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Monthly Archives: June 2017
2017 What’s Ne[x]t Scholarship Winners
Congratulations to the 2017 What’s Ne[x]t Scholarship winners! A total of $15,000 was given away to three deserving students to help them pursue a higher education. Open to Georgia’s Own members 25 and under, students submitted applications along with a video telling us where life is taking them, what their passions are or what they wanted to accomplish. From more than 100 applications received, our judges selected the following winners:
$8,000 Scholarship Winner
Jude Thornton (Douglasville) – University of Georgia
$5,000 Scholarship Winner
Anna Fontaine (Stockbridge) – University of Essex
$2,000 Scholarship Winner
Benjamin Woods (Snellville) – Georgia Gwinnett College
Congratulations to Jude, Anna, and Benjamin – we can’t wait to see the great things you’ll do in the future – and thank you to each and every one of our members who entered this year’s scholarship contest.
What are ancillary products (and are they really worth it)?
If you’ve ever purchased a vehicle, you’re probably familiar with the same old spiel – the finance guy (or gal) at the dealership sits you down and begins offering you product after product to protect your interest, and if you’re like most people, you end up feeling overwhelmed and confused. So, the question is, what are ancillary products and are they really worth it? Ultimately that decision is up to you, but we’ve highlighted some features and benefits about different loan protection options to help you make an educated choice the next time you’re faced with the decision to add ancillary products. Check them out below.
GAP insurance (or Guaranteed Asset Protection) is protection offered by finance companies, either through a dealership or through your credit union, to cover any difference on your loan (that your insurance doesn’t pay) if your vehicle is totaled and/or stolen.
- The cost of GAP can range from $300 to as much as $900 depending on where you purchase this coverage (e.g., through a credit union versus a dealership).
- If you are upside down (meaning you owe more than the vehicle is worth), GAP can be a huge money-saver. For a relatively small investment of $300 (competitively priced GAP), you could save thousands down the road. On the other hand, if you end up paying $900 (on the higher end of GAP coverage), your margin of savings will be much less.
- The key is knowing your Loan-to-Value (LTV). LTV is a percentage based on the amount you owe divided by the value of your vehicle. Example: if you owe $20,000 on your vehicle, but it’s worth $15,000, your LTV is 133%. Generally speaking, if you are over 90% LTV, you could benefit from GAP coverage. On average cars depreciate roughly 19% in the first year, and as much as 50% in the first 3 years – unless you plan on paying off your car in 3 years, GAP could be a huge money saver.
- Another factor to consider is some GAP policies will also pay your insurance deductible, so instead of paying $500 or $1,000 or higher (depending on your deductible), you pay nothing out-of-pocket.
Mechanical Repair Coverage
Mechanical Repair Coverage or extended warranties are offered in addition to the manufacturer warranty. The cost of extended warranties varies greatly depending on the make and the model of the vehicle, and who you purchase the extended warranty through.
Here are a few key questions you should ask yourself before considering the purchase of an extended warranty:
- How many years/miles does my manufacturer warranty have left on it? Most manufacturers offer a 3-year/36,000-mile factory warranty.
- What is the difference between the basic manufacturer warranty and the powertrain warranty? The basic warranty typically covers everything bumper-to-bumper, whereas the powertrain warranty only covers the powertrain and the associated parts.
- How long do I intend to keep the vehicle?
- How much will repairs cost if I encounter them down the road?
Most extended warranties cover you well over 100,000 miles – if you plan on keeping your car for longer than that, an extended warranty could be a great money-saving option. Some institutions will allow you to extend the term of your loan in order to absorb the cost of coverage while keeping your monthly payment the same. Of course, doing initial calculations and analyzing your budget and needs is necessary before making any financial decision.
Loan Protection is just like it sounds: protection that covers your payments or the entire loan balance following a significant life event, such as loss of life, unemployment, disability, and family medical leave. Some institutions, such as Georgia’s Own, provide additional protection for accidental dismemberment, terminal illness, hospitalization, and loss of life of a non-protected dependent.* The cost and coverage vary from institution to institution, so it would be wise to do your homework. Most institutions have a cost per hundred dollars of the current loan balance.
Highlights of loan protection programs:
- The events covered by most loan protection programs are: loss of life, disability, unemployment, and family leave.
- Most institutions offer various loan protection packages that can cover one, two, three, or all four of the life events mentioned. Some institutions offer additional coverage.
- Loan protection programs are available for most types of loans.
- There is typically a cap of coverage over a certain dollar amount.
Benefits of loan protection programs:
- Loss of Life protection can ease the burden on your family, and your debt can be completely cancelled.
