table is… well, that’s it.  Three tax brackets and tax rates of 10%, 25% and 35%.  Gone is the seven bracket system, and here you see a much more simplified setup, with the top rate being 4.6% lower than in previous years (39.6% was the top rate in 2017).

New 2017 Standard Deduction

Another big benefit from the newly introduced Trump tax code is the increase of the standard deduction.  Your proposed 2017 standard deduction amounts are as follows:

• Married filing jointly and surviving spouses: $24,000 (previously $12,700)
• Single, or married filing separately: $12,000 (previously $6,350)

But with all of these tax decreases, there is one glaring negative.  The administration is looking to kill off all but two tax deductions that can be claimed on your tax return: the home mortgage interest deduction and charitable donations.  Say goodbye to claiming a home office, travel expenses for a new job, state income tax, etc.  Part of the hurt from this change will be relieved by the higher standard deduction amount, but for filers who love to add line after line of deduction? Well, those days may be over.

Related: The “Old” 2017 Standard Deduction and Exemption Limits

Please remember that these rates are for the income you receive in 2017, and the tax return you will be filing in early 2018.  Of course, nothing is official until the IRS confirms what the tax rates will be. This likely won’t happen for a good long while, so we will continue to monitor the situation.

Related: File your tax return for free with Credit Karma!

Topics: Taxes

The post The New 2017 Federal Income Tax Brackets and Deduction Limits (…Potentially) appeared first on The Dough Roller.

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What comes to your mind when you hear a conversation about investing in stocks? Do you think about gambling, or Wall Street, or stock brokers, or a financial crisis? Perhaps you’ve heard the media use all of these terms interchangeably, creating more confusion about stock ownership. Instead of relying on loosely defined financial jargon, this article will […]

The post What are Stocks and Why Should You Care? appeared first on Cash Cow Couple.

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Please enjoy this blog post about how to work and travel from Jesse Gernigin. You may remember him from the blog posts How I Went From Graduating College and Living in My Childhood Home to Running a Lucrative Coaching Business and Fast Start Freelancer Secrets: Getting Your First Client. Today, he is going to share his tips on how to work and travel. Enjoy!

One of the benefits of freelancing is being able to work anywhere.

You see blog posts, Pinterest boards, and more of exotic locations, far off locales, and people working from hammocks, lounges, and European cafes.

I love the freedom of traveling. I decided to transition from being an entertainer to a full-time online freelancer for that reason. Since then, I’ve worked from cool locations across the world:

• Rome
• New York
• Florence
• Nashville
• Horseshoe Canyon Ranch
• San Francisco
• Chicago
• Louisville

Along the way, I experienced a lot of hiccups, bumps in the road, late nights, and unhappy clients.

Since then I’ve grown. I no longer take Skype calls at 3 AM, miss out on tours or day trips to finish projects or worry about late payments.

Sound amazing? It is.

You want to travel the world, work from anywhere, freelance your way to freedom, all while avoiding making the stupid mistakes I did?

If you are ready to learn how to work from anywhere and want to save yourself the headache of getting started, read on.

Related read on how to work and travel: How To Become a Digital Nomad – How I Work and Travel 365 Days a Year

 

The Three Biggest Mistakes I Made With Work And Travel

When I started freelancing abroad, I made a lot of stupid mistakes. To keep you from making the same mistakes, ruining your trip, and losing clients, I am going to share the three biggest mistakes I made when trying to work and travel and how I fixed them.

Related reads on how to work and travel:

• 9 Work From Home and Travel Careers
• 75+ Ways To Make Extra Money
• How To Start a Money Making Blog Free Course

 

Mistake 1: Mixing up Time Zones

The internet has opened up freelancing to everyone around the world. I have worked with people from every time zone.

Time zones can be tricky for work travel, though. Even if you get used to scheduling meetings for your time zone, you can still get times wrong in other areas of the world.

That happened to me. I missed an important meeting while in Rome. I forgot my time zone had changed from home. Thankfully, the client was forgiving and we rescheduled.

If you are holding meetings in another part of the world, be sure to double check times for work and travel. Here is the site I use to double check times when traveling abroad.

 

Mistake 2: Scheduling Free Time For Work:

I have trouble turning off the industrious part of my brain. I am a product of to-do lists, schedules, and workflow.

At home, this helps me to accomplish a ton! In Rome it wasn’t as nice.

I made the mistake of scheduling work too close to tours and day trips. This meant I had little time to get into the workflow, and once I got into a good rhythm, I’d have to stop for vacation stuff.

During the tours and day trips, I was anxious I wasn’t working.

Thankfully, this only lasted a day and a half. My solution was to get up early and do my work in the bar (which was empty). By the time the day started, I had gotten work done, felt accomplished, and enjoyed the rest of my day.

Not a morning person? Before dinner is also a great time to do work. I’ve found that most trips would be over around 4-5 and dinner would be 7-8. That period in-between is a prime space to get work done if you don’t relish waking up with the sun.

(Want to Replace Your Income? Here)

 

Mistake 3: Scheduling too Much Work and Travel:

I made the mistake of booking too much work while on my trip.

On my second day in Rome, I booked a contract for a $2,000 landing page. I was ecstatic. The project would take me two days.

That meant I would come home having earned a third of my total cost of the trip while on vacation.

It nearly turned into a disaster. Halfway through my second day, I realized I wasn’t enjoying my trip. I was making money, but I was wasting money I had spent on myself and my father.

I ended up staying up really late one night to finish the project. I was tired the next morning but enjoyed the rest of my trip.

I know it is seductive to book a lot of work when it comes in. To avoid this, I came up with a formula. I allow two hours every day (either early in the morning or before dinner) for work.  

Afraid that clients won’t be patient? They usually are. If a client requests a rush, I send this message.

Feel free to copy and paste for your personal use.

“I appreciate the opportunity. This project interested me, and I feel my skills fit the impact you want.  For the next ‘X’ days, my schedule is limited. I’m traveling, and my available time doesn’t fit your deadline. I can finish your project by ‘X’. That is a little past where you set your goal, but not much. If you are okay with that, let’s move forward. If not, I understand. Best of luck.”

Copywriting Breakdown: This message works wonders! I use it all the time when clients want rush jobs or I can’t meet their desired deadline.

The email works for two reasons.

 

1. You are honest about work and travel:

Being upfront with a client is powerful. Clients are used to freelancers flaking out. By telling them what your schedule is upfront, you build trust. You also give them the deadline you can meet. This is powerful because it lets the client see a concrete time to get a return.

 

2. It is positive and client centric:

The email is upbeat. You express gratitude for their interest, show interest in their project, and sincerely state you can impact their results. By keeping the tone positive, clients will feel a deeper connection which increases your chances of keeping the project and being allowed to finish it on your schedule.

Even though I made all these mistakes, everything turned out great. I booked a $2,000 client in Rome, finished the job, and enjoyed my vacation.

I wouldn’t have done any of that if I had listened to other freelancers, though.

(Want to Start Making Money Online? How To Start a Blog!)

 

Why Most Freelancers Hate Working Abroad

When I talked to freelancers about working on vacation they scoffed.

They had three major complaints.

 

1) Clients don’t want to work with you when they learn you are on the road.

-Not true. This is a common mistake carried over from the corporate life. At normal jobs, your bosses didn’t trust you to work remotely. This isn’t true in freelancing.

Client aren’t interested in your location or schedule; they are interested in the results you deliver. It doesn’t matter where you are. What matters is what you give them.

 

2) Your work suffers because you can’t focus.

