Archives for February 19, 2019

Many financial planners, myself included, group debts into two broad categories — good debts and bad debts. Good debts include those that have relatively low interest rates and will help enhance your life. For example, a mortgage allows you to buy a home, which will hopefully increase in value over time. An auto loan (assuming the interest rate is reasonable) helps you buy a car, which can in turn get you to work so you can earn money.

On the other hand, the “bad debts” category include debts that have relatively high interest rates, and/or don’t do much to enhance your life. Credit card debt is the textbook example of a bad debt, especially if it was incurred while buying things you really didn’t need.

I’d classify student loan debt as a form of good debt, but it’s really in a category all by itself. Even though student loans may have slightly higher interest rates as a whole than mortgages and don’t necessarily get you a tangible asset, I’d put student loans ahead of mortgages in many cases. Here’s why:

• Student loan interest, up to $2,500 per year, is tax deductible, even if you don’t itemize.
  
  
• There are several ways federal student loan debt can eventually be forgiven. Even if you don’t qualify for Public Service Loan Forgiveness, there are forgiveness programs for other professions (especially teachers) as well as for borrowers who have made a certain number of on-time payments.
  
  
• Federal student loan debt qualifies for income-based repayment plans. There are no other debts I know of where your payment can be reduced due to your income without an adverse impact on your credit score.
  
  
• Student loan debt may qualify for a deferment or forbearance if you’re experiencing a financial hardship. To put it mildly, if you call your auto lender and tell them you’ve lost your job, you’re not likely to get the same type of treatment.
  
  
• Finally, if you obtain a degree, a student loan can increase your lifetime earnings power by far more than its cost.

With that in mind, like most personal finance concepts, there’s no one-size-fits-all answer when it comes to paying student loans early. There are some situations where early repayment makes sense, but others where you’d be better off investing the money or using it to pay down other types of debt.

When paying your student loan debt early is a smart idea

Despite the benefits, accelerating your student loan repayment certainly makes sense in some circumstances. While this isn’t an exhaustive list, here are three situations where it can make sense to direct your discretionary income toward your student loan debt.

• Your student loan debt is at a variable interest rate — This is rather common among private student loans. Adjustable-rate debt can be quite scary to carry, especially over long time periods. If your student loan interest rates could potentially climb much higher, early repayment could be a smart idea.
  
  
• You won’t ever qualify for any type of forgiveness — This is also true of private student loans in most cases. If your income is too high to qualify for income-based repayment and you don’t work in public service, you also aren’t likely to be eligible for any type of loan forgiveness.
  
  
• You don’t want any debts whatsoever — I can talk about loan forgiveness programs, tax deductions, and more until I run out of breath. At the end of the day, some people just don’t feel comfortable carrying debt of any nature.

When you should pay down other debts or invest instead

• You work in public service and aren’t on the standard repayment plan — The Public Service Loan Forgiveness program allows the balance of federal Direct Loans to be forgiven after 10 years of qualifying full-time public service employment. However, to receive PSLF, you must be on one of the income-driven repayment plans. Technically, the standard 10-year repayment plan qualifies, but there would be no balance left to forgive. If you feel that you’ll ultimately qualify for PSLF, it doesn’t make sense to pay your student loans down any faster than you have to.
• You qualify for income-based repayment — All of the income-driven repayment plans forgive any remaining balance if the loans aren’t paid in full after 20-25 years, depending on the specific repayment option. If income-driven repayment is keeping your monthly payments low, it could make sense to use your extra money for other debts, or to invest.
  
  
• Your student loans have low, fixed interest rates — If your student loans are low-interest and don’t have variable rates, investing could be the better option with your discretionary cash.
  
  
• You have high-interest credit card debt — It rarely makes sense to invest or to pay down any of your “good” debts if you have high-interest credit card debt hanging over your head.

The bottom line on student loan early repayment

One important thing to point out is that several of these options could apply to you —  even things from both the “pay early” and “invest instead” categories. For example, it’s entirely possible to have a private student loan that will never qualify for loan forgiveness, but at a low, fixed interest rate.

