How To Choose The Right Term Life Insurance Policy

by Nasr-Eddine VerhaeghPersonal Finance

When it comes to life insurance, there are two main types of policy to choose from – term life insurance and whole life insurance. As the name suggests, term life insurance provides cover for a set period of time, whereas whole life insurance covers you for your entire life.

So, which one is right for you?

Well, that depends on a number of factors, including your age, health, lifestyle and financial circumstances. Here, we take a look at the key differences between the two types of policy to help you make the right decision.

Cost

Generally speaking, term life insurance is cheaper than whole life insurance. This is because it only covers you for a set period of time, so the insurer doesn’t have to pay out a death benefit if you live to a ripe old age.

Cover

Term life insurance only provides cover for a set period of time, which is usually between 5 and 30 years. If you die during this period, your beneficiaries will receive a payout. If you don’t, then there is no payout and the policy simply expires.

Whole life insurance, on the other hand, covers you for your entire life. This means that your beneficiaries are guaranteed to receive a payout, no matter when you die.

Flexibility

Term life insurance is generally more flexible than whole life insurance. This is because you can choose the level of cover you need and the length of the policy to suit your circumstances. For example, you might take out a 20-year term life insurance policy to cover the mortgage on your home.

Whole life insurance is less flexible as it covers you for your entire life. This means that you’ll be paying premiums even if your circumstances change and you no longer need the cover.

Investment

With whole life insurance, a portion of your premiums is invested, which can grow over time. This cash value can be accessed through loans or withdrawals, subject to conditions.

Term life insurance doesn’t have an investment element, so you won’t be able to access the cash value.

So, there you have it – a brief overview of the key differences between term life insurance and whole life insurance. As you can see, there are pros and cons to both types of policy, so it’s important to consider your individual circumstances before making a decision.

How to Be Financially Literate While You’re in College

by PATRICIA HolmesPersonal Finance

You might be physically fit while you’re young and in college, but staying in good financial shape is another matter. Being solvent is easily one of the hardest of accomplishments because there are a lot of other things to focus on: the effort to get good grades, your social life, your love life, and your health. Most students eschew financial considerations in hopes that they’ll make good money with a decent job after college.

Statistically speaking, counting on your postgraduate job does make some sense. In terms of college degree earnings, college grads make $549 per week more than high school grads on average. And, nearly 15 percent more college grads are employed. Yet, student loan debt provides a stark contrast to these numbers. The average class of 2016 grad owes $37,172, and the grand total of nationwide debt is $1.31 trillion (yeah that’s 1.31 with ten zeros after it).

No one would blame you for wanting to keep from apart of that stat. To avoid looming student loan debt, consider the following:

Take Online Courses

Why online courses? To avoid student loan debt, you should work while in college, and online classes allow you more flexibility so you can tailor your schedule accordingly.

Here’s how it works

You have some great options in terms of paying for college:

  • Find an employer who offers tuition assistance: For example, Starbucks will pay for your tuition at Arizona State University, and there are other companies that will help you pay for college as well
  • Apply for federal grants: A grant is basically sponsorship money for your education
  • Apply for scholarships: There are a great many scholarships available from private and public organizations
  • Join the military: A tough pill to swallow for some, but the G.I. Bill can help pay your way through college

Noticing a common trend with all of the above? They require extra legwork, but don’t fret; if you work hard to pay your way through college with all the available options, your time after school will be much more enjoyable.

Student Loan Debt Is Like a Steel Trap

Here’s how it works

You’re not required to begin paying on loans till after you graduate, and even then there’s a grace period. But once the payment terms kick in, they’re a very serious loan, and your history with payments reflects on you for a long time. Never default on student loans—it hurts your FICO credit score. Within the first year, skipping a payment on a fixed-rate 15-year loan will hurt you for the next 22 years. If you default on the loan—which means you don’t make payments for more than 270 days—it will seriously damage your credit score for seven years. You won’t be able to buy a house, it’ll be tough to buy a good car—just don’t do it.

Build Good Credit

If you’re working, you have the opportunity to start building your credit score, meaning when you graduate you’ll be in good financial standing, ready to succeed on your own.

Here’s how it works

Even if you have to take out loans, student debt and credit score are not necessarily poor bedfellows. Save up money while you’re working and then make regular payments on your loan. Don’t make partial payments, pay the entire amount due each time your bill comes around. Credit agencies will take note and your score will climb steadily.

Even during college you can begin building good credit. Get a student credit card and get smart with it. Only make credit purchases you can afford pay off immediately. In other words, make strategic purchases on the card. Check how much you have in the bank, then buy a few things (the fun part), then pay what you owe at the end of the month.

The interest rate on your college card will skyrocket after the initial terms expire, I guarantee it. That’s one reason why you must pay off card debts in full when payment is due. Once you have the chance to get a new card with better terms (such as a cash rewards card), take it. Then, make sure your original card is free of all debts, dispute any incorrect records, and leave the card open with zero debts. This shows creditors you’re responsible.

You Can’t Lose

If you maintain a job during college, look into grants and scholarships, and pay your way, you’ll graduate debt-free and in good financial standing. Maintain that college credit card in good standing along the way. Or, take out loans, get a job, save money, and pay your loans off reliably after you graduate.

You can’t lose with these strategies because you’ll be free of the steel trap that is student loan debt, and your credit score will be stacked to make important purchases. What’s more, you’ll have that degree, which pretty much guarantees you’ll make more money than high school grads. It also guarantees you learned something, and that’s the most valuable thing of all.

My Top 5 Favorite Things About Maine’s Credit Unions (CUs)

by PATRICIA HolmesPersonal Finance

They care.

Big financial decisions can be intimidating. Where to open an account, buying homes or vehicles, and using credit cards are financial decisions that we want to make responsibly. 

Get a head start in life by joining a credit union.

With a supportive system made up of people who care about helping people, these decisions are not so scary.

Credit unions began as a movement to help the underdogs when big banks would refuse to serve them. Credit unions care about giving people a fair start in life.

They offer shared branching.

With 170 branches, Maine’s credit unions have nearly three times more locations than any single bank in Maine by “sharing their branches.” You can access your money from almost anywhere. When I moved away from home to college, this was important to me.

Shared branching means if you have an account with a credit union, but are traveling out of the area, you can perform account deposits, cash and check withdrawals, transfers, cash advances, loan payments, etc. at any other credit union that offers shared branching. You only need your photo id, your own credit union name and account number, the last 4 digits of your Social Security number, and the primary address on file for your account.

They are local, and they support the community.

Walk to Stop Hunger with Maine State Credit Union, 2013.

I love that my credit union supports the Campaign for Ending Hunger. Since the campaign began in 1990, credit unions and their members have raised $5.3 million, with 100% of proceeds, toward the cause. They also offer financial education and resources, and raise money through the Swish-Out Childhood Cancer Challenge, where 100% of all sponsorships help children with cancer and their families. 

They make life easy.

With convenient mobile apps, online banking services, and mobile check deposit, I can bank from anywhere!

Use your phone to deposit your checks! 

With mobile check deposit, I use my phone to deposit checks. By taking a photo of the front and back of the signed check, you have access to your money almost immediately.

The SURF ATM network in Maine has 230 SURF ATMs – the largest surcharge-free ATM network in Maine! I use the ATM locator – http://mainecreditunions.org/surf-atm-locator/ to find easy access to my money, wherever I travel, for free.