-Also untrue. Freelancers mistakenly correlate location with performance.  The landing page I wrote outperformed their existing test page by 17%. Doing good work isn’t about where you are.

If you have great systems, access to everything you need online, and a place to work,you can produce at your best no matter where you are.

 

3. You can’t make money.

-Nothing could be more wrong! Freelancers I talked to complained that the best clients are in American time zones. They told me if I didn’t respond instantly to questions or projects, I’d never book anything. They are wrong.

Your time zone doesn’t matter.

It also doesn’t matter if you are the 1st, 15th, or 52nd proposal your client receives. If you take the time to address the client’s needs, craft a proposal specific to the results your client wants, and you include relevant work examples or testimonials, you will book work!

(Want to Achieve All Your Goals? Here)

 

Freelance Strategies to Succeed Around the World

I have developed multiple strategies, ideas, and methods to increase my success freelancing abroad.

Below I’ve shared three of my favorite tips so you can succeed no matter where you are! Work travel has never been easier.

1. Find Good Wi-Fi For Work and Travel:

If you read this blog, you know Michelle has talked at length about securing internet to work. If you want to work for long periods uninterrupted, make sure you have solid internet.

In my travels, I’ve found the worst internet is at the hotels (both luxury and plain). My best luck has always been at coffee shops or, in a pinch, McDonald's!

(Want More Travel Working Trips? How To Make Money While Traveling)

 

2. Back up copies of everything you need in offline documents:

Let’s be honest. No one likes to carry tons of extra stuff on a trip. Between the rising cost of baggage and the pain and stress caring for business documents, you can lose your mind. To work and travel, backing up copies of everything can make life much easier.

My suggestion: Back up everything in digital documents you can access offline.

I use Word for larger documents and the downloadable version of Google Docs that comes with Google Chrome.

The service doesn’t matter. What matters is that you can access needed documents without internet.

 

3. Come Prepared To Work:

Freelancers aren’t as busy as they think they are. I’d venture 40-55% of a freelancer’s time spent working is wasted.

Working at home, we have that luxury. If you like to start slow, have that first cup of coffee or scroll through your favorite blogs before working, it is okay. You have all day to work.

You don’t have all day to work on vacation. To help with this, you should be prepared before you sit down to work.

What I Do: The night before, I prepare everything I need for the next day’s work. I make sure my sites, documents, and resources are ready to go when I sit down to work.

That means the moment I start working, I am ready. I don’t waste time looking for messages, documents, or follow ups. This allows me to work and travel better.

 

Final Thoughts on Work and Travel:

I love freelancing remotely. I struggled at first, but now my work is seamless.

You can freelance from anywhere if you approach your work prepared, with a specific goal in mind, and if you limit how much you are going to work per day.

Jesse Gernigin is an author and marketing consultant who has replaced his income working online. He shares how he gets more clients, raises his rates and more in his Freelancer’s Insider List (Join Here).  Get an insider’s look at the psychology, strategies, and everything you need to achieve this today!

Are you interested in learning how to work and travel? Why or why not?

The post How To Work and Travel: What I learned to succeed around the world appeared first on Making Sense Of Cents.

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Most investors choose to invest in common stock, but far fewer invest in preferred stock. This article will help you understand the characteristics that define both types of stock, and can help you decide if preferred stock belongs in your investment portfolio. What is Preferred Stock? Preferred stock (sometimes called “preferreds”) is a type of stock […]

The post Should You Invest in Preferred Stocks? appeared first on Cash Cow Couple.

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Season 6, Episode 34

This week on Freakonomics Radio: Stephen J. Dubner returns to his alma mater to ask his three favorite professors if colleges make people more productive and happier.

Among the discoveries in this episode, here’s a big one: there’s a significant difference between being busy and being productive.

To find out more, check out the podcasts from which this hour was drawn: “How to be More Productive” and “The Things They Taught Me.”

You can subscribe to the Freakonomics Radio podcast at Apple Podcasts or elsewhere, or get the RSS feed.

The post How to be More Productive appeared first on Freakonomics.

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The following is a sponsored post.

Being laid off from your job is scary. No one wants to think it could happen to them, but it’s always best to be prepared.

During the recent Great Recession, which was December 2007 to June 2009, the unemployment rate peaked at over 10%. By the end of the recession, the U.S. unemployment rate was higher than most other industrialized countries. What was especially notable was the number of people who were unemployed for more than 27 weeks (otherwise known as long-term unemployed).

According to a John J. Heldrich Center for Workforce Development at Rutgers University study, nearly 40% of those surveyed said it took more than seven months to find employment and about one in five of laid-off workers said all they could find was a temporary position.

The U.S. lost 2.6 million jobs in 2008 alone.

For some, the Great Recession may seem like ancient history, but for those millions of Americans who lost their jobs, many are still licking their wounds and trying to recover from the blow financially and emotionally.

One question I hear a lot is about how a person can get health insurance when they don't have a traditional job, or a job at all.

 

How to Get Health Insurance after Being Laid Off?

Besides having to find a way to keep food in your belly and a roof over your head, one of the most important tasks after being laid off is sorting out your family’s health insurance.

Employer-sponsored insurance is, by far, the most common source of health coverage in the United States. An estimated 155 million people under age 65 participate in employer-sponsored insurance. It’s important to be prepared if you find yourself without an employer due to a layoff.

An estimated 9.3 million American adults lost health insurance coverage as a result of increased unemployment during the recession of 2007-09, according to a study by researchers at Cornell, Indiana and Carnegie Mellon universities.

In the event of a layoff, making sure you and your family are covered by health insurance should be one of your top priorities. Imagine if you were laid off from your job, losing your employer-provided health insurance, and then having to deal with a major health event. It could be financially devastating. For example, the cost to pay for cancer treatment out of pocket could be tens of thousands of dollars without insurance.

The good news is you have a few choices, ranging from government help to easy 3rd party services like SafetyNet that pays you a lump sum if you get laid off. If you’re curious about your choices, read on!

COBRA

COBRA, the Consolidated Omnibus Budget Reconciliation Act, gives workers and their families who lose their health insurance the right to continue group health benefits offered by their former employers’ group health plan in the event of a layoff. COBRA covers you for a limited time period and with circumstantial limitations.

Even though it is required for your employer to offer COBRA if you had a group health plan, don’t assume COBRA is the best option. Qualified individuals may be required to pay the entire premium for coverage, up to 102 percent of the cost to the plan. This means you have to pay the portion your employer would normally cover. Depending on how much your employer was kicking in before, this could make this insurance unaffordable.

Some employers may give you the option of dropping out of “non-traditional” insurance plans, such as dental and vision coverage, in order to reduce costs.

For more information about COBRA talk to your human resources representative. Or you can call the Employee Benefits Security Administration at 1-866-444-3272 or visit their website at www.dol.gov/ebsa. You can also find a detailed brochure called An Employee’s Guide to Health Benefits Under COBRA.

Affordable Care Act

The Affordable Care Act (ACA) is the comprehensive health care reform law enacted in March 2010. It is also sometimes known as “Obamacare” PPACA.

The website healthcare.gov (also known as the health insurance marketplace) is how many people search for and enroll in health insurance when they don’t have employer-sponsored group health insurance. This is the case for many students, people who work part-time or for small businesses.

Buying insurance through the marketplace is almost inevitably going to be less expensive than COBRA because you will have more options to choose something that fits your budget. In addition, the ACA provides lower cost health insurance options for low-income families.