Every situation is different, so my point here is that it’s important to weigh the applicable reasons both for and against early student loan repayment to make a smart financial decision for you.

Our Picks of the Best Personal Loans for 2019

We’ve vetted the market to bring you our shortlist of the best personal loan providers. Whether you’re looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals.

Americans are notoriously bad at saving money, which explains why the majority live paycheck to paycheck, and why only 60% of U.S. adults have the funds to cover a $400 emergency. If your savings are in a sorry state, it’s crucial that you take steps to improve. Here are a few reasons you might be neglecting your savings — and how to address them.

1. You don’t have a budget

Many folks don’t save money because they assume that they can’t afford to. And the reason they think that way is because they have no idea where their money keeps disappearing to — all they know is that somehow, by the end of each month, there doesn’t seem to be anything left.

If that’s been happening to you, here’s an easy solution: Start following a budget. That way, you’ll see what you’re actually spending money on, and where there might be room to cut back so you can boost your savings rather than ignore them completely.

To create a budget, list your recurring monthly expenses, factor in one-time bills that pop up randomly throughout the year (think roadside assistance service, warehouse club renewals, and the like), and compare your total spending to your total earnings. If the difference is $0 — meaning, you’re spending down your entire paycheck month after month — then you’ll need to reduce your spending, and having that budget will help you pinpoint the expense categories to tackle first.

2. You’re not paying yourself first

Having a budget is all fine and good, but what happens when you’re tempted to spend $200 in a given month on leisure when you’re really only supposed to be spending half that amount? Suddenly, you might fall short on your savings goal, and the reason boils down to not prioritizing it.

A better bet? Get into the habit of paying yourself first. Doing so is a simple matter of signing up for an automatic transfer and having a portion of each paycheck land in your savings account before you get the chance to spend it. In the aforementioned scenario, you wouldn’t be able to spend an extra $100 if that money wasn’t available to you, so think of that automatic transfer as an insurance policy of sorts.

3. You’ve never experienced a financial emergency

Many people don’t save for emergencies because they’re convinced that they don’t need to. If that’s how you feel, then it’s probably because you’ve never had a catastrophic bill upend your finances — or at least not yet. But know this: No one is immune to emergencies. You could wake up one day to find water pouring down through your ceiling, or go into your driveway to start your car only to have it die on you. Similarly, you might get hurt or sick and get slapped with a series of disastrous medical bills, or get laid off at work out of the blue.

All of these scenarios could leave you on the hook for a boatload of money you just don’t have, and that’s when you’ll really run into trouble, because without savings, you’ll be forced to rack up costly debt. Rather than wait for an emergency to strike, assume that one will happen eventually, and plan for it accordingly.

If you’re lacking in savings in a really big way, step up and make some changes. Reduce your spending to free up cash to save, and consider getting a side job to help your progress along. No matter your age or income level, you should always aim to have a minimum of three months’ worth of living expenses in the bank, so if you’re nowhere close, stop making excuses and start saving more.

It’s not a secret that student debt is a burden for millions of Americans. Collectively, former students owe more than $1.5 trillion in loans, and as college costs rise, that number stands to climb.

But here’s a bit of good news for indebted Americans whose loan payments eat up more of their income than they can comfortably afford: A growing number of companies are offering help with student debt as part of their workplace benefits packages. And that’s something employees will no doubt come to appreciate.

If your company is looking to retain its staff, it pays to consider offering some form of student loan assistance. It could be just the thing that buys you the employee loyalty you’re after.

Giving your workers a reason to stay

In today’s healthy job market, it’s easier than ever for employees to jump ship and explore different opportunities. When that happens, you, as an employer, are left scrambling to fill open roles, all while spending time and resources on a process you’d probably rather avoid.

Rather than spend money on the hiring process, you might instead allocate some funds toward a benefit that’s likely to encourage employees to stay put. In fact, 86% of workers say they’d stay with a company for at least five years if their employer were to help pay down their student debt, according to advocacy group American Student Assistance.

Helping workers pay down their student debt might also help them better focus on their jobs and improve their output. In fact, 33% of workers say they’re distracted by personal financial issues at the office, to the point where it stunts their productivity. Alleviating that burden, at least to some degree, should give your employees one less thing to worry about, thereby allowing them to better concentrate when they’re supposed to be plugging away.