With online services, life is easy and convenient. You can track your spending, manage your budget, make online transfers, and create separate club accounts to better manage your finances. All of this can be done from home or on-the-go with mobile banking.

They have less fees and better rates on loans. 

As a student who graduated from the University of Maine, this is important to me. College is expensive, and I want the best rates on loans as possible. I also don’t want to pay extra money in fees.

Because credit unions are not-for-profit, they can return money to members in the form of better rates on loans, less fees and more annual dividends dispersed to your savings account each year.

Take Care! 

Debt Free in 60 Seconds

by PATRICIA HolmesUncategorized

Imagine it, you being debt-free. No more annoying calls from the credit card companies, “reminding” you that your bill is past due (as if you’d forgotten) and no more giving your entire paycheck over to debt that you accumulated last semester.

Does it seem like a dream? It doesn’t have to be. You can make it your reality! Here’s how to do it – in just about a minute.

0:60 It’s simple – spend less than you make
OK, I know it’s simple, even if it’s not always so easy to do. But following this rule could have a serious impact on your financial health and peace of mind. The truth is if you can’t pay for it today then you probably won’t be able to afford it tomorrow either. So don’t put any unnecessary pressure on yourself to come up with money in the future that you can’t guarantee you’ll have today.

0:50 Bad Debt vs. “Good” Debt – know the difference
Good debt generally has an interest rate of 10% or less and will appreciate in value. Home mortgages and student loans are examples of money borrowed that will be well worth the investment in the future. Car loans are somewhat on the fence, true, they meet the low-rate rule, but cars almost never go up in value. Bad Debt (also known as consumer debt) is everything else – yup, that even includes your platinum-all-star-VIP-rewards card that you’re paying 29% interest on.

0:40 Pick a card & stick with it
I know that “settling” down is probably far from your mind with all the dating choices that you have, but when it comes to credit you’re better off going “steady” with just one major credit card. Choose one with the lowest annual interest rate possible (check out your options at www.choosecreditwisely.com) Cancel and cut up any other cards, including all department store cards – you can even use the little pieces of plastic to make some cool wall art. Now that you’re exclusive to just one card, treat it with respect and you’ll have a great and long-term relationship.

0:30 It’s time to face the music
This won’t be fun at first, but it’s necessary to get you closer to not being afraid that “someone is after you” every time the phone rings.   You’ve gotta pay to play, so pull out all of your credit card bills and line ‘em up on the floor. Find the minimum monthly payment for each one and then total them all up to get an overall monthly minimum payment amount. Make a commitment  to pay the total minimum due PLUS $100 more to the highest outstanding balance every month (or at least enough to make a dent in it) If you can’t pull this off right away, then come up with a plan that will make it possible within the next three months. It might not be fun, but it’ll be worth it.

0:20 Ready. Set. Attack.
Get angry, I mean fighting mad. Your future is on the line and it’ll be a bright one as long as you’re not strapped with debt. So the next step is to identify which of your credit cards has the highest annual interest rate and apply the $100 more (above the minimum amount due) to the highest interest rate account(s) first. Repeat this process monthly until the last Bad Debt account is paid in full.

0:10 Pretty pleeze?!
Grab a bill from any creditor that’s charging you more than 15% interest. Call them up and with all the Academy Award winning acting skills you can muster ask that your rate lowered to 11%. Tell them that you’d really like to keep your account open with them, but that you’ve gotten “offers” for much-much-lower-rate cards (at this point let your voice trail off for dramatic effect).They’re gonna try to break you, but don’t let ‘em see you sweat, because to them, you’re not just a customer you’re a cash register (they hear cha-ching every time you charge something and don’t pay your balance in full). What do you have to loose? Just try it. It’ll be fun and you stand to save a bunch of money.

0:01 Go ahead…Get your dance on
When the Bad Debt is 100% exorcised go ahead celebrate – heck, when you’re halfway there start doing the “happy dance” – life is meant to be enjoyed and you’ll feel more carefree today when you’ve paid off your bar tab from spring break two years ago. Now that’s something to cheer about!

Auto Loan Refinancing in your 20s: When to Refinance Your Car Loan

by PATRICIA HolmesUncategorized

The first few years of your credit history are critical to your long term financial picture. When borrowers are in their 20s, they are typically a few years into their first credit cards, auto loans and student loans. How you handle your debts now can affect how much you pay for credit down the road. To that end, auto loan refinancing can play a crucial role in your financial future.

When to Consider an Auto Loan Refinance

The goal of refinancing a car loan is to reduce your interest rate, your monthly payments or the total amount you pay over the life of the loan. In some cases, an auto loan refinance can achieve all three. If you are in one of the following situations, you should consider refinancing:

You have an exorbitantly high car loan interest rate. Most auto interest rates are between 1 to 5 percent. Anything in the double digits is a bona fide rip off, usually enacted at the hands of a greedy auto dealer. Shop around and you’ll find much lower rates to refinance at.

You’ve established credit history. Your first loans have higher interest rates because you have no credit history. Now that you have a few months or years of on time payments, you can most likely get a lower interest rate without taking on more debt.

You have more income. As you transition from a part-time job or student stipend to a full time salaried position, you’ll likely have the income needed to comfortably reduce the term of your car loan. This will increase your monthly payment, but will drastically reduce your interest rate and overall cost of the loan.

When Not to Consider Refinancing Your Car Loan
Auto loan refinances are not cure-alls for whatever ails your bottom-line. There are a few situations where a car loan refinance will cost you more than it helps you, including:

You have less than $7,500 outstanding on your car loan. Most lenders can’t turn a profit on such a small auto loan principle. If you have extra cash, you’ll be better off by paying down your loan early.

The prepayment penalties outweigh the cost savings. Some lenders incur prepayment penalties for paying off your loan early. Carefully calculate how much money you’ll save in the long run versus how much you’ll spend up front to get out from under your current loan before making a decision.

You are desperate for cash. Cash out refinancing exists for auto loans, where you can borrow more than your car is worth or draw down on some of the equity you’ve built in your vehicle. For some situations, this can be a good strategic move—but if you are doing so out of desperation, you’ll just be digging yourself deeper into debt, especially since car values always decrease (unlike home values). Proceed with caution if you’ll be refinancing to get more cash on hand.

None of the above scenarios are hard and fast, so take time to assess your situation before moving forward. Your best first step is to shop around for car loan refinance quotes on sites such as MoneyAisle.com, where you can see the kinds of interest rates you can get with your current credit score without making a commitment. If opportunity exists, take it.

Pay Off Student Loans or Save for Retirement?

by PATRICIA HolmesPersonal Finance

Today it’s not uncommon for college graduates to owe $50,000, $100,000 or even $150,000 in student loans upon graduating.  Unfortunately, it’s commonplace given the escalating costs of tuition and students taking more than four years to complete their education.

Students loans are the necessary price to pay for opportunities and the possibility of career advancement.  But be warned, once you assume these loans it becomes your responsibility to manage them effectively and “do your homework.”

If you’re like most of us, you didn’t hesitate to take out loans your first year of college because you were filled with the optimism that a college degree would provide you with more than enough income to meet your living expenses, save for retirement, and quickly pay off your loans.  But reality isn’t always so kind.  Now you realize that between taxes and inflating living expenses there’s not as much money to spread between paying bills and saving for retirement as you had thought.  You’re faced with a decision.  With your limited income, should you pay off your students loans or save for retirement?