Keep in mind when shopping for health insurance, the lower premium you pay, typically the less coverage you get and the higher your deductibles will be.

Normally, you need to sign up for health insurance during the Open Enrollment Period, the time when you can enroll or make changes in your coverage without penalties. However, if you do not choose COBRA and never pay any of the premiums for it, the loss of group coverage in the case of being laid off triggers a special enrollment period on your state health insurance marketplace.

To find your state's marketplace website: visit healthcare.gov and select “enroll”, and choose the state where you live or call the 24/7 marketplace helpline 1-800-318-2596.

Short-Term Health Insurance

One option for healthcare coverage between jobs is short-term health insurance, also known as gap insurance or catastrophic health insurance.

Short-term health insurance typically covers major injuries or health events, for example, if you were to get into a car accident. These policies do not meet the minimum essential coverage requirements of the ACA, so they shouldn’t replace standard health insurance, but rather be used only as a temporary solution when no other option is available. In other words, they are better than having no health insurance at all.

You can sign up for short-term health insurance outside the Affordable Care Act’s open enrollment period, which can be helpful in certain circumstances. However, they are very limited and come with many caveats. These plans are typically available in one-month increments of up to 11 or 12 months, although some plans have shorter maximum coverage periods.

The policies tend to require medical underwriting, which means you can be denied coverage due to your medical history (not the case for long-term ACA insurance).

Government Help

When you are laid off from your job, sometimes looking into government programs might be the best option for you and your family. Fortunately, Medicaid and the Children's Health Insurance Program (CHIP) are available for those Americans who are most in need.

Medicaid is a government health insurance program for low-income and disabled people. It covers children, the aged, blind, and/or disabled and other people who are eligible to receive federally assisted income maintenance payments. This program is jointly funded by the federal and state, which means the options and eligibility rules vary from state to state.

Source: http://ift.tt/1zVKkkX Family of 4 in Oregon.

Source: http://ift.tt/1zVKkkX Family of 4 in Wisconsin.

 

According to healthcare.gov, a family of 4 in Oregon, for example, is eligible for free or low-cost coverage through Medicaid if they make under $33,948. But in Wisconsin, that same family is eligible only if they make less than $24,600.

CHIP provides coverage for children, and in some states pregnant women, if your income is too high for Medicaid and you can’t afford private insurance. Like Medicaid, each state program has its own rules about who qualifies for CHIP.  You can apply any time of year to find out if you qualify.

­­­­                                          

How to Prepare for the Worst

Unfortunately, paying for health insurance when you have been laid off is always going to be a tough pill to swallow. Health insurance is expensive enough even when you are working full time.

If you still have your job, you may be wondering if there is a way you can insure yourself against a potential layoff. In his 2016 State of the Union Speech, former President Barack Obama mentioned the concept of “wage insurance.”

“Say a hardworking American loses his job — we shouldn’t just make sure he can get unemployment insurance; we should make sure that program encourages him to retrain for a business that’s ready to hire him. If that new job doesn’t pay as much, there should be a system of wage insurance in place so that he can still pay his bills.”

Although the idea of wage insurance through the government is not come to fruition, there is private insurance that can help. Services like SafetyNet™, a Wisconsin-based insurer, offers lump sum cash payouts if you lose your job or can’t work due to illness or injury. With affordable options and extremely easy online application, you can protect yourself and your family against future layoffs. Then, if the worst happens, you’ll have some cash to help pay those health insurance premiums.

Do you have any other tips for someone in this situation?

The post How To Get Health Insurance After You Get Laid Off appeared first on Making Sense Of Cents.

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Late payments may be the bane of your credit score perfection, or they may just be part of your overall credit mediocrity. How late your payments are, how perfect your score is otherwise, and a host of other factors all play into how much a late payment (or multiple late payments) will affect your credit score.

Just how will a late payment affect your credit score? I’ve broken that question into several more specific, commonly asked questions. Here’s what you need to know:

What Counts as a Late Payment?

First of all, it’s important to know that getting charged a late fee by a lender or utility doesn’t necessarily mean you’ll get a late payment report on your credit record. Lenders often charge late fees when you miss a payment by even one day.You can occasionally get these waived, especially if it’s your first one with the lender, if you just call and ask for grace.

At that time, they technically can report the payment late to the credit reporting bureaus. However, most lenders don’t report a payment as late until it’s at least 30 days past due. Normally, you have to go one full billing cycle without paying your payment before the lender will bother to report the issue to a credit reporting bureau.

Then, if you continue to miss payments, your tardiness will be reported on again at 60 days, 90 days, 120 days, and 150 days late. If you stop making payments for long enough, the account will be written off as a loss or charge off due to severe delinquency. That’s major bad news for your credit score!

Related: How to Get Your Totally Free Credit Score (and Avoid the Scams Out There)

This isn’t a good excuse to skip payments by a day or two because you failed to plan properly. However, you shouldn’t have a meltdown if you miss your credit card payment by a day. That probably won’t wreck your credit score. Just make your payment ASAP (factoring in that likely late fee, too)!

What Exactly Does a Late Payment Do to My Credit Score?

Obviously, a late payment isn’t a good thing, with your creditors or for your credit score. But I can’t say, “One late payment will drop your credit score by 100 points.”

However, here are a few rules of thumb about how a late payment could affect your score:

• Payment history makes up the largest portion of your credit score, so late payments are really important.
• More recent late payments will affect your score the most. While the late payment record will stick around for about seven years, the older it gets, the less impact it will have on your current credit score.
• The later a payment is, the larger its negative impact. A 30-days-late record won’t hurt your score nearly as much as a 90-days-late record.
• Bringing accounts current helps, but it will still take time for your score to recover.

What Happens to My Credit Score When an Account Goes into Collections?

A charge off may appear on your credit report if you let an account lapse for 120 or 150 days (or more). This basically means that a lender is no longer trying to collect on your debt, and that it can’t count your debt as a business asset. The lender has “charged off” the account from its books.

Sometimes when an account is charged off, the lender sells your debt to a collections agency. When this happens, the agency will try to collect on the debt. Sometimes, you can pay the collections agency less than you owe to settle the debt.

Charge offs are really bad for your credit score for a couple of reasons. For one thing, you can never bring a charged off account back to current. You still owe on the debt, since you signed a contract agreeing to repay it. And that charge off will stick to your credit report for seven years, alerting other potential lenders that your payment record got really out of hand at some point.

When an account is charged off, a couple of things can happen, and they’ll affect your score differently:

1. You can settle with the original lender. Some charged off accounts will be transferred to an in-house collections department. In this case, you may be able to put together a payment plan to repay the debt’s balance. Or you could settle the debt for less than the original amount owed.

Paying the full balance off will result in a “paid in full” marking on your credit report, which could improve your situation somewhat. Settling the debt will result in a “settled for less than full balance” status, which is considered a negative. Either way, once the account is moved to $0 balance status, the record will still show that it was charged off.

2. The debt will go to a collections agency. If your debt gets transferred to a collections agency, your credit report can look really confusing. The old debt may still appear with the original delinquency date, balance, and charge off record. Then you may also see a second debt owed to the collection agency with that account’s payment record.

In this case, the original debt will show as paid off, since the collections agency will have bought the debt. But the charge off record will appear on your report for seven years. Your best bet in this situation is to set up a payment plan with the collections agency, or to settle the debt in full as soon as possible.

One item of note here is that the newest FICO Score 9 disregards collections accounts that are paid in full. This can make it much easier and quicker to recover your good credit after you go through a rough financial patch. But this only works if your lender happens to pull your credit score using FICO’s latest scoring model.

