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Best Apps for Budgeting in College

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Managing money is hard, but budgeting in college? That’s a whole different ballgame. For a lot of students, you have so much to worry about with classes, work, and other involvements that finances often slip your mind. So how do you hold yourself to a budget when you can barely remember to feed yourself dinner? Luckily, we live in an age full of apps to help you get a jumpstart on budgeting and money management. Here are a few of our favorites.

 

Mint®. Mint is a free mobile app where you can view all of your banking accounts in the same place. It automatically updates and puts your transactions into categories so you can see where all your money is going – and where it’s coming from. It also recommends changes to your budget that could help you save money. Its features include a bill payment tracker, a budget tracker, alerts, budget categorization, investments, and security features.

 

PocketGuard®. Like Mint, PocketGuard allows you to link your credit cards, checking, and savings accounts, investments and loans to view them all in one place. It automatically updates and categorizes your transactions so you can see real-time changes. PocketGuard also has an “In My Pocket” feature that shows you how much spending money you have remaining after you’ve paid bills and set some funds aside. You can set your financial goals, and this clever app will even create a budget for you.

 

Wally®. This personal finance app is available for the iPhone, with a Wally+ version available for Android users. Like other apps on this list, it allows you to manage all of your accounts in one place and learn from your spending habits. You can plan and budget your finances by looking at your patterns, upcoming payments and expenses, and make lists for your expected spending.

 

MoneyStrands®. Once again, with this app, you’ll have access to all the accounts you connect. Its features allow you to analyze your expenses and cash flow, become a part of a community, track and plan for spending, create budgets and savings goals, and know what you can spend without going over budget.

 

Albert®. A unique feature that Albert emphasizes is its alert system. When you’re at risk for overspending, the app will send you an alert. The app also sends you real-time alerts when bills are due. Enjoy a smart savings feature, guided investing, and the overall ability to visualize your money’s flow and create a personalized budget.

 

Before you download any budgeting app, make sure you check out the reviews and ensure it’s legitimate. Because a lot of apps ask for your personal financial information, it’s essential you verify their legitimacy before entering your account number. Listen to what other people have to say and then choose the option that works best for you, because not every app will be perfect for everyone. Budgeting in college may be hard, but downloading an app is just one way you can make it easier. Maybe you don’t want to use an app at all. If you’re in that boat, you can check out some other approaches to budgeting here or here.

 

Note: Links to other websites are provided as a convenience only. A link does not imply SouthEast Bank’s sponsorship or approval of any other site. SouthEast Bank does not control the content of these sites.

The Best Financial Websites & Podcasts

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Navigating the world of personal finance is no easy task. Learning how to manage your money can be difficult, especially as a recent college graduate or young professional. You’re going through so many changes, and the whole world is at your feet, but you also sometimes feel the weight of the world on your shoulders. So don’t let your money become a guessing game. To help you out, we’ve gathered some of our favorite websites and podcasts you can turn to for financial advice. 

 

NerdWallet

Founded by Tim Chen in 2009, NerdWallet’s mission is to provide clarity for all of life’s financial decisions. NerdWallet has grown from a credit cards comparison spreadsheet in 2009 to a go-to source for millions of people when it comes to making financial decisions. NerdWallet’s tailored advice, content and tools ensure you’re getting more from your money, covering the topics of credit cards, banking, investing, mortgages, loans, insurance, money and even travel. 

 

The Simple Dollar

Originally founded by a man on a journey to get out of debt, this website has flourished over the past eleven years and become a well-respected source of financial advice. The site provides practical tips for money management. The Simple Dollar’s mission is “providing well-researched, useful content that empowers our readers to make smart financial decisions.” Staying true to that mission, it serves millions of readers and has been featured in major publications, including Forbes, Business Insider, and TIME. 

 

Suze Orman

New York Times bestselling author & financial expert, Suze Orman, offers advice through a variety of channels, including books, live events, blogs, and podcasts. Her website includes a wide range of resources, from student loans to family and estate planning, and everything in between. More than 1 million followers glean knowledge from her every week on Twitter, where she shares financial tips and links to other work, such as her podcasts and blogs.

 

Kiplinger

This Washington, D.C.-based publisher releases more than just personal finance tips. The company creates print and online publications featuring business and economic forecasts, as well. The monthly personal finance magazine shares advice for money management, investment, retirement, taxes, insurance, real estate, auto purchases, health care, travel, and paying for college. According to its website, Kiplinger Magazine was the first magazine that offered money management advice for Americans, so this organization has a long and proud history as a financial resource.

 

Your Business, Your Wealth

This podcast is led and hosted by financial advisors with nearly two decades of experience.