If this isn’t a question you’re asking yourself, it should be.  You know that your loans won’t repay themselves, but at the same time you need to maintain a lifestyle and try to put some money away for retirement.   There’s just not enough money to go around and the question becomes one of balance, and finding out where every dollar of your income will be put to its best use.

You have three options:
Option 1: Pay off your student loans now and save for retirement later.
Option 2: Save for retirement now and make only the minimum student loan payment required.
Option 3: A combination of paying off your student loans and saving for retirement at the same time.

Though always painful to watch your money go, the decision between the three options is easy and comes down to pure math.

Review each option to decide what’s right.

Let’s review each option so you can decide which is right for you.

Option 1: Pay off student loans now and save for retirement later.

Paying off students loans before starting to save for retirement is a common mistake a lot of college grads make. The reason is simple. When they took out their large student loans a few years ago they convinced themselves the debt would only be temporary and would be paid off within the first few years after college. In other words, their goal was to erase the loans and forget they ever happened ASAP. I know this mindset because it was mine not too long ago. Another popular reason college grads decide to pay off student loans first and save for retirement later is because they want to get out of debt before saving for retirement. This is very idealistic and not very practical. If Americans waited until they had no more debt to begin saving for retirement no one would be able to retire!

But, there is a time when it makes sense to pay off student loans immediately and save for retirement later.  This is a smart decision when your student loans are charging interest greater than 8%.  The long-term investment return on the stock market is roughly 8%, so if you’re paying more in interest than you’re earning on your investments, your money is best used paying off your high interest loans first and investing in retirement later (but not too much later).  If you have multiple student loans with multiple interest rates, only pay off your over-8% loans first and put any excess money towards retirement.

Option 2: Save for retirement now and make only the minimum student loan payment required.

You should consider this strategy if the interest rate on your student loans is less than 8%. If the stock market returns 8% over the long run, and the interest rate you’re paying on your student loans is less than 8%, then your money is best used being invested for retirement rather than paying off your student loans. And when you factor in the benefits of tax deferred growth provided by retirement plans, it makes an even stronger case that you should invest your money for retirement and make only the minimum student loan payment.

Option 3: The compromise: A combination of paying off your student loans and saving for retirement at the same time.

Remember, all things in moderation.  If your student loans have an interest rate that is between 6% and 8%, you may want to consider a compromise between paying off your student loans and saving for retirement.

Example: Your $30,000 student loan (at 6.5% interest) requires you to make a minimum monthly payment of $200.  You find that after you make the minimum monthly payment and pay your other bills, you still have $100 left over from your paycheck at the end of each month.  You should consider putting an additional $50 towards paying off your student loan (because the interest rate is between 6% – 8%), and put the other $50 into your retirement account.

You’re also allowed a small tax deduction for interest accrued on your student loans if your income is under $55,000 (single) or $110,000 (married), which provides an additional benefit.

Final words of caution…

For your student loans (unlike other debt), if you can prove you don’t have the wherewithal to make your monthly payment, many lenders will let you temporarily put your student loan payments on hold – known as deferment or forbearance. This usually occurs if you’re facing unemployment or have high medical bills. But be careful, many times your interest will continue to accumulate during this time. You should check with your student loan provider and make sure you understand the fine print in your loans.

Save money on your first small business brick and mortar location

by PATRICIA HolmesBusiness

Starting a small business? Real estate will be one of your biggest expenses. Unless you’re committed to doing nothing but ecommerce, there’s no escaping the difficulty of finding just the right location at a price you can afford. Particularly if you’re planning on starting something like a coffee shop, a type of business highly dependent on accessibility, your location is the difference between success and failure.

Getting started

First, you’ve got to determine where the money for your new location is going to come from. Just like The Lenders Network connects homebuyers to lenders, the SBA page on loans and grants is a tool for connecting entrepreneurs to a lender. But loans come at a price. You’ll have to pay the mortgage on your loan, so when all is said and done, you’ll pay more than the actual value of the real estate.

To avoid costly mortgage rates, start with crowdfunding. Indiegogo only charges 4% if you meet your goal, a much smaller amount than you’ll end up paying with a mortgage. Kickstarter allows you to crowdfund the creation of a product–if it takes a brick and mortar location to create that product, acquiring one is part of your campaign. Rockethub bills itself as “The leading global community for entrepreneurs”, with the “Elequity” funding hub as a starting point to guide you through the funding process. Peerbackers also specializes in entrepreneurial and small business funding, with its Crowdfunding Academy there to help educate you on how best to go about crowdfunding your business.

Maximizing your space for sustainability

Once you’ve procured funding to get going, choosing the right location is your next step. In terms of saving money, it pays to think about sustainability.

Have you looked into sustainable commercial real estate? Green buildings can save you up to 20% on utilities alone. If the building isn’t up to sustainability standards, according to Marylhurst University there are income tax credits, rebates, grants, and property tax abatements  “for everything from solar installation projects to interior energy retrofits of commercial buildings”.

If property values on sustainable buildings in your area are too high, the smart route is to identify a building in a good location that hasn’t been updated. Then, determine the price of green renovations and add it to the cost of the building. Next, research the federal, state, and local incentives for installing things like solar panels, double-pane windows, and high quality insulation. Subtract the estimated dollar amount of incentive kickbacks from your first figure, which was the cost of the lease combined with the cost of green renovations. Finally, compare that number with the price of buildings that are already updated for sustainability.

In the long run, you’ll only save money from updated, eco-friendly real estate, because you’ll save on utilities and repairs. You can also use your investment in sustainability as part of your branding, with environmental stewardship as a cornerstone of your business.

Incentives and practical considerations

Incentives don’t just come from modernizing a space for sustainability. Have you ever considered relocating to a different city? In terms of finding the absolute best location for your small business, there are cities such as Chicago that offer grants, loans, fee waivers, tax reductions and land-write downs in exchange for job creation. Do your research on areas where your product is needed, look into state and city incentives, and then consult with the local Small Business Development Center. If you’re willing to relocate beyond the US, consider global hotspots for entrepreneurship, such as Berlin, Tel-Aviv, and London.

Quickbooks points out, “The cheapest choice isn’t always the right choice.” Look for an area with plenty of traffic from your target customers. Be aware of how much competition there is in the area, too. The more competition, the less visibility you’ll have. However, if you find a key price point on which you can undercut competitors, and you have a unique brand, take the risky location with a reasonable price.

When it comes to relocating, some states have lower minimum wage than others. Research minimum wage along with the economic environment of prospective states, and plan accordingly.

In some states, you’ll have multiple power companies to choose from. Find the one with the best rates and be aware of whether they have additional charges during peak hours of use. Large spaces cost more to heat and cool. Don’t get a bigger space than you need. Reserve about 80% of the space for retail, and use low cost rental space for any additional storage, distribution, and offices.

As far as janitorial and maintenance costs, DIY is the cheapest. Another option is to use an app such as TaskRabbit, which connects you to inexpensive and reliable freelance janitors and maintenance personnel.

You’ll need liability insurance in case anyone gets hurt in your store, so use a broker to look hard for the insurance provider with the best rates.