Related: Will Checking Your Score More Often Actually Improve It?

Bottom line: Charge offs can be a big ding on your credit score, and they’ll stick around for a long time. Avoid them if at all possible. If you’re on the verge of a charged off account, do everything you can to settle on a payment plan with the original lender.

 

What About Late Payments on Non-Debt Accounts?

When we think of a credit score, we normally think of actual credit – auto loans, mortgages, credit cards and the like. And, most of the time, those are the things that affect your credit score because those are the companies that regularly report your information to credit reporting bureaus.

However, other non-debt accounts can affect your credit score, as well. On a normal basis, your utilities company, phone company, and Internet provider probably don’t do much reporting to the main credit bureaus. But if you’re consistently 30 days past due on those payments, or if you make a very late payment, you might get reported to the credit bureaus.

This is especially likely if your unpaid electric bill gets sold to a collections agency. In this case, you’ll have a negative on your account — the collections record — and will have to deal with the collections company to pay or settle your debt.

Again, the bottom line here is that you need to pay all of your bills on time.

What About Medical Debt?

Medical debt is one of the leading causes of bankruptcy in the United States. But having hefty medical debt — and even having that debt go into collections — doesn’t necessarily mean someone is prone to making poor financial choices. Luckily, credit scoring models are starting to catch up to this fact.

The FICO Score 9, introduced in 2016, started counting medical debt in collections differently from other debts. Unpaid medical debt in collections doesn’t have as large of a negative impact under this scoring model. While you’ll still need to pay your medical bills somehow, there’s less worry that an unexpected health event will wreck your wallet and your credit score at the same time.

Note, though, that this advantage is only available with the FICO Score 9, which not all lenders will use. If a potential lender pulls your credit score using an older model, medical debt gone to collections may have a larger negative impact on your score.

Will Late Payments Hurt My Score the Same as Someone Else’s, or is it All Relative?

How late payments will affect your credit score is somewhat unpredictable. Because the FICO formula and similar credit-scoring models are proprietary, we can only guess how any one event will affect a person’s credit score. We know that payment history makes up the lion’s share of your credit score, but just how it plays out can depend on a huge number of factors, including how much other information you have in your credit file.

However, we know that one major factor in this equation is, surprisingly, how high your credit score is right now.

That’s right! The higher your credit score today, the larger the negative impact of a late payment is likely to be!

According to Experian, a single 30-days-late ding could cause a consumer with a 780 credit score to drop by 90 to 110 points. But if you’re starting out with a score of 680, you could expect a drop of more like 60 to 80 points.

How Can I Avoid Having a Late Payment Hurt My Credit Score?

Maybe you’re struggling with the bills, or maybe you just keep forgetting to pay one small bill on time. Either way, here are some steps to take to avoid having a late payment harm your credit score:

• Set up bill pay reminders. There are a variety of apps available that will remind you when you have a bill coming due. For many, better cash flow planning is the key to ensuring that bills are paid on time.
• Talk to your lender. If you’ve just lost a job or run into other serious financial issues, talk to your creditors. The truth is that creditors would rather hear from you now, well before your account goes into collections, which costs them a lot of money. Try to reach a payment agreement that will work for you both – either an extended grace period or a smaller payment. That way, you’ll never be late in the first place.
• Prioritize your payments. Let’s say you’ve got $500 worth of payments to make, but only $300 in the bank. In this situation, you’ll need to prioritize which bills you pay. Essential bills – rent, mortgage, utilities, etc. – should take priority. After that, pay bills that have a hefty late fee. Finally, pay the bills that are closest to going into collections.
• Ask for a lender to erase a late payment. Bringing an account current after 30-60 days’ delinquency should fix your credit score pretty quickly. But if your late payment was a one-time thing, you could also ask your creditor to erase that late payment from your credit history. Many lenders will make these “goodwill adjustments” to borrowers who are otherwise in good standing. It never hurts to ask.
• Start making on-time payments. It’s never too late to start building good financial habits, especially knowing that those good financial habits will start rebuilding your credit score. As soon as you start making on-time payments, they’ll begin to balance out the late payments on your record. This is especially true if your payments are not as severely late.
• Check your credit report. Once you’ve caught up on your late payments, get a copy of your credit report. Sometimes your creditor or the credit bureau will make a mistake so that your account shows as still unpaid. If this is the case, file a written dispute to get the information corrected as quickly as possible.
• Try a credit simulator. Need some motivation to stay current or get current on your payments? Use a credit simulator like Credit Karma’s. These tools take your current credit score based on an estimate or free copy of your credit report, and let you see how different changes will affect your score. See what will happen if you let an account go late, or if you make all your payments on time for six months. These simulators may not be 100% accurate, but they can be good motivation to stay on the right track financially!

Sometimes, late payments are a fact of life. When you’re struggling to pay bills on time, it’s good to know exactly how your decisions will impact your credit score – for now and over the long term.

Topics: Credit

The post How Late Payments Really Affect Your Credit Score appeared first on The Dough Roller.

via Finance Xpress

Our latest Freakonomics Radio episode is called “There’s a War on Sugar. Is It Justified?” (You can subscribe to the podcast at Apple Podcasts or elsewhere, get the RSS feed, or listen via the media player above.)

Some people argue that sugar should be regulated, like alcohol and tobacco, on the grounds that it’s addictive and toxic. How much sense does that make? We hear from  a regulatory advocate, an evidence-based skeptic, a former FDA commissioner — and the organizers of Milktoberfest.

Below is a transcript of the episode, modified for your reading pleasure. For more information on the people and ideas in the episode, see the links at the bottom of this post. And you’ll find credits for the music in the episode noted within the transcript.

*      *      *

[MUSIC: Jonathan Still, “Lederhosen”]

Surely you’re familiar with the beloved autumn festival that revolves around folk dancing and lots and lots of drinking …

LAYTON: Milktoberfest! The holiday for drinking milk and doing homework.

Okay, not what you were expecting. Bavaria has Oktoberfest; Brigham Young University, in Provo, Utah, has Milktoberfest — Brigham Young being a Mormon university, and therefore prohibiting the consumption of, among other substances, alcohol.

LAYTON: People don’t drink, but we still like to have a lot of fun.

Roger Layton, communications manager at the B.Y.U. library, helps produce Milktoberfest.

LAYTON: And so we thought, “Let’s just embrace that. Let’s just enjoy it.” We had a very energetic group of German folk dancers come in and perform, and we brought in cases and cases of chocolate milk. As soon as the milk was there and we said, “Go!” — it basically became a free-for-all.

OLDROYD: People love it because Milktoberfest was almost B.Y.U. lite or something like that.

That’s Brenna Oldroyd, a B.Y.U. student who helped put together Milktoberfest.

OLDROYD: Like, “Hey, this is what we love to drink all the time!”

The chocolate milk they’re drinking isn’t just any chocolate milk. It’s some pretty legendary chocolate milk, made in B.Y.U.’s own creamery.

LAYTON: If you show up at a party with chocolate milk, no one’s going to complain. It may seem a little childish, but people will drink it. It’s a friendly, it’s safe, and it’s happy.

OLDROYD: And one of the great things about partying with chocolate milk is if you’re smart, you’re not going to throw up later. That’s a plus.

