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Monthly Archives: February 2018
How to be smart with your credit cards
Although some experts say that credit card debt is a financial four-letter word and should be avoided at all costs, others agree that the availability of credit can be a great compliment to a strategic financial strategy. Used responsibility and within the guidelines of your budget, credit cards can help you more effectively manage you purchases and your cash flow at the same time.
Among those who utilize credit cards and still manage to stay out of debt, there is a common thread of behaviors and attitudes that seem to fuel their money management success. If you’re interested in cultivating a healthier relationship with your Visa or Mastercard, consider these tried and true practices of smart spenders:
Use fewer credit cards
How many of us have more than one credit card? The vast majority of people would confess to having two, three, or four, and all would have an outstanding balance. The smarter approach is to use one or maybe two cards, and avoid spreading your spending across multiple accounts. It’s difficult to track, and while each card individually appears as if the balance is manageable, their combined total quietly inches toward budget breaking.
Pay the balances in full
Smart spenders recognize the hidden cost of credit card debt. If you’re monitoring your spending and keeping it in line with your monthly budget, you should be able to pay the outstanding balance in full every month. If not, your interest begins to compound, and your debt starts to grow exponentially. Your revolving debt also negatively impacts your credit score.
Pay your bill on time
When your payment is late, you’re charged interest and also a pretty hefty late fee. Smart spenders know the importance of on-time payments and how it can be accomplished through organization. While you may not be mailing a payment, you’ll still need to allow time for online payments to be processed so don’t wait until the last minute. On-time payments also contribute to a higher credit score.
Smart spenders understand that some expenses require more of your monthly budget, so you’ll need to plan for in advance; car repairs, home maintenance, property taxes, even holiday gifts, for example. Their budget includes saving for both expected and unexpected financial events, so they’ll have the funds, regardless of the increased financial obligations for a particular month.
Use credit card rewards to your advantage
Today, credit cards offer a host of promotions in order to gain your business. Whether it’s miles, points, rebates, or cash back, there are many to choose among. Smart spenders use the credit card that offers the most valuable reward and one that they can use to their advantage.
Credit cards can help build your credit worthiness as easily as they can destroy it. Use these tips to keep your budget in line and your debt under control while you create a stellar credit history.
How do credit unions stack up against larger lenders for home loans?
You’ve finally decided to put down some roots and purchase a home. It may be a big house with a white picket fence, a fixer-upper in the suburbs, or a condo in the city. Regardless, this purchase is one of the most significant financial decisions you’ll make in your lifetime.
To finance your dream home, you’ll likely need to take out a mortgage, as most home buyers do. There’s tons of competition among mortgage lenders, but at an even higher level, you’ll need to decide between applying through a bank or a credit union.
Credit unions have been expanding their presence in the mortgage business and are not only highly competitive in their offerings, but provide benefits that commercial banks simply can’t match. Here are three reasons you might consider joining the growing number of homeowners that value the advantages of a credit union:
They’re not for profit
Banks are responsible to investors who expect a return on their investment. Credit unions, on the other hand, pass any profits back to their members in the form of savings. That translates to lower interest rates and a lower total cost. Whether you’re borrowing a hundred or five hundred thousand dollars, even a quarter point will make a significant difference in the interest you pay over the life of the loan.
Also, unlike a bank, a credit union doesn’t charge their members the Intangible Tax on a mortgage loan, which positively impacts the total cost. This tax of $3 per thousand dollars borrowed amounts to $900 in savings on a $300k loan. The credit union’s mission is to serve the members of their community, not earn a profit from them.
They’re more accommodating and offer greater flexibility
Credit unions value their relationship with their members. You won’t simply be an account number. A credit union will work with its members to find a suitable mortgage solution that meets your needs.
Credit Unions also work hard to make the stressful mortgage process a more positive experience. They scan documents for more efficient processing, and are more than happy to close a loan at a member’s home, office, or the branch. The flexibility and accommodations they offer are just part of their culture and their desire to deliver superior service to their members.
They invest in their members
Credit unions also work to better educate their members on financial services and transactions. Your mortgage is debt that you’ll likely carry for the next 30 years. It’s incredibly important to understand the requirements of the loan, the process, the fees, and the answers to all of your other questions. They’ll also offer guidance on the type of loan that’s the best fit for a member’s circumstances.
Credit unions are solely devoted to helping people build a healthy financial future. Members quickly learn their credit union will be of service to them, even during a financial crisis. They take pride in building the community they’re a part of and invest in its future.
Banks still hold the biggest piece of the mortgage loan pie, but credit unions are making some significant headway. You should consider all of your choices and be sure to shop around to find the most favorable deal. Just remember that your neighborhood credit union may just be the best route to your dream home.
Financial Literacy: Adding up the benefits of starting young
It’s never too late to start your financial education, but the earlier, the better. From counting coins in Kindergarten to planning for your retirement years, managing your finances is a critical part of your financial security– regardless of how much money you have.