Ultimately, the smart decision on your first location is finding the balance between price and location. A great location with lots of traffic will pay for itself. But if you don’t have a ton of funds at the outset, and don’t want to rack up lots of debt, look for the space with a decent price in a decent area, and work hard at marketing and branding to make customers come to you.

Generation Debt: Hope for Echo Boomers in Trouble

by PATRICIA HolmesPersonal Finance

The children of Baby Boomers have many nicknames: Echo Boomers, the Millennial Generation and Generation Y. With birth dates ranging from 1978 and 1994, Generation Y makes up 60 million of America’s 300 million population.

They’re demanding, technically savvy, ambitious, question everything and, as a group, are in financial trouble. No group has ever started adult life so deeply in the hole, thanks to mounting college costs, dwindling financial aid and credit-card debt. Here’s how Generation Y became Generation Debt, and how they can turn things around.

1. Cushy Upbringings
Raised by Baby Boomer parents who wanted a better life for their children, Generation Y was pampered, nurtured and given everything they needed or simply wanted. It’s no wonder they grew up with a sense of entitlement.

2. Easy Access to Consumer Credit
Consumer credit companies handed out cards to Generation Y like candy, allowing them to instantly gratify their desires with the latest iPod, laptop or phone upgrade. As a result, Generation Y now faces a median credit-card debt of $8,200.

4. College a Must
Many Baby Boomers were the first in their families to earn a college degree. It was only natural they expected their children to follow in their footsteps. A recent survey found 70 percent of Generation Y felt a college degree was a necessity to compete in the shrinking job market.

5. Financing College
Many entered college just as tuition inflation set in and college loans became more difficult to secure, resulting in an average college debt of $20,000.

6. Poor Financial Skills
While they’re technically savvy, many of this generation are financially illiterate. The education system hasn’t kept pace with the increasing complexity of financial products and the easy availability of consumer debt. This attitude is reflected in the 52 percent of Generation Y who say, “Loans were always expensive; I’ll worry about them later.”

7. Necessity of a Degree
High school graduates face fewer jobs and a more-qualified workforce than ever before. Many employers, faced with an overwhelming number of applicants for each job posting, weed down these numbers by requiring a minimum of a BA or BS for even rock-bottom entry positions.

8. Unemployment Statistics
Roughly one-in-five young adults between the ages of 18 and 29 is unemployed, compared with a 7 percent unemployment rate for those over age 30.

9. Poor Debt Financing
With an entire generation facing underemployment or unemployment, many have turned to the bank of Mom and Dad or borrowing from friends to keep their heads above water.

10. No Bail Outs
Recession recovery programs rarely address Generation Y financial concerns. 80 percent of those still in college think the financial bailout won’t provide help with tuition or student loans.

11. Taking the Easy Out
When debt payments become insupportable, many Generation Y members think bankruptcy will provide an easy out. People between ages 25 and 34 make up 22.7 percent of all U.S. bankruptcies. Unfortunately, college loans aren’t forgiven through bankruptcy.

So what’s a generation to do? For those trapped in debt and struggling to get on top financially, Coupon Sherpa offers the following five strategies.

1. Adjust Expectations
Although the challenges facing young people are real, out-sized expectations are a large part of the problem. For example, most people historically don’t buy their first home until they’ve reached financial stability, in their late 20s and early 30s, yet many GenYs took on mortgages at a much younger age.

2. Track Expenses
There’s a reason the rich are rich. They treat their spending like a business and know exactly where each penny is spent. Create a budget and record every expense according to category. Are you eating out too often? Cell phone carrier bill too high? Tracking expenses allows you to see where it’s possible to cut back.

3. Use Online Financial-management Aids
• Yodlee helps you create a budget, track spending, monitor online accounts, create expense analysis charts, and track your net worth.
• Mint is a free money-management tool that allows you to analyze spending, savings and other financial habits. Best of all, Mint offers suggestions for improvements, including showing users how much money they could save or earn by using a credit card with a lower interest rate, earning higher interest from a bank account, buying a less expensive cable service, and more.
• Wesabe combines social networking with money management and tracking capabilities. Users can join groups, set financial goals, and share tips and information with each other.  Wesabe also allows users to create tags for expenditures and automatically label store purchases.

4. Finance College With Minimal Debt
The recession has made it more difficult to obtain private student loans, but government loan programs now offer more loans, more money, and better rates, while increasing tax breaks for parents. An expanded tuition credit for households with up to $160,000 in adjusted gross income could trim as much as $2,500 in taxes. Go Frugal offers five public and private ways to finance college.

5. Face Up to Collectors
Avoiding collectors’ calls or letters will just delay the inevitable and usually make things worse. It’s important, however, to know your rights. Collector may not harass you; falsely imply they represent the government or that you’ve committed a crime; or suggest you’ll be arrested if you don’t pay up.

6. Chip Away at Debt
Aggressively pay down your highest-rate balances while making on-time minimum payments on the others. Your budget will dictate how much you can devote to paying down your balances each month. If possible, use any savings, bonuses or overtime pay to buy-down debt.

7. Educate Yourself
There’s a lot of free help on the Internet. Financial Guru Suze Orman, MSN’s Money Central, CNNMoney.com, and, of course, Young Money are excellent, unbiased resources that don’t push specific products.

8. Don’t Give Up
You didn’t get into debt overnight and you won’t be able to climb out quickly. It takes time and patience, but you’ll find it worthwhile in the long run.


Student Loans Exceed Total Credit Card Debt

by PATRICIA HolmesPersonal Finance

New figures from reveal that in aggregate, Americans owe more money in federal and private student loans than they do in revolving credit, reports the Wall Street Journal.

The Federal Reserve says that Americans owe a total of $826.5 billion in revolving credit debt, most of which is on credit cards. Outstanding student loans, meanwhile, total around $829.8 billion, reports the Journal, which got its figures from Mark Kantrowitz of FinAid.org and FastWeb.com.

The majority of those student loans – $605.6 billion – are held by the federal government, with another $167.8 billion held by the private loan industry.

Part of this seismic shift in consumer borrowing comes from households paying down their credit cards faster to get out of debt, as the recession continues to take its toll. Workers are earning less, working shorter hours and losing their jobs, creating an atmosphere where people focus on reducing their liabilities and saving more.

For those households with both student and credit-card debts, the latter usually take priority because of the higher interest rates typically associated with credit cards.

The soaring cost of college represents another part of the story. According to the Journal, the average cost of four years of tuition at public and private American universities hit $26,000 last year. At the same time, more and more and more Americans are going to college, many of them driven back into education by the awful job markets.
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“The growth in education debt outstanding is like cooking a lobster, Kantrowitz told the Journal. “The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you’re already cooked.”

Despite the rising costs, most studies show that a college education – in the right fields – is still the most reliably way to increase lifetime earnings, despite the cost.

However, with college costing more, high school and college students should carefully assess what they want to study and what the demand for their skills may be. When college was cheaper, it was easier to justify taking out loans to study an interesting, but low-earning field like theater or music. Now, when a top-notch education could cost $160,000 – plus interest – prospective students need to make sure they’ll be able to pay those bills.

And unlike credit card debts, auto loans or mortgages, student loans cannot be discharged in bankruptcy – you will be paying them for the rest of your life.