Its episodes cover a wide range of topics, from insurance, to taxes, to entrepreneurship, to debt, and beyond. In reviews, listeners rave about the way the hosts explain financial concepts that people can apply to their lives. Here’s just one review from an Apple Podcast Listener:

The hosts also share inspiration on Twitter

 

Radical Personal Finance

Radical Personal Finance aims to not just provide general financial information but to encourage listeners to take actionable steps to improve their finances and lifestyles. The show also strives to equip its listeners with enough information to be able to think critically and make sound decisions for themselves. According to its reviews, listeners enjoy the unique perspectives this podcast brings to the table.  

 

While you may not always agree with everything the podcast hosts say or the blog editors write, listening to a more experienced point of view is always helpful. You can take some of the tips in these blogs and podcasts and immediately apply them to your personal finance routine. Make some of these a daily part of your routine and you’ll find you’re learning more about money than you ever dreamed. 

 

We live in a time when our attention spans are being divided more and more thinly. We wanted to share our favorite podcasts and financing websites because they’re easy to consume on-the-go. There’s no need to set aside time in your busy schedule. These resources are available on the commute to work, during your lunch break or any time you want to sharpen your financial know-how.

 

If you’re interested in a private student loan or refinancing your student loans, our Personal Loan Advisors are available and would love to speak with you and answer any other questions you may have. Let’s connect.*

 


 

*Subject to credit approval. Terms and conditions apply.

 

NOTICE: Third Party Web Sites

 

Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

The Reality of Dental School Debt and How to Manage it

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Choosing to become a dentist is an admirable decision, no matter how you look at it – from helping improve patients’ appearance and self-confidence to teaching patients how to achieve oral health and prevent disease, a dentist’s work goes beyond the chair and impacts lives.

 

With this being said, the burden undertaken by dental professionals is often overlooked when considering the seemingly hefty salaries associated with the career path. By “burden”, of course, we mean the hefty amounts of student loan debt. According to the American Dental Education Association, the average debt per graduating dental school senior was $285,184 in 2018, with over 80% of dental school graduates facing over $100,000 of student debt. This average debt is over 4x higher than it was in 1990. 

 

This staggering level of debt may seem overwhelming at first, but rest assured that with a little research, planning, and use of resources, dental school debt can be tackled – but first, let’s look at how this debt impacts individuals pursuing a career in dentistry. 

 

Difficulty Choosing Career Path

Massive debt often makes it difficult for aspiring dentists to choose the career path they truly want. To begin with, the majority of dental schools require a bachelor’s degree to attend. Already carrying undergrad debt, full-time dental students can then expect to finish their dental degree within four years and become licensed. However, if they want to pursue one of the nine recognized specialties, they’ll have to undergo more schooling in addition to their general practice or specialty dental residency. Each of these decisions can be heavily affected by the anxiety of accumulating more debt, often leading students to settle in their career choice. 

 

Accumulating Interest

If you decided to take the route mentioned above and end up with the average amount of dental school debt (about $285,000), you’ll be facing monthly payments of $3,800 on a standard 10-year repayment plan, assuming a 6% interest rate (the rate for federal graduate unsubsidized student loans disbursed between July 2017 to July 2018). And it gets worse – if you paid your loans over this 10-year term, you would pay $171,000 in interest alone – making the total cost settle somewhere around $456,000. 

 

Difficulty Starting Career

Because of the overwhelming amount of debt new dentists face, starting their career isn’t a stress-free experience. New dentists often have to work through lunch, take more patients and take less time off to accelerate the repayment of their loans. This can lead to exhausting patterns that cause burnout. Not to mention, a large portion of dentists begin dental school with the end-goal of starting their own practice, and this cost can easily surpass $250,000. Recouping this cost while trying to pay off debt can be extremely burdensome. However, choosing the route of starting a private practice is the fastest way to start paying down debt. Private practitioners typically earn higher incomes and have more earning potential than dentists working for another organization. 

 

How Long Does it Take for Dental School to Pay Off?

When taking into consideration missed earnings, a dentist who graduated with the average amount of debt ($285,000) will have invested about $570,000 into dental school. This is assuming they would have made $55,000 per year that they were in dental school (the average pay for a Bachelor of Science degree in chemistry, which is common for pre-dental graduates). 

 

This table from Student Loan Hero shows that with a typical entry-level dentist salary of $118,800 and a five percent yearly increase in earnings, it would take about eight years for a dentist’s earning potential to offset the cost of dental school:

 

chart explaining the amount of time it would take for dental school to payoff vs. not attending dental school

Source: https://studentloanhero.com/featured/dental-school-debt-worth-it/

 

The bright side? That dental school investment is generating an extra $90,000 in income by that 8-year mark, and that differential will likely continue to increase.