Another way you, as an employer, can help on the student debt front is educating workers with families on the importance of saving for college, and bringing in financial advisors to introduce them to the savings tools available to them. For example, 529 plans are a great way to save for college because earnings in those account aren’t taxed — but many people are still unfamiliar with 529 plans because they never had one when they were younger.

Talking to your employees about student loan refinancing or consolidation is another way to potentially help. Many people either don’t know that these options exist, or are afraid to pursue them for fear that they’ll somehow make their situations worse, so providing that education could really change some workers’ lives.

Americans of all ages are plagued by student loans, so if you’re looking to minimize the burden while taking steps to retain your staff, look at rolling out some sort of debt assistance program at your place of work. Chances are, you’ll find that it’s a worthwhile investment in more ways than one.

Put down the latte and listen up: If you’re like the millions of Americans living paycheck to paycheck, saving money needs to be on the top of your to-do list. Like, stat. 

Understanding personal finance can be intimidating. You know how much money you make and you’re trying to save a little bit here and there, but the reality of mounting student loan bills and other living expenses can weigh heavily on millennials — which is why it’s difficult to think of the bigger picture.

Listen: a personal finance app (or two or three) can be your best friend in terms of getting smarter about how you save — and spend — your money. (We recommending starting with YNAB, but more on that later.)

Believe it or not, about 66% of people between the ages of 21 and 32 have nothing saved for retirement, according to a survey by the National Institute on Retirement Security. It’s no wonder that millennials are finding it difficult to buy a house. 

Although retirement is still a very long way off for this generation, it’s important to be mindful of the future so you can find a clear path towards financial freedom for the end of your career, a vacation, or even an unexpected expense or accident. 

The basics of personal finance and savings might be lost on some people who feel that it’s near-impossible to save when most of their money is gone within days of getting a paycheck. The cycle begins again and you just feel stuck trying to keep your head above water. However, financial freedom is very reachable through careful money management, budgeting, expense tracking, and getting smart about saving, investing, and building credit.

The good news is that it’s never too late — or too early — to get smarter about your finances. After all, the tools you need to help you along your financial journey just might be in your pocket. 

Here’s a step-by-step guide to saving money by using smartphone finance apps and other clever hacks:

1. Create a budget

Knowing how much money you make is not the same as spending it wisely. 

Staying organized is key to your financial freedom and budgeting apps like Mint and YNAB can help you create a budget and stay within your means every month. Mint is a free app (that’s a very important word) that you can customize and tweak to fit your income and help you set your financial goals down to the penny.

If you’re still unclear on how much you should save every month, Mint can also set your budget based on your income. It can create limits and categories on your spending habits, which you can override at anytime, while the app can connect you to your bank accounts, credit cards, and lenders to give you a full picture of your finances.

Meanwhile, YNAB, which stands for You Need a Budget, takes your monthly spending and expenses to the next level with an in-depth look at every dollar in your bank account. In fact, one of the rules for YNAB is every dollar needs a purpose, so you know it’s serious about budgets and making sure you stay on track instead of “winging it” from month-to-month. 

With YNAB, you define what’s important to you and how to achieve your goals with good financial spending and saving. The app keeps you on track to use your money on the important things in life like rent, food, medical expenses, and more. It can even account for any unexpected expenses and emergencies without putting a strain on the other things going on in your life.

YNAB has a 34-day free trial available, but afterwards it’s $6.99/a month. 

2. Track your spending and expenses

Now that you have a realistic and workable budget, you have to stick to it. Smartphone apps like Quicken can take your path to financial freedom to the next level. Quicken can track all of your spending habits by just taking a photo of your receipts, which automatically puts your spending into categories, dates everything, and tracks the amounts deducted from your balance with your approval.  

In fact, Quicken is probably the most in-depth of all the financial apps on this list because it’s so feature rich. The app can track and record your expenses and investments, create easy-to-read spending reports, and can pay your bills online. Once you sync the app to your bank account, you can even transfer funds from one account to another with the desktop version of the app. It can even predict and forecast your cashflow for the upcoming month, so you can get a better idea of all of your finances.