How to make the Most of Your Finances after College

by PATRICIA HolmesPersonal Finance

College graduation is exhilarating. When I walked, and when I threw my hat in the air, it seemed like everything good was happening at once. No more homework, no more stress over exams.

But when freedom hit, it hit hard. Freedom meant I was chained to bills, the looming student loan payments, the constant search for a job to justify my forty-thousand dollar English degree. Rent, utilities, insurance, car payments, loan payments–all of it came crashing down hard. Plus, how was I going to start saving for any important things, such as marriage, buying a house, having kids, retirement?

The college grad who can navigate through the post-grad financial maze might as well be a guru. I made it through, but not without a struggle. I made mistakes. The entirety of what I learned from the mistakes could be a novel. Since there’s not enough room for that here, and your time is money, here’s a more economical take on my findings.

Determine your priorities

When I graduated, I was faced with a choice. Did I want to live in my own place, pay rent, and work to get by while I kept looking for the job I really wanted? Or did I want to move back in with my parents, save money, and pay off debts ASAP? I chose to live in my own place, which lengthened the amount of time it took to pay off loans.

About 72% of the jobs created after the Great Recession went to college graduates. 2.8 million of those jobs pay more than $53,000 a year. You stand a good chance of finding a good job coming out of college, and it’s tempting to want to have as much independence as you can, right away.

But if you want to make the absolute most of your post-grad income, go with the least expensive living situation. That way, you can settle loans as soon as possible. You can start setting money aside, and maybe some of your savings can go toward that awesome trip to Europe or trip around the world you’ve been planning.

Pay off those loans

After you graduate, there’s typically a six month grace period from your lender. I made the mistake of thinking about everything but my loan debt during that time. I simply thought, ‘When the time comes, I’ll start paying.’ I then proceeded to make minimum payments, accruing interest along the way.

Instead, after college, earmark as much of your initial take-home as possible for paying off loans. You’ll pay less on interest overall and will avoid the long-term headache of continuing payments. Schedule auto-debit, which typically comes with an interest rate reduction. If you can, choose a payment plan with the highest monthly payment. The quicker you get debt out of the way the less interest you’ll pay.

If you’ve already been paying on your loans and are feeling overwhelmed, there are several options. You can either consolidate or refinance your loans:

Consolidation   

Pros

  • If you have more than one loan, the federal government can combine them all into one, giving you less paperwork to juggle
  • This will change variable interest rates to a single fixed rate
  • This can lower monthly payments

Cons

  • Lower monthly payments mean you pay more on interest, long-term
  • You’ll lose any borrower benefits you had before, such as interest rate discounts and principal rebates (principal is the total amount you borrowed)

Consolidation is a way to get everything squared so you’re not multi-tasking payments.  Refinancing is a little different:

Refinancing

Pros

  • If you have good credit, a private lender can buy all your loans, consolidate them, and give you a consolidated loan with a lower interest rate  
  • You may end up with a lower interest rate and terms that suit you better than your previous loans

Cons   

  • You’ll lose the possibility of student loan forgiveness that comes with federal loans, and you won’t be able to participate in REPAYE (income-based payment terms)
  • The variable interest rate can rise over time
  • Like consolidation, you’ll lose any of your original borrower benefits

If you’ve been financially sound throughout college and have good credit, refinancing is an option for paying off your loans fast, at a lower interest rate.

Build credit

When I was in college, I opened a student credit card. Seems like a terrible idea. The interest rates on those cards are incredibly high. As an irresponsible student, I was walking into the hot lava that is bad credit.

If you just make minimum payments, the high interest rate on a student card means you’re spending far more than the actual cost of what you buy.

But opening a card and being responsible with it is one of the primary ways for you to build credit. In the future, good credit will open the door for a new house, a new car, a good job. Open a card but don’t owe more than 30% of the limit. Pay it off, and leave the card open. This shows lenders you have a good credit history. Here are some other tips on building good credit:

  • Monitor your credit report–this will keep you aware of what you need to work on
  • Settle debts–payment history accounts for 35% of your credit score
  • Don’t apply for new cards–if you still owe on a card, applying for new ones will cause a credit check, and will hurt your score  
  • Pay bills–if you don’t pay your bills and they go to collections, this hurts your credit; and, if you don’t have any previous credit, FICO can now use your utility bill payment history to determine your score
  • Get a secured credit card–with a secured card, you put down cash and receive a card worth that amount; this helps you build credit

If you can qualify for a cashback rewards card, do it. Just like it sounds, the rewards card pays you money for making purchases. Stay below 30% of your spending limit, pay it off each month, and you’re building credit while you make money.

Explore savings options   

I have always been very loyal to my bank. Looking back, I don’t think this is the best strategy. The interest you earn from a single savings account is paltry compared to what you could be earning by diversifying.

There’s nothing wrong with being loyal to a single bank, it reflects well on you financially and your bank will be eager to give you loans and different lines of credit with positive terms. But the fact is, other banks are constantly offering incentives to open new accounts. Oftentimes, they’re cash incentives.

Furthermore, both a CD and an IRA are ways to save and earn money at the same time. With a CD (Certificate of Deposit):

  • You earn a higher interest rate than with a savings account
  • You promise to keep your money in the account for a certain amount of time
  • If you take your money out, you’re penalized

Optimally, get a CD when the interest rate on it is higher than the Federal Reserve’s short-term interest rate. You’ll make more on the CD than you will with savings.

An IRA (Individual Retirement Account) is specifically designed to set you up for retirement:

  • Through the IRA account you invest in stocks, mutual funds, bonds, and real estate
  • You determine what types of investments will be in the account  
  • You decide how much money to put into the account
  • All the money you make from investments goes untaxed as long as it’s in the account  

With a traditional IRA, your contributions are tax-deductible, but you’ll pay income tax on what you withdraw. With a Roth IRA, your contributions aren’t tax-deductible, but you won’t pay income tax after you take your money out. In both cases, you’ll withdraw your money after age 59 ½. Calculate how much you can afford to save and automate transfers from your checking account to your IRA. You’ll be saving and earning money instead of spending it.

Get a 401(k) and an HSA

I eventually got savvy to both of these, and I don’t regret it. Look for jobs that offer these benefits.

A 401(k) is retirement savings method whereby you set aside a certain amount of your paycheck. Your employer matches your contribution, up to a percentage of your income. This money comes out of your paycheck pre-tax, meaning you don’t pay taxes on it like you do the rest of your income. You also get free money from your employer. The money goes toward investments in stocks, bonds, and money markets.

The HSA (Health Savings Account) also involves a certain amount you deduct from your paycheck, pre-tax. Your employer matches that amount, up to a certain percentage. You then have money to pay for preventive medical checkups. According to Villanova University, this covers medical expenses not covered by your health insurance. As of 2016, the contribution limit for families has gone up from $6,650 to $6,750.

Both the 401(k) and the HSA are great ways to set aside your money for important things and save money on taxes.

Home Equity Loan Defaults Soar as Housing Values Drop

by PATRICIA HolmesPersonal Finance

A sea change is under way in Americans’ debt habits: They are changing how they borrow, how they pay their loans, how they get out of debt and when they default.

It used to be that smaller, revolving credit loans – like credit card debts – were the most likely to go unpaid. Now, it’s home equity loans that have the highest rates of default.