- Disability protection could cover your payments for you when your income might be drastically reduced due to a disability event (most competitive employers only offer as much as 60% of your salary for a short-term disability).
- Unemployment protection could be invaluable in a time where you’ve lost your job unexpectedly and are unable to make your loan payments.
- If you are unable to work for an extended period of time, family leave coverage can help you maintain the same level of income.
The bottom line: There are a number of loan protection options available to help protect you when faced with the unexpected. Although these services come with a cost, it may be worth investing in the peace of mind these protection programs offer.
*Beginning August 1, 2017, Life Protection under Members Protection Plus will include even more. We’ve added accidental dismemberment, terminal illness, hospitalization, family medical leave, and loss of life of a non-protected dependent to our coverage.
Budgeting 101: Creating a Budget & Sticking to It
With the total student loan debt in the United States hovering around a mind-blowing $1.23 trillion, it’s important to be smart about budgeting and managing your money while you’re in school so you’re not one of the 43 million Americans drowning in student loan debt.
Creating and managing a budget isn’t the most fun in the world, but it’s not as much of a hassle as you might think, either. Plus, it’ll help you stay on track during school and avoid graduating with heaps of debt.
For starters, you’ll want to figure out whether you want to track your budget per month, per academic semester (or year), or per calendar year. Once you’ve chosen a timeframe for your budget, you’ll want to decide what tool or tools you want to use to track it. You could go old school with pen and paper, or you might opt for using a computer spreadsheet, or maybe your phone is your life and you’d prefer to use a budgeting app. Georgia’s Own BALANCE Financial Fitness program offers free resources to help with budgeting, and we’ve also created a budgeting spreadsheet to help you track your income and expenses (download it for free here). I personally love Mint – it’s simple to use, secure, and automatically updates all of my accounts in one place. Whatever you choose, make sure it’s a tool you’re comfortable with and one you’ll actually use.
Here’s what you’ll need to create your budget:
- Your income: Be sure to include all sources of income, including wages, any financial aid refund, and any contributions from family.
- Your expenses: Expenses include fixed expenses like your cell phone or rent, as well as variable expenses such as dining out or gas for your car (if you have one). For your initial budget, you may have to estimate some expenses until you have a better idea of how much you spend on that category.
The next step is adding up your income and your expenses so you can balance your budget. To do this, you’ll subtract your total monthly expenses from your total monthly income. The goal is to have a positive balance, meaning you’re earning more than you’re spending. If you have money left over each month, you can save it or even start paying on your student loans (if you have any), since they do accrue interest while you’re in school. (Read more about why paying on your loans while in school is a good idea).
If your balance is negative, you’re spending more than you’re earning and need to adjust your budget. You can cut back on expenses or find a way to supplement your income, such as getting a second job.
Now that you’ve created and balanced your budget, there are two more important steps in maintaining that budget:
- Review your budget monthly – doing so will help you stay ahead and avoid surprises.
- If you make a spending mistake, don’t dwell on it. Next time you’re tempted to make an impulse purchase, ask yourself if you really need that item and if so, can you afford it?
Developing good financial habits in college (or earlier) not only helps you cut down on student loan and credit card debt acquired throughout school, but also helps sets you up for success later on in life. Trust me – things like credit scores and savings accounts may seem trivial now, but it’s a lot easier to start off strong than to find yourself in heaps of debt after school and trying to correct mistakes that could have easily been avoided.
Home Equity Loans: What questions should you ask before applying?
If your home’s current market is worth more than the total amount of your remaining mortgage payments, then you’ve built up equity in your home. Many people who have equity in their homes are able to apply for home equity loans and use that portion of equity–or ownership–as collateral for the loan.
Remember when home mortgages were upside-down? Home values are making a comeback after the Great Recession and borrowers are taking advantage of the opportunity to withdraw cash for major expenses or improvements. If you’re in the market for a home equity loan, here are some things you’ll want to consider before you sign on the dotted line:
Do you have enough equity in your home?
Your combined loan-to-value ratio (CLTV) plays a critical role in the approval of an equity loan. Your CLTV ratio is the calculation of your current loan balance plus the additional equity loan amount divided by the appraised value of your home. Generally, lenders require your CLTV to be 85% or less.
What type of home equity loan do you need?
Home Equity Loan
The traditional home equity loan offers the borrower a single lump sum to be repaid over a specific period of time, up to 30 years, at a fixed interest rate. Home equity loans are generally used for large expenses, like replacing a roof or paying off credit card debt, and are ideal for borrowers who need cash for a one-time event. It’s often referred to as a second mortgage, complete with closing costs and notarized signatures.