 

Pay Off Dental School Debt Sooner

Despite the quantity of debt associated with dental school, the consensus is that paying it off is achievable. Depending on your situation, there are specific actions you can take to make paying off your dental school debt more manageable. If you can’t afford monthly payments and don’t mind paying for an extended period, you can apply for federal income-driven repayment. This will likely extend your payment term from 10 years to 20 or 25 years, but your remaining balance will be forgiven at the end of your repayment period. For dentists working in the public sector, specific underserved areas or non-profits, you may qualify for Public Service Loan Forgiveness. This program offers tax-free loan forgiveness to borrowers who pay on their loans for 10 years while working in one of these areas. Keep in mind that less than 1 percent of student loan borrowers who applied for the PSLF program have qualified, so it may not be as simple as it sounds.

 

Tackle Debt Quicker and Pay Less by Refinancing

If you’re in a position where you’re not happy with your interest rate, have solid credit, and want to reduce the amount you’ll pay monthly and over the lifetime of your loan, refinancing your dental school loans is probably your best bet. This is especially true if you’re having success in the dental field and want to pay off your loans quickly. While refinanced loans aren’t eligible for income-driven repayment or Public Service Loan Forgiveness, they can significantly reduce your interest rate, in turn reducing your monthly and lifetime payment. 

 

In clearer terms, let’s say you have $200,000 of student debt from dental school and are paying 6% interest on a 10-year term. Your monthly payment would be about $2,666 and you would pay $320,000 over the lifetime of your loan. 

 

Refinancing to a 10-year loan term at a 4% interest rate would save you $40,000 in total and reduce your monthly payment by $333. Your new monthly payment would be $2,333 and you would pay $280,000 over the life of the loan.

 

Education Loan Finance offers great rates when it comes to refinancing dental student loans – Check out our student loan refinancing calculator to see how much refinancing your dental school loans with ELFI could save you. 

 

Have questions? Our Personal Loan Advisors are available to guide you through every step of the refinancing process. Give us a call at 1-844-601-ELFI and see why we’ve been voted #1 in customer service for student loan refinancing. 

 

Prequalify Here

 

 

 

*Subject to credit approval. See Terms & Conditions. Interest rates current as of 9/16/2019. The interest rate and monthly payment for a variable rate loan may increase after closing, but will never exceed 9.95% APR. Interest rates may be different from the rates shown above and will be based on the term of your loan, your financial history, and other factors, including your cosigner’s (if any) financial history. For example, a 10-year loan with a fixed rate of 6% would have 120 payments of $11.00 per $1,000 borrowed. Rates are subject to change.

 

NOTICE: Third Party Web Sites

Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

How Does Student Loan Interest Work?

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When you take out a student loan, you will not just be paying back the amount you borrowed – the lender will also charge you interest. The easiest way to think of interest is that it’s the cost paid by you to borrow money. Whether you take out a private student loan or a federal student loan, you will be charged interest on your loan until it is repaid in full. So, when you have finished paying off your loan, you will have paid back the original sum you borrowed (your original principal), plus you will have paid a percentage of the amount you owed (interest). Properly understanding the way that student loan interest affects your loan is imperative for you to be able to manage your debt effectively.

 

The Promissory Note

When a student loan is issued, the borrower agrees to the terms of the loan by signing a document called a promissory note. These terms include:

  • Disbursement date: The date the funds are issued to you and interest begins to accrue.
  • Amount borrowed: The total dollar amount borrowed on the loan.
  • Interest rate: How much the loan will cost you.
  • How interest accrues: Interest may be charged on a daily or monthly basis.
  • First payment date: The date when you are expected to make your first loan payment.
  • Payment schedule: When you are required to make payment and how many payments you have to make.

 

How Different Types of Student Loans are Affected by Interest Rates

  • Government-Subsidized loan: If you are the recipient of a government-subsidized direct loan, the government will pay your interest while you are in school. This means that your loan balance will not increase. After graduation, the interest becomes your responsibility.
  • Parent PLUS Loan: There are no government-subsidized loans for parents, and regular repayments are scheduled to begin 60 days after the loan is disbursed.
  • Unsubsidized Loan: The majority of students will have unsubsidized loans where interest is charged from day one. If you have this type of loan, sometimes a lender will not require you to make payments while you are still in school. However, the interest will accrue, and when you graduate you’ll find yourself with a loan balance higher than the one you started with. This is known as capitalization. 

Here’s an example: In your freshman year, you borrow $7,000 at 3.85%. By the time you graduate in four years, this will have grown to $8,078 – an increase of $1,078. Here’s the math: 7,000 × 0.0385 × 4 = $1,078 (Click here for ELFI’s handy accrued interest calculator.)

 

How is Student Loan Interest Calculated?

When you begin to make loan payments, the amount you pay is made up of the amount you borrowed (the principal) and interest payments. When you make a payment, interest is paid first. The remainder of your payment is applied to your principal balance and reduces it. 