The problem, reports the New York Times, is essentially crashing real estate values, which are driving people to walk away from their home equity loans. In 2009, lenders wrote off around $31 billion in home equity loans and lines of credit. So far this year, they’ve written off about $8 billion of such loans.

The Times reports that creditors are rarely able to get more than 10 cents per dollar when they force borrowers to settle, if they can get anything at all. In especially hard-hit areas like Arizona, where real estate bubbles grew and grew, houses have lost as much as 75 percent of their value.

For borrowers, it makes simple economic sense. Why keep trying to get out of debt when it’s likely cheaper – and maybe easier – to just walk away?

“I’m kind of banking on there being too many of us for the lenders to pursue,” software engineer Darin Bolton told the Times. “There is strength in numbers.”

Bolton walked away from his house and defaulted on his loans last year. He now lives in a rental.

Banks, other lenders and those representing creditors in general say that this trend represents a collapse in public morality and a catastrophic shift in American attitudes towards lending and debt.

“Anything over $15,000 to $20,000 is not collectible,” Clark Terry, the chief executive officer of Utah Loan Servicing, said in an interview with the Times. “Americans seem to believe that anything they can get away with is O.K.”

ULS buys home equity loans from the lenders on the cheap – never paying over $500, according to the NYT – and tries to collect on them to make a profit.

More and more, though, people feel that the traditional consequences of default – ruined credit, harassing calls and difficulty borrowing more – are inevitable, leading them to simply walk away.

Small Businesses Can Benefit from Just-Enacted Aid Act

by PATRICIA HolmesBusiness

The Small Business Jobs Act could be a game-changer for struggling small firms, a lending executive said recently.

George Harrop is the managing director of small-business lending at CapitalSource, a retail bank and commercial lender. He suggests that the act – which was signed into law on Monday – can help provide financing to small businesses that were too big to qualify for Small Business Administration-backed loans.

“SBA 7(a) loans are permanently increased from $2 million to $5 million, and SBA 504 loans can now go up to a total loan amount of $12 million,” Harrop says.

Also significant for young entrepreneurs is that the bill sets up a $30 billion lending fund; the fund will provide federal money to community banks to stimulate small-business lending. An additional $1.5 billion will be provided to state small-business agencies in support of their loan programs.

And entrepreneurs can now deduct the cost of their health insurance from their self-employment tax – the 15.3 percent levy that the self-employed must pay for Medicare and Social Security.

In many ways, the jobs act will make life easier for those starting their own businesses.

Americans believe that $150,000 a year would make them rich, Gallup poll says

by PATRICIA HolmesUncategorized

A recent Gallup poll conducted between November 28 and December 1 revealed that the average amount of money that an American household would need to make in order to consider itself rich is $150,000.

The poll asked people the following question: “just thinking about your own situation, how much money per year would you need to make in order to consider yourself rich?”

The participants provided responses ranging from as little as less than $60,000 in annual income to more than $1 million, according to the survey.

The New York Times reports that having a household income of $150,000 would place that household ahead of either 89 percent or 90 percent of households.

The current debate surrounding “tax credits for the rich” involves additional tax benefits provided to individuals earning more than $250,000 per year and families generating more than $200,000 per year. Households earning this amount are somewhere between the 96th and 97th percentiles.

The results varied significantly depending on demographic differences. Young people without families generally do not have to worry about coping with high expenses, though loans have proven an increasingly heavy burden for many young Americans.

The 3 Things I Learned About Credit Unions as the Spokester

by PATRICIA HolmesUncategorized

My two years as the Young & Free Maine Spokester have been unforgettable! I’ve met many wonderful people in the credit union world, and have learned countless valuable lessons about credit unions. But three things stick out to me the most: 

1. Credit unions exist to serve their members.

I’ve seen over and over again how much credit unions do for their communities and for their members. From fundraisers to help end Maine hunger, financial fitness fairs to give Maine students a head start, to raising money for local causes, credit unions are truly making a difference where they live. I must say, I’m excited to continue my journey working in the credit union movement!

2. Being financial cooperatives translates to tremendous benefits for members and communities.

You’ve probably heard the term “Co-Op.” Credit unions are the “Co-Op” of the financial world. And if you’re not familiar with the term, it means they operate on the principle of sharing, collaboration, and working together to benefit their members. Credit unions and other cooperatives work together through local, state, regional, national, and international structures to strengthen the cooperative movement.

The collaborative nature of credit unions means that members reap the benefits:  less fees, higher interest on savings accounts, lower rates on loans, and of course, the opportunity to have your voice be heard!

3. Credit unions are everywhere!

We have a big state, but there is no shortage of credit unions anywhere that you go! I’ve spent the last two years traveling up, down, and around our state, and I can’t remember an area that isn’t conveniently equipped with a credit union. The best part is…if it’s not your home credit union, it’s okay! You can have access to credit unions when you’re out of town, or even out of state, by using shared branching (yet another great feature of credit unions’ cooperative character).

My last few weeks in this position have been action-packed, and filled with events and getting to know Jake, your new Spokester! As a final video, I’ll share my last adventures as the Young & Free Maine Spokester, but not before taking this opportunity to say thank you to the wonderful team at the Maine Credit Union League, Currency Marketing, and of course, a big thank you to all of Maine’s Credit Unions for all that you do for your members.

http://www.youtube.com/embed/9IJSQ3fnNaI?feature=youtu.be&wmode=opaque&enablejsapi=1

Now, it’s my time to move on, and Jake’s turn to take over. Make sure you follow his awesome video and photography skills, and see all of the great things he will do as your Young & Free Maine Spokester!

Take care!

Saying No to College Kids

by PATRICIA HolmesPersonal Finance

I need to make a financial resolution not to give my kids money every time they ask for it. My husband and I are trying to help pay their college expenses as much as possible, but we spend a ton of money on our kids. Whenever they ask, I feel guilty if I don’t give them money. It has put a huge gap in our budget. If anyone has any advice as to how I can deal with these guilt feelings, I would really appreciate some advice.