Home Equity Line of Credit
A home equity line of credit (HELOC) is another type of home equity loan where the lender approves smaller sums of cash up to a fixed amount, similar to a credit card. Its flexibility allows the borrower to withdraw cash as needed and pay interest only on the amount that is withdrawn. Although repayment doesn’t begin until a predetermined date in the future, there is often an annual fee. HELOCs are ruled by adjustable interest rates, but they can be converted to a fixed rate loan once the repayment period begins.
HELOCs are ideal for borrowers who need frequent access to cash to pay contractors during a remodel or even a recurring quarterly tuition bill. They also offer the benefit of not having to pay interest on the loan amount until it’s actually withdrawn.
A mortgage is a mortgage
Regardless of the outstanding amount, the term, or the interest rate, a home equity loan or a HELOC is still a second mortgage. Just as in your first mortgage, the interest you pay is usually tax-deductible, to a certain limit, and rates are generally lower than you’d be charged on a credit card.
You shouldn’t forget, however, that the second loan is secured by your home, which subjects your property to additional risk. You can be foreclosed upon if you’re unable to make your monthly mortgage payments. Be sure to treat your home equity loan or HELOC with just as much importance and seriousness as your first mortgage.
Applying for a second mortgage could be a wise financial decision and a step forward in helping to organize your finances. Consider all of your options and consult with a financial advisor to see if a home equity loan might be a good fit for managing some of your larger expenses.
#MemberAppreciationMonday: Tin Lizzy’s Queso!
It’s the first Monday of the month which means we’re bringing members another great deal thanks to #MemberAppreciationMonday and Tin Lizzy’s! Love queso? So do we – that’s why we’re treating our members to a free cheese dip at any Atlanta-area Tin Lizzy’s Cantina location*! Just show your Georgia’s Own credit or debit card through June 30th, and your cheese dip is on us! For more details visit georgiasown.org.
6 reasons why you should avoid Payday Lending
Short on cash this week? A payday loan might seem to be the perfect short-term solution. After all, it takes only minutes to apply for a small loan, the approval turnaround is quick, and the money can be deposited into your checking account within 24 hours. Ideally, you’ll pay it off with your next paycheck and get back on track.
It sounds like a great plan, but in reality, payday loans are made by predatory lenders who offer high-interest, high-risk loans to borrowers who need quick cash to cover short-term expenses. They’re notorious for kicking off a cycle of spiraling debt and are rarely the answer to a financial crisis.
Here are some important reasons you should avoid payday loans at all costs:
1. Interest rates are astronomical
If you financed your home or your car at 400% interest, would you think it was a fair rate? According to the Consumer Financial Protection Bureau, it’s not uncommon for annualized interest rates on payday loans to reach a few hundred percent. Borrowers should be prepared to repay 100% or more of the loan amount in interest and fees.
2. Hidden fees are excessive
There’s typically a $15 per $100 fixed fee charged for each payday loan. However, there are also additional fees that can add up quickly. Loan rollover and renewal fees, late payment fees, returned check fees, and debit card fees are the most common. Simply checking your balance on a pre-paid debit card or calling customer service could incur an additional fee.
3. Loan rollovers are costly
The large majority of people who apply for payday loans are unable to repay their loan within the typical 14-day repayment period. Unfortunately, that means they’ll have to rollover their loan to the next term…and so on and so on. Tack on the high compounded interest and fees and the debt becomes increasingly unmanageable and overwhelming, leaving almost no way of breaking the cycle.
4. You trade one financial problem for another
A payday loan may help you repair your car, buy groceries, pay your rent, but it doesn’t solve the long-term problem. The particular bill may be paid, but you’ve traded one debtor for another, and you’re still spending beyond your means.
5. It hurts your credit rating
A payday loan, even repaid on time, is not a plus on any credit report. In fact, lenders may even hesitate to lend money to borrowers of payday loans because it may be an indication of the inability to effectively manage their finances.
6. There are other options available
If you need a short-term loan, consider your other options. Borrow money from family or friends or your local credit union. Even a credit card, although not ideal, has a lower interest rate than a payday loan. As long as you pay it off within the month, or at least as quickly as possible, it could be a viable option. Can’t pay a creditor? Why not work out a payment plan over the next few weeks or months? Do you have some jewelry, sports equipment, or other items you could sell to raise money? Can you ask for an advance on pay from your employer?
In the long run, you’ll see that a payday loan is the least wise financial decision you can make. Although solving your immediate cash flow need is a priority, it’s also critical take a step back and take a look at your overall financial health, as well as your budgeting and spending habits.