One of the best things about the app is that it’s completely searchable. You can search through all of your spending habits, expenses, and reports to get easy access of your personal finances. The Quicken app is also easy to understand and use with a very intuitive interface that even works offline when you don’t have a data connection.

In addition, the app sends you notifications and alerts when your bank balance is getting low and if you’re over-budget for the month, so you don’t over spend. Think of the Quicken app as your personal accountant inside of your pocket that you don’t have to feed or clothe. 

The Quicken app works with Android and iOS mobile devices and it’s free with the purchase of any Quicken product. 

3. Manage your debt

According to ValuePenguin, over 44 million millennials are in crippling debt upwards of $33,000 — mostly from student loans from financial institutions. In fact, most millennials are putting off “life milestones” like starting a family and homeownership because their massive debt is in the way, while some are forced to move back home with their parents just to stay above water. Getting out of debt is not an easy feat, but if you have the right tools and a little bit of optimism, you could be debt-free sooner than you think.

Smartphone apps like Debt Payoff Planner can help ease your burden with a bird’s eye view of how much money you owe, along with reasonable step-by-step methods and techniques to get out of debt faster. The app can track your debt payments and give you a time frame to financial freedom. This means you can track your progress and feel better about your money situation with a real game plan. The best part about this app is that it’s completely free.

Another good idea? Transfer your debt to a credit card with a 0% APR introductory period and get aggressive with those payments. That way, you won’t be paying any interest and you can pay down the debt faster than if you were just making the minimum payment every month. 

The BankAmericard® credit card by Bank of America offers a 0% introductory APR period on both balance transfers and purchases for 18 billing cycles, after which a variable 15.24% to 25.24% APR will apply based on your creditworthiness. The BankAmericard® credit card has a $10 or 3% (whichever is greater) transfer fee and no annual fee. 

4. Get smart about saving money

“A penny saved is a penny earned.” This phrase is commonly attributed to Benjamin Franklin, who is believe to have *coined* it during the 18th century. If Mr. Franklin were around today, he’d probably enjoy using a smartphone app like Qapital (pronounced Capital), a fun way to save money by turning it into a game.

Once you download the app, start an account with Qapital and link a bank card with a checking account and begin to set your financial goals. Why are you saving money? Maybe you’re planning a trip to Paris, or want concert tickets for the summer, or are looking to buy a car. After you set your goals, add the amount you want to save. 

Say you want to save $1,200 for a new laptop. Now that you’re all set, you can set up the “rule” for saving. Qapital sets “round to the nearest dollar” as the default, but you can pick and choose how you want to save. If you picked the default, every time you use your bank card, the app rounds the amount to the nearest dollar and adds it to your account automatically. So if you buy something for $5.62, Qapital will take .38 cents from your bank card and add it to your account. You can then transfer your savings into a bank account to start all over again. So you’re saving money without even realizing it.

The app has other “rules” like the “Spend Less Rule,” where you can save the difference if you spend less on one of your favorite expenses and activities, or the “Guilty Pleasure Rule,” where you save money when you do one of your guilty pleasures. You set the goals and the rules, and Qapital helps you save.

Qapital is available for iOS and Android.

5. Start investing — like right now

Now that you’ve managed to save some money, maybe it’s time to invest it and gain some personal capital. If you know next to nothing about investing, Robinhood is a good place to start. This smartphone app gives anyone free access to the stock market. 

For years, buying and trading stocks were only for the wealthy and people in the know. You had to hire a stockbroker who would have to facilitate any purchases and trades on your behalf, while also taking a slice of the pie as commission.

However, Robinhood is a completely free way to enter and get 24/7 access to the stock market game with zero fees and commissions. In addition, Robinhood supports cryptocurrency like Bitcoin, Etherium, Dogecoin, and more. Crypto is supported in 30 states for now, while the app plans to gain support in more locations across the nation. This finance app is a great way to build a solid stock portfolio and net worth, while gaining confidence in investing and usingcryptocurrency.