This all sounds pretty awesome, right? And wholesome, too — swapping out beer for chocolate milk. But is chocolate milk really as wholesome as it seems? Do you know how much sugar there is in your standard serving of chocolate milk? The answer is 24 grams — a bit more than you’d find in a standard serving of soda. And there are those who argue that the detriments of sugar — well, they’d argue that, from a metabolic standpoint at least, Milktoberfest isn’t much better than Oktoberfest.

Robert LUSTIG: We started comparing what sugar did versus what alcohol did, and we realized, you know what, sugar and alcohol do the exact same thing.

If you’ve been following health news in the last decade, you’ve likely noticed that there’s a war on sugar.

Belva DAVIS in a clip from KQED’s This Week in Northern California: An alarming rise in the rate of obesity and related health problems has prompted a nationwide movement to ban or restrict sugary drinks …

How justified is that war? Today’s episode was inspired by a question we received …

Saul ARNOW: Dear Freakonomics, My name is Saul Arnow, and I’m an 11-year-old listener from Chicago. I was wondering why sugar isn’t considered a drug even though it is addictive and stimulates the brain. Sincerely, Saul.

Okay, Saul — we’ll do our best to answer your question. Along the way, we’ll learn some sugar history:

Elizabeth ABBOTT: Sir Thomas Aquinas,way back in the 13th century, pronounced sugar a medicine.

We’ll hear from some people who fully agree with you:

Robert LUSTIG: Now alcohol, tobacco, morphine and heroin clearly meet these four criteria.

Some people who don’t agree with you:

Richard KAHN: We have no clue, no real good evidence that it’s going to do any good whatsoever.

And we’ll hear about your sugar habits.

BOY: I tried to give it up once, but it didn’t work out at all because I’m addicted to sugar. I can’t help it.

*      *      *

[MUSIC: Paul Freitas, “Sugar Daddy” (from Salon de Cabaret)]

Before we get into the nitty-gritty on sugar, let me offer a sort of caveat.

KAHN: In general, nutrition studies are not very robust compared to many other fields in biological science.

That’s Richard Kahn.

KAHN: I’m the former chief scientific and medical officer of the American Diabetes Association.

So what’s the problem with nutrition studies?

KAHN: There are often no controls, no randomization, small number of subjects — it’s very difficult to conduct very robust, long-term studies on nutrition.

Okay? This is a really important point. It’s the kind of thing we talk about all the time on this program — the legitimacy of data, yada yada. But with nutrition, there are a few things going on that make it particularly tough. Number one: this is about something that we all put in our mouth every day . Which means we all think of ourselves as experts. Unlike particle physics or financial engineering, this is something we all do all the time, so of course we know what we’re talking about. Number two: most nutrition science is built on survey data — that is, asking people about what they’ve eaten, or asking them to keep food diaries, things like that. If you’ve been paying any attention at all to Freakonomics Radio over the years, you know this is a surefire way to gather some not-so-realistic, or at least not-so-robust data. And so, as Richard Kahn said, it can be a real challenge to run a really convincing nutrition study.

KAHN: Because people do not want to participate. They don’t want to alter their diet patterns for a long time and they don’t comply with the regimen of the instructions in the randomized trial.

Now, if we could take a few thousand people, and randomize them, and then control every single thing they ate and drank for a few years — well, that that’d be great. But, absent that, we do our best. We look for data. We ask questions. Starting … here:

Stephen J. DUBNER: As a public health official in New York and at the national level, you’ve tried to stem AIDS and TB and pandemic flu. You’ve tried to prepare the public for a potential bioterror attacks. How, in light of those dangers, would you rank the consumption of sugar?

HAMBURG: Well, they’re very different threats. But we have to recognize that while acute public health crises really demand all of our attention and get a lot of response — how we live, what we eat, if we exercise — many aspects of our daily lives have the greatest impact on health and disease.

That’s Margaret Hamburg.

HAMBURG: I am a medical doctor and a public health professional who has served in government at many levels over many years now including most recently as the U.S. FDA commissioner.

DUBNER: I wanted to ask you briefly about some FDA definitions. When I read them I have to say they — they are somewhere between comical and incomprehensible. When the FDA defines food, food additives, drugs and, then “substances generally regarded as safe.” So those are the categories. Which of these definitions apply to sugar?

HAMBURG: You know, I have to agree with you that many of the definitions are hard to penetrate.

DUBNER: I didn’t mean to slam you. I assumed you didn’t write them and that there were 40 lawyers between whoever wrote them and …

HAMBURG: No, no! Congress is responsible for some of it, and the FDA lawyers for some of it. And, of course, you know many of these laws and regulations and guidances and definitions have evolved over many, many years. But it is complicated and confusing and it’s why there are almost as many lawyers as scientists at the FDA.

DUBNER: For instance, the very first thing: “food.” Number one, “articles used for food or drink for man or other animals.” I can imagine that could easily fit within FDA regulation, FDA guidelines then, if it were used for food. Yep?

HAMBURG: It’s really hard to answer a question like the one you just posed to me. Sugar is intrinsic to many food products. It’s not going to be regulated in the same way that a completely exogenous additive to a food product can be regulated.

DUBNER: But technically, the categories under which sugar falls are “food additive” and GRAS “generally regarded as safe” and not food itself. Correct?

HAMBURG: This is my point. I’m not going to answer your question because I don’t have my lawyers here.

DUBNER: I see.

HAMBURG: But there are sugars in fruits and vegetables, there are sugars in dairy products, there’re sugars in various grasses that people consume. It’s intrinsic to the food product itself.

[MUSIC: Paul Freitas, “A Little Crazy” (from Again Spring)]

For instance, let’s get back to chocolate milk for a minute. As we said, it’s got 24 grams of sugar per one-cup serving, more than soda. But regular old milk, without the chocolate, has about 12 grams of sugar — it’s naturally sweet from the lactose. And then there’s the sugar that’s added to many foods.

HAMBURG: No. Products that you think are actually very healthy — yogurt — the levels of sugar are astonishingly high. Things like barbecue sauce and spaghetti sauce and soup actually have much higher levels of sugar than you would ever imagine. Not to mention, you know, the levels that are in you know pies and cakes and ice cream and things where you would expect to see sugar.

So how much sugar, overall, do we actually consume?

LUSTIG: Right now we are about 60 to 65 percent over our limit, and that’s average.

That’s Robert Lustig.

LUSTIG: I’m a professor of pediatrics at the University of California San Francisco School of Medicine, also a member of their Institute for Health Policy Studies. I’m the president of a nonprofit known as the Institute for Responsible Nutrition. My job is to try to treat obese children and now, also, alter the global food supply.

DUBNER: Easy picking the low hanging fruit for yourself, I see.

LUSTIG: Easier said than done. In both cases.

The data vary — again, this is nutrition science we’re talking about here — but the most recent estimates show that Americans consume between 20 and 30 teaspoons of added sugar per day. That’s down a bit from our peak consumption, sometime around the early 2000s, but Americans still consume more added sugar than anyone else. This has turned Lustig into one of the most outspoken sugar critics you will find. He came to this position over many years.

LUSTIG: I’m a pediatric endocrinologist. I take care of glandular hormonal problems in children. I was doing that pretty seamlessly for a good two to three decades. Then the kids started getting fat on me. The question was, “What’s going on?” We started looking at what sugar did to the body, and what we realized was it caused this thing called insulin resistance and particularly in the liver. We started comparing what sugar did versus what alcohol did, and we realized, you know what, sugar and alcohol do the exact same thing, and it makes sense that it should, because after all, where do you get alcohol from? Fermentation of sugar. We were now seeing the diseases of alcohol without the alcohol. That started my, shall we say, advocacy in this field of obesity and public health.