Financial literacy now
A 2015 National Capability Study published by the Financial Industry Regulatory Authority (FINRA), reported that two-thirds of Americans could not pass a financial literacy quiz that included basic questions about financial risk.
It also concluded that when age-appropriate personal finance topics, like budgeting, interest rates, and debt are incorporated into a school’s curriculum, it positively impacts the decisions, saving, and spending habits in adulthood.
Benefits of financial literacy
Basic financial literacy helps people become self-sufficient and achieve financial stability. This includes being able to save money, distinguish the difference between wants and needs, manage a budget, pay their bills, buy a home, pay for college, and plan for retirement. Literacy helps them create a realistic roadmap that will take them through their daily lives making good financial decisions.
Financial literacy also empowers people. With any lack of financial education, anything that resembles credit, interest rates, or investments is intimidating and leaves individuals at a disadvantage. We’re not saying you need to be a financial guru, but knowing how interest rates work, the difference between stocks and bonds, and the factors that impact your credit rating, for example, motivate consumers to ask questions and seek out their best options. It also decreases their stress level. When people are well versed in the state of their finances, they have the information they need to take action, modify their investment portfolio, or continue with their current strategy.
Understanding your finances helps reduce the risk of becoming a victim of fraud. Some tactics are easy to believe, especially when they’re coming from someone who seems to be knowledgeable and well intended. A basic level of financial education will help people recognize the red flags and, at the very least, talk with a trusted advisor before making any commitment.
Why it pays to start early
With any educational plan, you’re continually building on the information you’ve learned in the past. It’s the same with your personal finances. You need to know how money works before you spend it, and that takes time and practiced application. Too many of us have learned the value of a dollar a little too late in life or what it means to be drowning in a sea of debt.
Early education allows individuals to develop a healthy relationship with money. They learn the importance of earning, saving, and managing their debt, which leads to becoming a financially responsible adult. They’ll have the knowledge it takes to wisely decide how they’ll pay for college, a car, or even a mortgage and know the consequences of debt accumulation, budget-busting purchases, and high-interest predatory lenders. You shouldn’t have to experience a financial misstep to benefit from it. Start teaching financial responsibility when kids can still be kids and when they’re grown-ups, they’ll know no other way.
5 facts about student loans that you need to know
The majority of students attending college will need to finance at least a portion of the cost required to further their education, most likely through student loans. While taking out a student loan may be a viable solution, there are both benefits and drawbacks of signing on the dotted line.
Here are five things you should know about the who, what, and how much of student loans.
1. Complete the FAFSA–NOW
FAFSA is the FREE Application for Federal Student Aid, and it’s the gateway to all federal financial aid, which also includes student loans. The Education Department offers scholarships, work-study, grants, and loans for eligible students in the amount of $150 billion each year. The only way to see if you qualify is to complete the application. The federal deadline is June 30, 2018, but the sooner you hit the submit button, the better, so don’t procrastinate.
2. Federal loan vs. private loans
Federal student loans often offer lower interest rates, a friendlier repayment schedule, and typically don’t require Mom or Dad to cosign to be your safety net. The income-driven repayment schedule is highly attractive, but if you have trouble making your monthly payments on that entry-level salary, you’ll also have deferment or forbearance options to consider. A private student loan is often used to fund the shortfall left by federal loans. They typically come with a higher interest rate compared to federal loans and your parents will need to cosign on the loan.
3. Parent PLUS loans
Every parent would love to save enough money to fund their child’s education, but if that’s not your reality, you might consider a Parent PLUS loan. This type of loan is available to the biological or adoptive parents of dependent students, and it does require a credit check. They’re not especially cheap, though. In 2017 the interest rate was 6.31%, the highest rate among all federal student loans.
4. Student loan default
Even with the generous repayment options, sometimes borrowers default on their student loan. You should be aware that if you default on your loan, you’ll lose all of the benefits that were so attractive when you applied. That includes deferment, forbearance, and any other repayment options that were offered in the past. You’ll also forfeit any future access to federal education aid while your loan is in default.
Sadly, it doesn’t end there. The lender may also report the loan default to the major credit bureaus so your credit score will take a serious hit and the government has the authority to garnish your wages and claim your annual tax refund. And don’t forget about your cosigner, if you have one. They’ll be subjected to the same actions.
5. Student loan forgiveness
Who doesn’t wish that their debt could just disappear? Sometimes it’s called loan forgiveness and other times it’s referred to as loan discharge or cancellation. They’re all a little bit different, but the result is essentially the same.
Loan forgiveness plans may be available for people in education, public service, healthcare, military and other professions. There are specific requirements that need to be met, and not all loans are eligible for forgiveness.
Student loans may also be discharged for personal reasons, although this is very rare. They include school closings, bankruptcy, disability, identity theft or false certification, unpaid refunds, and fraud.
School loans are an excellent means to help fund your education, but all options are not created equal. If you know the rules and can budget your repayment, it can be a wise investment in your future.