Check Into Work-Study
Your children should check out the work-study program at their college(s). Every U.S. college receiving federal funding has a work-study program. Students work at various jobs on campus, from library assistants to tutoring and then some. They are paid minimum wage for their state, cannot work more than a set number of hours each week so their studies don’t suffer, and acquire a sense of pride from earning their own money while helping their school. It also takes some of the burden off of mom and dad as they will not be asking for money as often! I participated in work-study programs as an undergraduate and as a graduate student and found myself with more money and a greater sense of accomplishment.
The Baroness In Oregon
Learn to Set Boundaries
I would guess these guilt feelings are coming from the idea that you should be giving this money, but you really don’t want to or can’t afford to. If you want to resolve these feelings, then you’ve got to get everything into perspective one way or the other. So here are my suggestions:
1. Sit down with your budget and figure out exactly how much you can afford to give.
2. Compare this amount to what you’re actually giving. You may find out that you’re killing yourself financially because of a feeling of obligation or you may find out that it’s not as bad as you thought.
3. If you find you’re spending more than you can afford, make a list of the expenses and prioritize. Help with tuition or books is far more important than concert tickets or pizza money.
4. Understand that you’re not an ATM! Don’t be afraid to set healthy boundaries between your children and your checkbook. It will benefit them and you in the short term and the long run.
5. Parents paying for college isn’t a “given.” It’s great when you can, but if you can’t, there are other options to explore.
To be honest, this isn’t a money issue. This is a boundary issue. Feelings of guilt or resentment coming from giving is a signal that either we shouldn’t be doing the giving or don’t want to be. Once you dig around and find the root of those feelings and work all that out, you’re either going to find the strength to say no or be able to give without the negative feelings.
MAP
Sometimes Difficult Lessons Must Be Taught
Just like little kids, college kids will try to get what they think they can! We love our kids and want to see them happy, but money doesn’t bring happiness and just handing it out is a long-term disservice to them. Our “bad parent” guilt feelings have to be balanced by the fact that some difficult lessons must be taught. We’d not make our kids learn how to live on constant cookies and sweets, so let’s apply the balanced diet approach to finances, too.
First step: Make it clear to them that any money given to them is generosity, not a guarantee. There is no entitlement here.
Second step: Clearly define what amount, if any, they can expect from you and stick to it!
Third step: Help them look at their budget and figure out how they can make ends meet on their own. If you’re willing, show them your budget and explain how you handle life’s unexpected bumps.
Fourth step: If they ask for more, empathize with them and work on solutions, but don’t surrender. Explain that your advice is always free, but the financial solutions are their own.
Fifth step: Step back and know you’re a good parent for passing on some life-long skills!
M
Set the Budget
These parents should first open prepaid Visa or MasterCard accounts for each child. Then they need to sit down and figure how much they can give their kids each month to help them out. Each month on a set date, they should deposit whatever that figure is. Since they have two kids, they might choose something like the 1st for the son and the 15th for the daughter, or the day that corresponds with their birthdays. This teaches the kids to budget their money, and when it’s gone, they have to be creative instead of calling on the parents. There is no need for the parents to feel guilty or be pressured into debt because their kids are always needing money at the drop of a hat. As a footnote, I would discourage them from opening bank accounts. These kids seem fairly irresponsible to me, and I wouldn’t risk bank overdraft fees.
Teresa, mom of 2 in Missouri
College Expenses vs. Retirement Savings
The best advice I’ve ever heard about college expenses is that there are loans, grants, scholarships and future earnings to pay for college expenses. No such thing exists for retirement. When making the decision about whether to give to your kids for something they can pay themselves or do without, or paying yourself to prepare for retirement, pick yourself. Explain to your kids that you don’t want to be a burden on them, and as such, you’re setting aside for retirement now so you don’t have to rely on them in the future. Work with them on how they can meet their own needs; they’re grown-ups after all.
Althea
The Guilt Is Misplaced
You should really be feeling guilty that you do give them money! What are you trying to accomplish in raising children? Are you raising them to be dependent on handouts or to be independent self-starters? Are you raising them to be spendthrifts or to be thrifty? It is no favor to give spending money to college kids. It’s crippling their ability to learn good money habits. You are doing them a huge favor by financing their college tuition. That is a huge boost in life that many of us cannot afford. You might point out to them the huge debt loads that many students have to assume to go to college. Debt loads that they will spend decades repaying. Paying for their tuition is a noble thing to do for your children, but giving them spending money just perpetuates their adolescence. You want your kids to grow up! If you make it too easy and fun to be a college student, who would want to ever graduate?
College students can and should learn to function within their own means. If they can take on a part-time job or start a web business while being in school, that’s a great thing for their future. They are learning to provide for themselves and starting on a resume! And that’s where their spending money should come from. If they are in college programs that truly do take their every moment, and they therefore cannot work at a job, then they should be grateful you’re supporting their basic needs and put off the “wants” until they are earning their own money.
Anne
A Solution All Can Live With
As the parents of six children, my husband and I know the difficulty of balancing the desire to help your children financially with the ability to afford it. Instead of “giving” them money when they ask, we have established a “loan” fund for each of our children. We set a dollar amount that we could afford and told the children how much was there. The rules are simple. They can borrow up to the limit and pay it back interest free at their convenience. If they never pay it back, that is okay. However, they cannot ask to borrow more money if they have reached their limit. This method gives us a way to help them when they get in a jam, but also defines a limit for our budget. Some of our children have been very good about repaying the debt to us right away. Others have not been as good, but they also don’t call and ask us for more. Instead, they find a way to make it work and we don’t feel guilty because we have to say “no.”
Cherie
A Lesson Learned Now Saves Financial Problems Later
College kids who don’t have a job or aren’t on a sports team have a lot of extra time on their hands. Talk to them about getting a job. A summer job is a must. If they absolutely have no time for a job, give them an allowance and tell them it must last. Do not give in. Kids can be very frugal and creative when they want to be. Help them itemize what their extra needs are and give accordingly. It is also important for them to understand the dangers of credit cards. This is necessary for your budget as well, and you want to set an example.
My two children are twenty something college graduates. They, like many graduates, didn’t understand that they were going to have a tough time after college getting a decent paying job that would pay rent, education loans and other bills. If you don’t become a bit tough now, they will have a harder time when they graduate, unless, of course, you want to be the “parent” bank for the rest of their lives. All people have a hard time, financially, sometime in their life. That is where the “budget” especially comes in. Once they learn to handle money, they will manage their lives on their own. Without financial boundaries, no job will satisfy bottomless greed.
Please understand that even the strictest of parents want to save their children from sure disaster. A couple of weeks ago, my son put a $100 in a pocket with a hole in it. He got to the grocery store with no money. He had no money coming until payday. I gave him a few food items from our cupboard, and he was happy. He is doing better with his money than in the past, but he has had to sell a few items to keep his bank account on the plus side. My daughter? She is a banker and keeps a strict budget. Don’t wait until after graduation to decide you can’t live with needy adult children. Start cutting some of the purse strings now. They will have struggles to be sure, but it could save them from huge financial problems later on.
Mary in WA
Parenting Is Not a Popularity Contest
I believe that one of the most important things we can offer our children is the opportunity to work for things themselves. If we give them everything they desire, they will have less to work for. Plus, you should look at the real value of what you are already giving them. You are offering your children a college education. What a wonderful gift! What could you possibly feel guilty about? I also frequently remind myself and my son that parenting is not a popularity contest. My job is to teach and guide, not satisfy every whim. When I am tempted to shower gifts on my child, I pause and ask myself what I will be teaching him with the gift. If I find an item I just can’t pass up (like a two dollar shirt at a thrift store by a favorite designer), I will hold onto it for the next holiday or to commemorate a personal success (like a great report card).
Kimberly

Financial Aid & Student Loans Gone, Now What?

by PATRICIA HolmesPersonal Finance

Q: How does one go about getting education loans to help offset the cost of college after all financial aid and federal student loans have been issued?

To answer this question, Matt offered an excerpt from his new book Financial Planning for Your First Job.

A: Understanding Student Loans

If you’ve started researching student loans, you’ve probably already discovered the two main types—those that have strict borrowing limits, but offer low interest rates, and those that offer all the money you need (and then some), but charge very high interest rates.  So which type is right for you?  How can you make sure you select the best loan possible and not make a decision you’ll regret later?  It will take research and careful planning, but if you follow the outline provided, you’ll be able to find the right combination of loans to meet all your needs.