KAHN: If you are indeed overweight or obese, you want to lose weight, the first place to start is to reduce sugar consumption.

That, again, is Richard Kahn, formerly of the American Diabetes Association.

KAHN: The reason being that we get plenty of energy from other carbohydrates, we don’t have to rely on sugar to get our energy. And the second reason is that sugar itself does not come along with any other essential nutrients, vitamins or minerals.

So you might think that Kahn and Lustig are in precisely the same camp. But there you’d be wrong.

KAHN: There’s no question that there is a real obesity epidemic throughout the world. That, I think is very real. It’s very important. It’s very serious. It has clear adverse health consequences. In addition, that has led directly to a dramatic increase in the incidence of diabetes throughout the world. We first saw this in the United States. We’ve seen it in European countries. We’re now seeing it in Asian countries. Diabetes is clearly a serious disease. It has quite serious complications and that’s a problem. Then the question becomes, “What has caused the obesity epidemic?” And that is, to use the euphemism, the $64,000 question.

There are many potential contributors to the rise in obesity.

KAHN: There’s been some evidence that with the increased use of psychotropic drugs, anti-depressive drugs, drugs for schizophrenia and other mental disorders — those drugs tend to promote weight gain. Another possibility is that we’ve seen, clearly, smoking cessation in a large proportion of the population. And when people stop smoking, that’s usually been associated with weight gain. Psychotropic drugs, smoking cessation, potential infections have been attributed to a rise in obesity.

There’s also a lot of research arguing the rather obvious point that we consume more calories today than we used to — for a lot of reasons. The relative low cost of food; the deliciousness of food; the availability of food — especially the availability of cheap, delicious, sweet food.

KAHN: Many people do believe that sugar consumption has been the cause, is the cause, of our obesity epidemic and then, subsequently, diabetes. But I believe that the evidence for this is pretty weak.

When the City of San Francisco wanted to add warning labels to soda, Kahn submitted an expert report on behalf of, among others, the American Beverage Association. He wrote: “There is no scientific consensus that added sugar (including added sugar in beverages) plays a unique role in the development of obesity and diabetes.”

KAHN: If we look as an analogy, for example, to cigarette smoking, and try to make the link between sugar and obesity or diabetes, and cigarette smoking to cancer. What are the differences?

Okay, what are the differences?

KAHN: In the cigarette-smoking realm, the lowest smoking rate produced an enormous incidence of lung cancer. The highest rate of smoking was just simply off the charts in terms of the likelihood of developing lung cancer. Conversely, with sugar consumption, it’s less than a two-fold increase at the highest levels.

This gets into tricky territory. As Kahn says, some studies do find a two-fold increase in diabetes at the highest level of sugar consumption — but other analyses, including one by Robert Lustig, argue it’s considerably higher. That said, the relationship between sugar and obesity is nowhere near as strong as the relationship between smoking and lung cancer. According to the NIH, even “light smoking” results in a nine-fold increase.

KAHN: The next one is something called temporality. In other words, is there association in time between sugar consumption and obesity? That held pretty true from about 1985 to the year 2000. Where obesity levels went up, sugar consumption went up. But thereafter starting in the year 2000, even to today, sugar consumption has declined somewhere around 15 to 20 percent, whereas obesity rates continue to rise. We don’t see that at all with smoking, the analogous situation. Cigarette smoking rises, cancer rises. Cigarette smoking declines, cancer declines.

This, of course, doesn’t mean that sugar doesn’t contribute to obesity. Just that, again, the relationship isn’t so definitive. Kahn points to another difference between smoking and sugar.

KAHN: In cigarette smoking, we found a link between cigarette smoking and cancer in every population, every ethnicity, both genders, all kinds of tobacco use and even in bystanders. Conversely, with sugar, we don’t have that consistency whatsoever.

For instance: some studies show a strong relationship between weight gain and sugar-sweetened beverages — SSBs — but that relationship is most consistent when the SSBs are consumed in addition to a person’s regular diet. So the problem might simply be the extra calories, not the sugar per se. It could also be that people who drink a lot of sugary drinks do other things that lead to weight gain. There’s also the fact that, as Richard Kahn said earlier …

KAHN: In general, nutrition studies are not very robust compared to many other fields in biological science. In sugar consumption, most of [the studies have] either no controls, a very small number of subjects … They’ve only lasted for days or weeks at the most. The experimental studies have not been robust.

So in Kahn’s view, the science on sugar is not settled. Which means that the notion of regulating sugar is, at best, premature.

KAHN: I don’t think that there is any absolute amount of sugar that we should be under in our consumption. It all relates to eating a well-rounded diet.

To Robert Lustig, meanwhile, the time for regulation is now.

[MUSIC: Ruby Velle & The Soulphonics, “It’s About Time” (from It’s About Time)]

DUBNER: This episode was inspired by a listener, who wrote in to say, “If sugar is as bad for us as a lot of people are now saying it is, why isn’t it regulated the way other potentially harmful substances, like alcohol or tobacco, are regulated?” How do you answer that question?

LUSTIG: Well, the public health community has identified four separate criteria that are needed to be fulfilled before a substance can be considered for regulation. Number one: ubiquity, that is, can’t get away from it. Number two: toxicity, that it’s dangerous. Number three: abused, that increased consumption is inherent in the molecule itself. Finally, number four is externalities. That is, your consumption hurts me. Now alcohol, tobacco, morphine, and heroin clearly meet these four criteria. The question is, “Does sugar meet them?” And the answer is, yes, it does, absolutely.

Okay, let’s look at those four criteria for sugar. Ubiquity? That’s pretty much a no-brainer. But what about toxicity? Lustig’s hypothesis has to do with how the body handles fructose.

LUSTIG: When you consume dietary sugar, the glucose molecules can go anywhere in the body; only about 20 percent hit the liver. But the fructose molecules have to be handled in the liver, because there’s a specific transporter called the GLUT5 transporter; it is only in the liver. When you consume a soda, you are flooding your liver, and your liver can’t handle the flood. The liver has no choice but to turn that fructose into liver fat. It’s that liver fat that causes the chronic metabolic disease. We have the data that demonstrates that it’s the liver fat made from dietary sugar that is at the nidus, at the beginning of type-2 diabetes, heart disease, fatty liver disease. We’re starting to ferret out the links between dietary sugar and cancer and dementia as well.

DUBNER: But I know there’s other research that says that the toxicity argument may be overstated. That it’s not an acute toxin but a chronic one.

LUSTIG: You are absolutely right that sugar is not an acute toxin. Chronic toxins are still toxins even though they don’t make you keel over and die. Is benzene a toxin? We regulate it as such. Benzene doesn’t kill you acutely.

DUBNER: What about alcohol?

LUSTIG: Alcohol is both. It’s an acute toxin. You can die on a bender. Or it’s a chronic toxin — you can fry your liver. It’s both. The point is that the FDA regulates acute toxins, because it’s in their charter, The Food Drug and Cosmetics Act of 1938. Very specifically, it does not say anything about chronic toxins. The FDA does not regulate chronic toxins.

Criteria number three for regulation: the potential for abuse.

LUSTIG: It turns out that there is no biochemical reaction in any vertebrate on the planet that requires dietary fructose. Now, it happens to be sweet. It happens to signal our brain reward centers that we like the stuff. We happen to crave it. We happen to really enjoy it, and a little too much. In fact, now we have data that shows that it happens to be addictive as well.

Nicole AVENA: The question about whether sugar can meet the criteria for an addiction or an abused substance is something that I’ve been studying for many years now. It’s something that I think has become of interest to a lot of people.

That’s Dr. Nicole Avena. She’s a research neuroscientist at the Mount Sinai School of Medicine in New York.

AVENA: The way in which we’ve been studying this and the way in which others have studied this is to use these DSM criteria for addiction and ask the question, “Can sugar, when it’s consumed in excess, produce some of these behavioral indications and neurochemical indications that you would typically see with a substance of abuse?”

The DSM is the Diagnostic and Statistical Manual of Mental Disorders. It defines addiction or substance abuse along four main criteria: impaired control; social impairment; risky use; and pharmacological indicators like tolerance and withdrawal.

AVENA: You certainly don’t need to meet all of them and many people who are addicts don’t meet all those criteria. But you do need to meet a certain number of them for a protracted period of time. What the research has suggested in both animal models and in clinical studies is that the criteria for addiction as we classically define it in the DSM can be met when the substance of abuse is a sugar or a palatable food, in many cases. We see evidence of bingeing, withdrawal, craving. We also see changes in the brain.

Now, it’s worth pointing out that some of the most troubling studies are animal studies, which can be problematic on two fronts. One: the lab animals aren’t people, so they process sugar differently. Two: the doses of sugar they receive in the lab are often so large as to not be comparable to what most people would consume. Moreover, sugar isn’t the only thing we consume that has “addictive” qualities: pizza and french fries are also at the top of the list. So how well does this emerging model of sugar addiction line up to the addictive criteria for the sort of drugs that we do regulate?

AVENA: It’s a difficult question, because sugar is safe when it’s used in moderation. But the problem is that most people are unaware of how much sugar they’re consuming. Also, if the data suggests that the sugar is producing addictive-like changes in the brain, then we’re talking about something very different. Because if you’re no longer be able to have full volitional control over your decision to eat or not eat the sugar, then that becomes a different type of discussion.

The fourth criteria for regulation, that Robert Lustig was telling us about: externalities.

LUSTIG: That is, your consumption hurts me.

A classic case of externalities is auto travel. Every time you drive, it costs me something whether I’m driving or not. More pollution; more congestion; more risk of accident. We share all those costs, regardless of my actions.

LUSTIG: The question is, “Does this fit for sugar? Do I have anything to say about your consumption?” And the answer is, “Yeah, you’re costing me in obesity-related health care — whether I’m obese or not — because of your obesity.” It’s economic, but it’s real. 62 percent of all the health care costs in this country are shouldered by the federal government. Damn right, we share it!

[MUSIC: Ruby Velle & The Soulphonics, “My Dear” (from It’s About Time)]

Coming up on Freakonomics Radio: okay, having heard what we’ve heard about sugar, how would you think about regulating it?

HAMBURG: I’m not sure that I can really embrace the proposal to regulate sugar in that way.

And we’ll find one sugar fact that everyone agrees on:

LUSTIG: I mean, sugar’s celebratory! Sugar’s fun!

*      *      *

[MUSIC: Vic & Gab, “When You Walk In The Room” (from Love of Mine)]

It’s hard to find anyone who doesn’t like sugar. And nearly just as hard to find anyone who doesn’t think they’re having too much of it …

YOUNG WOMAN: I really like sugar. I know it’s bad for you, but I like it.

SOUTHERN MAN: Right now, I am staying away from sugar, trying to eat a better, have a better diet.

MAN: I’ve tried to cut back on it, but I’ve never given it up. I think it tastes delicious in the right thing, and I think that, at this point, it’s probably an addiction that my body just needs to have. I’ve never tried to give it up, nor will I try any time soon.

GIRL: I’ve definitely eaten too much of it, because I had a sleepover at my friend’s, and for breakfast we had lollies!

It wasn’t always thus.

ABBOTT: Sugar started out as a minor commodity that was used for medicine and for spice, up into the Middle Ages.

That’s Elizabeth Abbott. She teaches history at Trinity College, University of Toronto, and is the author of Sugar: A Bittersweet History. She says the debate over what sugar is — a food, a drug, or something in between — is hardly new.

ABBOTT: Sir Thomas Aquinas, way back in the 13th century, pronounced sugar a medicine. He said: “Though nutritious in themselves, sugared spices are nonetheless not eaten with the end in mind of nourishment, but rather for ease in digestion. Accordingly, they do not break the fast any more than the taking of any other medicine.”

One reason sugar was welcome in medicine was because a lot of medicine tasted terrible — a combination bitter roots, animal feces, even bits of corpse. So yeah, a spoonful of sugar really does make the medicine go down! Outside of medicine, however, sugar was decidedly aristocratic.

ABBOTT: For example, Persia — or Iran today — [sugar] was very popular among the elite. They are the ones that started this trend, this architecture of sugar. They would make beautiful sculptures often like, for example, life-size trees.

Sugar was costly, and sugar was rare. But the sugar trade began to grow, built on the back of the slave trade.

ABBOTT: By 1680, sugar costs only half what it had in 1630. That was thanks to slavery. By 1700, the percentage of imported foodstuffs including sugar had more than doubled and they quadrupled between 1700 and 1740. England and Wales consumed 60 times more — six zero times more sugar — though their populations did not quite double.

It was the Industrial Revolution, Abbott argues, that helped turn sugar into an everyday thing.

ABBOTT: People started going from their farms and so on into cities and into factories. They couldn’t go home for lunch because they had maybe a fifteen-minute break. So sugared tea and a bun — or some sort of thing like that, often with jam on it — was offered instead, and that was what popularized it. It’s said that it fueled the Industrial Revolution because sugared tea — and it would be really sugary — has calories. They’re not nutritious but they are units of energy.

The sugar boom helped create another boom that we’re still living through.

ABBOTT: They had a lobby that was extremely powerful. We could say all the big heavy industrial lobbying probably stems from the success of the sugar lobby.

That’s right: it wasn’t enough to benefit from slave labor and huge demand for their product.

ABBOTT: The sugar plantations were profitable not just because of the demand but largely because of how they were politically strong. If they had failures, if they had hurricanes, if they had bad crops — which they often did — they could keep the price. They could get Parliament to help them out with good legislation and tariffs and so on that would favor them. By the way, the sugar lobby is still a very important on. It has a lot of weight still, and it now is an alliance of cane sugar planters and beet sugar planters. They get together to lobby when and when they feel that their interests are at stake.

Just last year, it was discovered that in the 1960s, the sugar industry paid three Harvard scientists to write a review that shifted the blame for heart disease from sugar to saturated fat. Much more recently, Coca-Cola spent millions of dollars on research arguing that the real culprit in obesity is lack of exercise, not sugary drinks. So you can’t blame people for being confused, maybe conflicted, about the degree to which sugar is a health risk. I brought this up with Robert Lustig.

DUBNER: Right now, we’re talking in the year 2017. A lot of people now are convinced that the U.S. government and many others erred terribly in declaring fat to be the cause of obesity. Many people now believe, as you argue, that sugar is a much bigger villain. How do we know you’re not the guy that’s wrong this time, that you’re not just another — perhaps well-intentioned — big-brained do-gooder who is making a massive mistake?

LUSTIG: An awfully good question. This is known as the pessimistic meta-induction theory. What it says is, “Everything we knew 10 years ago is already wrong, and everything we know today will be wrong 10 years from now. Why should we do anything differently when we know that whatever it is that we believe today will end up being wrong?” If you play that game, then you might as well never do any research, never do anything at all, and live with the current dogma.