FEDERAL VS PRIVATE LOANS

To start the loan selection process you first need to know about the two main types—federal loans and private loans.  Federal loans, also known as Stafford Loans, are provided by the US government and carry a fixed interest rate—currently 6.80 percent.  Federal loans allow the borrower to postpone making principal and interest payments until six months after graduation.  Private loans are not so generous.  They’re less regulated than federal loans and often charge high variable interest rates like credit cards, and the interest starts to accrue immediately.  You should use private loans sparingly, and only consider them when there’s a gap between what federal loans will cover and the final cost of your education.

INTEREST RATE COMPARISON

For student loans, as with most debt, you want to select the loan with the lowest interest rate.  The national interest rate for Stafford Loans is currently 6.80 percent, while the average private loan interest rate is 8.00 percent.  Stafford Loans have fixed interest rates, while the rates on private loans will change over time depending on the lender and market conditions.  The low, fixed interest rates provided by Stafford Loans are an advantage that tips the scale in their favor over private loans.  Use a free website like www.bankrate.com to compare the interest rates for student loans in your area.

HOW TO APPLY FOR STUDENT LOANS

When the time comes to apply for a student loan, you should first meet with the financial aid officer at the school you’ll be attending to learn about all of your financial aid options.  The officer should help you determine if you’ll qualify for federal loans based on your current income and the value of your assets.  If you won’t qualify for federal loans, the officer should provide guidance on what loans you should turn to next, which will probably be a combination of private loans. 

If you’ve narrowed down your list of colleges but haven’t made your final decision yet, make sure you meet with the financial aid officer at each potential school to learn about the different financial aid packages available.  You’ll find that some schools are much more accommodating than others.  Once you’ve done your research, you can apply for a federal loan online by visiting www.staffordloan.com.  You’ll also be required to fill out the Free Application for Federal Student Aid (FAFSA) form.  If you’re applying for a private loan, you’ll need to communicate directly with the lender, which will usually be a bank or credit union.

UNDERSTANDING THE FINE PRINT

If you’ve started researching student loans, you may have seen a few words over and over again, but you may not know exactly what they mean.  It’s important that you understand these words because they can potentially save you thousands of dollars.  The must know words are subsidized, unsubsidized, deferment, and forbearance.

Subsidized: Subsidized loans are loans that the borrower does not have to pay interest on while he or she is still in school.  Instead, a third party (usually the US government) pays interest while the borrower is in school and interest does not start to accrue until after graduation.  You should try to maximize your subsidized federal loans to the fullest extent possible, but beware; these loans are largely based on financial need so you may not qualify.

Unsubsidized: An unsubsidized loan is a loan where the interest starts to accrue immediately, even though payments aren’t due until six months after graduation.  The fact that interest accrues while you’re still in school makes these loans less desirable than subsidized loans.

Deferment: A deferment means the borrower can postpone making principal and interest payments on a student loan if certain hardship conditions apply.  For example, deferment is allowed if the borrower is still in school, unemployed after graduation, or experiencing economic hardship for up to three years.  Even though the borrower isn’t required to make monthly payments, interest continues to accrue unless the loan is subsidized.

Forbearance: A borrower may qualify for student loan forbearance if he or she has difficulty making loan payments on time.  Forbearance is similar to deferment, but it’s granted at the discretion of the lender and documentation is required to prove economic hardship.

COLLEGE FUNDING SUMMARY

If you’ve decided the pay-as-you-go strategy won’t work for your tuition bill and you need the help of student loans, consider using them in the following order. 

 1. Subsidized federal loans
 2. Unsubsidized federal loans
 3. Private student loans

Only consider these options after you’ve met with a financial aid officer and exhausted all possible grants, scholarships, and awards you might be eligible for.

10 Events Make College Kids Grow up Financially

by PATRICIA HolmesPersonal Finance

Coming out of high school there isn’t much to worry about. Most students have been gracefully given a free public education with opportunities to earn dual credit through a nearby community college, opportunities to earn AP credit, and probably making some degree of a salary be it an allowance or part-time job. The majority of students coming out of high school have a clear plate, before entering into college.
Unless students have been taught fiscal responsibility and money management, they won’t know what hit them when they realize what they are paying for and how much it is costing them and not their parents. College education is primarily a solo gig for students, which means loans, jobs and knowing how to manage personal finances. So what exactly is it that forces students to grow up financially? It’s those times when they realize they’re on their own. And it’s just the beginning. And this process of growing up is crucial for one’s personal and financial well being.


1. Usually the first step to opening one’s eyes to the high costs of a college education is seeing an unrealistic and high EFC which creates an all too low estimate of financial aid. Seeing these numbers alongside the cost of tuition for a prospective university is stifling. And it’s frightening, too.


2. Getting a work-study or part time job while going to school. The pressure to succeed in academics while having a job can be stressful, but once students learn to manage time effectively, having a job during college is a great idea.


3. Seeing the money come out of their bank account. This is one of the first reality checks for students who are paying for their own education. And it makes students not only work harder for that money, but work harder in their classes because money can’t be blown for a mediocre class performance. Not only does seeing this money disappear force students to value education more, but it teaches students to value the money they earn along with the hard work behind it.


4. Second semester comes around and students have to take out more money than was anticipated. Another loan means more money to pay off once graduation rolls around.


5. Next is when students start seeking advice from online forums and blogs as to what they can do to prevent going into more debt. Students at this point realize that they need to become more aware of their personal financial situation, so they seek out wisdom from the great world known as The Web. And it delivers through many avenues.


6. Fiscally buying groceries is another eye opener for college students. And another great way that college students learn how to save money! Coupons, cheaper grocers and generic brands are all red flags that students look for when buying groceries once they realize they are tight for finances.


7. Setting a budget with fixed expenses (i.e. tuition & fees, monthly housing, monthly insurance payments, books) and setting a budget with flexible payments (i.e. food and home supplies, clothing, transportation, entertainment).


8. Being constrained to do something because of finances. This could be any activity from going out on a Friday night to studying abroad in Paris for the summer. When a budget is in place there isn’t much leeway for even the smallest activities. And when studying abroad seems hopeful, students visit student financial services and realize more loans would have to be taken out. And who wants more of those?


9. Realizing that winning scholarships isn’t as easy as the winners make it seem.


10. Doing the math to figure out how much each class costs on a daily basis, and being motivated by that large number to never miss a class again.

Americans believe that $150,000 a year would make them rich, Gallup poll says

by PATRICIA HolmesPersonal Finance

A recent Gallup poll conducted between November 28 and December 1 revealed that the average amount of money that an American household would need to make in order to consider itself rich is $150,000.A recent Gallup poll conducted between November 28 and December 1 revealed that the average amount of money that an American household would need to make in order to consider itself rich is $150,000.

The poll asked people the following question: “just thinking about your own situation, how much money per year would you need to make in order to consider yourself rich?”

The participants provided responses ranging from as little as less than $60,000 in annual income to more than $1 million, according to the survey.

The New York Times reports that having a household income of $150,000 would place that household ahead of either 89 percent or 90 percent of households.

The current debate surrounding “tax credits for the rich” involves additional tax benefits provided to individuals earning more than $250,000 per year and families generating more than $200,000 per year. Households earning this amount are somewhere between the 96th and 97th percentiles.

The results varied significantly depending on demographic differences. Young people without families generally do not have to worry about coping with high expenses, though loans have proven an increasingly heavy burden for many young Americans.