There’s also the confounding fact, pointed out by former FDA commissioner Margaret Hamburg, that a lot of time you’re eating sugar even when you don’t know you’re eating sugar.

HAMBURG: Things like barbecue sauce and spaghetti sauce and soup actually have much higher levels of sugar than you would ever imagine.

DUBNER: Talk to me for a moment about the Smart Choices program and what the FDA did there.

(Photo Credit: Mike Licht / flickr)

HAMBURG: The Smart Choices program was an effort spearheaded by industry. A number of major food-producing companies came together to create a system where you would give different scores to different aspects of the nutritional value of a product. The total number would then either give you the green check, the smart choice, or not.

DUBNER: The name, I gather, was an industry name, yes?

HAMBURG: Right. Exactly. The problem with it was that you could score adequately high to get that “green smart choice check” without the food truly reflecting what any sensible nutrition expert would view as a healthy smart choice. Some of the products that got the smart choice label were over 40 percent sugar. We joked that you could practically take sawdust and if you added enough nutrients to it and the fiber of sawdust, you could have it labeled as a healthy choice, a smart choice.

DUBNER: All right. How long did that last?

HAMBURG: It was out there for a little while. We expressed our concerns to the group that had put this together and was implementing it. They listened and understood. They decided voluntarily to withdraw the program. There have been a number of efforts to look at other strategies for providing consumers with important information about foods. The nutrition facts label, of course, is one important aspect. The nutrition facts label that’s on most processed foods and beverages in this country was first put into place more than two decades ago. But then it was never updated. When I was commissioner, we decided it did need to be updated to reflect both deeper understandings about how people eat. Serving size for example. Also, advances in nutrition science. We embarked on a process to update it. I think the most important contribution that this updated nutrition facts label provides is in the area of added sugar.

DUBNER: As I understand it, food and beverage companies are already adjusting their products to consider the new labeling. Was that your intention?

HAMBURG: Absolutely. One of the goals of putting out that information is to encourage companies to reformulate foods towards healthier products. We’ve certainly seen that happen as we move towards this the implementation of this new nutrition facts label. Stonyfield Yogurt just recently decided to significantly reduce levels of sugar before the new facts label is actually in place. FDA, in some ways, has the opportunity to use both the carrot and the stick. Knowing that we could do mandatory guidelines on certain things often encouraged industry to work with us, to come to voluntary approaches. But there’s no doubt that there are tensions.

DUBNER: Robert Lustig and several others in that camp argue that sugar should be regulated substantially because it meets criteria for substances that should be controlled or regulated: unavoidability, toxicity, potential for abuse, and negative impact on society. I’m curious what your thoughts are on sugar fitting those criteria and whether you think that’s even a useful framework.

HAMBURG: We need to reduce excess sugar in our diets and in the products that we consume. Consumers need more education and information. But I’m not sure that I can really embrace the proposal to regulate sugar in that way.

DUBNER: Because it would be too overreaching? Because it would be too difficult? Why?

HAMBURG: It’s a complex area to regulate in that sugars are intrinsic components of many foods which should be part of a balanced nutritious diet. Fruits and vegetables and dairy products are good examples. I think that some of the concerns that have been raised may not be fully grounded in the best possible science.

“Not fully grounded in the best possible science.” That, you’ll recall, was Richard Kahn’s main objection to the idea of regulating sugar. But there’s another one too:

KAHN: If you reduce it or get rid of it or put policies and laws regulating it, what good is it going to do? We have no clue, no real good evidence that it’s going to do any good whatsoever. Therefore, unintended consequences become a very important factor.

Richard Lustig, meanwhile, is — as you’ve likely figured out by now — in favor of just about any kind of sugar regulation you can imagine. Taxes, for instance, and price hikes — both of which worked to reduce cigarette smoking, and are already being used on sugary drinks in a few places.

LUSTIG: The modeling studies that have been done suggests that you have to raise the price of a can of soda by about 20 percent in order to see any meaningful reduction in consumption.

Lustig’s also in favor of limiting the availability of sugar — removing vending machines from schools for instance. Also, banning TV commercials for products with added sugar. Also: getting rid of subsidies.

LUSTIG: Subsidies for food make no sense because subsidies distort the market.

DUBNER: One last question, perhaps ridiculous or impossible: let’s say we’re in a world where you could edit genes quite easily. It seems we’re not that far from it. Whether we’re talking about a 50-year-old person or a zygote. How would you consider editing the genes related to what seems to be a craving, perhaps even dangerous craving for sugar?

LUSTIG: That’s a really tough question. We don’t want to turn off our reward system entirely. If we do, we get into trouble. We actually did this. We did this experiment with a medicine back in the early 2000s. That medicine was called Rimonabant . What it was was it was the anti-marijuana medicine. It blocked the endo-cannabinoid receptors in the brain, and by doing so reduced reward for alcohol and for food. In fact, people who took Rimonabant lost a fair amount of weight. It looked very promising. Until we started looking at the Phase 3 data and started realizing that a lot of these people became severely depressed, and many of them committed suicide. We didn’t realize it, until we did those Phase 3 trial. It was never approved here in the United States. Bottom line is, if you take away a reward, you take away the reason for living. Be careful about gene editing our rewards system.

Most of the regulatory measures Robert Lustig would like to see around sugar lie somewhere between unlikely and impossible, at least for now. In any case, we asked a bunch of people in Times Square what they thought of it …

YOUNG MAN: Most definitely shouldn’t ban sugar. Sugar’s one of the best things in the world. But I don’t think it should be taxed, either. I feel like it should just be accessible to everybody, because it’s a nice thing. It’s the best thing out there!

YOUNG WOMAN: Probably a tax, but not a ban. I don’t think a ban would work very well. There’s just too much sugar in the world. But maybe a tax would have people thinking more about what they’re buying a little bit more.

SOUTHERN MAN: A tax or ban on sugar? I feel that would backfire really bad. Look back at the Revolutionary War. The British put a tax on tea and people didn’t really like that too much!

SMALL GIRL: I would probably cry because I love sugar!

A love of sugar seems, from what we can tell, pretty universal. Including among the scientists and doctors we’ve been speaking with today. From Richard Kahn, formerly of the American Diabetes Association …

KAHN: One clear thing that comes to mind is just pleasure. Sugar is enjoyable to eat. It’s part of our culture, keeping our community together, our families together.

To Margaret Hamburg, former FDA commissioner …

HAMBURG: I will admit to having a sweet tooth. Oatmeal cookies, I’ll tell you, are my particular vice.

To the most anti-sugar one of all, Dr. Robert Lustig:

LUSTIG: Sugar’s celebratory! Sugar’s fun! Sugar’s Apple Pie. Sugar is reward — but once a week.

[MUSIC: Stubborn Son, “Vixen” (from Birthright)]

Coming up next week on Freakonomics Radio: more useful facts about things that go in your mouth.

Jo ROBINSON: It’s difficult to find science to support the idea that we’re healthier eating raw produce than lightly cooked produce.

Kenji LOPEZ-ALT: If I’m going to eat a hamburger, I want it to be the best damn hamburger I can make.

“Food + Science = Victory!” That’s next time, on Freakonomics Radio .

Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Stephanie Tam with help from Eliza Lambert, Matt Fidler, and Sam Bair . Our staff also includes Shelley Lewis, Christopher Werth, Merritt Jacob, Greg Rosalsky, Alison Hockenberry, Emma Morgenstern, Harry Huggins and Brian Gutierrez . You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts .

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