 

Let’s suppose you borrow $10,000 with a 7% annual interest rate and a 10-year term. Using ELFI’s helpful loan payment calculator, we can estimate your monthly payment at $116 and the interest you will pay over the life of the loan at $3,933. Here’s how to determine how much of your monthly payment of $116 is made up of interest.

 

1. Calculate your daily interest rate (also known as your interest rate factor). Divide your interest rate by 365 (the number of days in the year).

 

.07/365 = 0.00019, or 0.019%

 

 

2. Calculate the amount of interest your loan accrues each day. Multiply your outstanding loan balance by your daily interest rate.

 

$10,000 x 0.00019 = $1.90

 

3. Calculate your monthly interest payment. Multiply the dollar amount of your daily interest by the number of days since your last payment.

 

$1.90 x 30 = $57

 

How is Student Loan Interest Applied?

As you continue to make payments on your student loan, your principal and the amount of accrued interest will decrease. Lower interest charges means that a larger portion of your payments will be applied to your principal. Paying down the principal on a loan is known as amortization.

 

How Accrued Interest Impacts Your Student Loan Payments

The smart money approach is avoiding capitalized interest building up on your loan while you are in school. This is because choosing not to pay interest while in school means you will owe a lot more when you come out. The more you borrow, the longer you are in school, and the higher your interest rates are, the more profound the impact of capitalization will be.

 

How to Find the Best Student Loan

When looking for the best student loan, you naturally want the lowest interest rate available. With a lower interest rate, the same monthly payment pays down more of your loan principal and you will be out of debt more quickly. Talk to ELFI about our private student loan offerings by giving us a call today!

 

Learn More About ELFI Student Loans

 

Terms and conditions apply. Subject to credit approval.

 

NOTICE: Third Party Web Sites

Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

How to Build Your Child’s Credit Score When They Don’t Have One Yet

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From the 2007 Housing Crisis, 2008 Stock Market Crash, and now the student debt crisis there is no surprise parents nationwide are looking to educate and protect their children on finances. Many people during these national events lacked basic financial know-how and self-discipline. Gen-Xers and millennials, starting to have children of their own, worry that a new generation could be seduced by the allure of instant gratification and the digital disconnect between earning and spending money. What as a parent can you do for a young child to teach them finances and help them learn the basics? Here are some basic tips to help your children build healthy credit and learn to use it responsibly.

 

Start With Basic Financial Life Lessons

Whether your child is 2 or 22, financial education is the key to building good credit and financial independence. Erin Lowry, business blogger and author of Broke Millennial: Stop Scraping By and Get Your Financial Life Together, explained in a recent podcast that her parents taught her about delayed gratification early in life. “I was really encouraged from a very young age to start making money, especially if I wanted something,” Lowry said.

 

Saving for discretionary purchases is a lesson many young children can miss. A growing number of young adults also don’t have realistic expectations of their future earning power. Lowry grew up in a different reality. She explains that her first successful enterprise was at age 7, selling doughnuts at a family garage sale. Before she could feel too excited about her earnings, her father adjusted the amount she made by taking out the cost of the doughnuts and wages for her sister. He explained that the money left was her profit. “He actually took the money,” she remembers. “That is something that has stuck with me forever.”

 

It’s never too late to teach lessons like these. Resources for financial education are abundant in print and online, and parents can refer adult children to Lowry’s book and her blog, brokemillennial.com. For younger children, check out this post by Dave Baldwin, “The Five Best Apps for Teaching Kids How to Manage Their Money.”

 

Three Tips for Establishing Good Credit for Your Children

Parents with good credit and a clear vision of their children’s financial future can take these three actions to ensure a sound credit score for children reaching adulthood.

 

TIP 1: Make your child an authorized credit card user.

There is no minimum age to most credit cards, so you can add your child as an authorized user as early as you like. The best part is you do not have to give the child access to the card, just keep it in a safe place. It’s imperative that you use the credit card wisely and are able to pay the minimum monthly balance on the card. If you are unable to make payments on the card that could negatively affect your child’s credit history too. Try to only use the card for reoccurring balances like gas or food shopping.

 

When your child comes of age to have their first credit card in adulthood, they will benefit from your history of timely payments and reasonable use of credit. It will also benefit them if they need a loan to attend college and you as a parent may not need to be a cosigner.

 

TIP 2: Add a FREE credit freeze to your child’s credit report until they reach age 18.

Contact each of the three reporting agencies, Equifax, Experian, and TransUnion, to request a freeze in your child’s name. In some states, the freeze may need to be renewed every seven years. A credit freeze is fairly simple to implement and will protect your child from identity theft, which in turn will protect their credit history and credit score. You can also lift credit freezes when your child is ready to apply for credit.

 

It may seem like an extreme to put a credit freeze on your two months old credit but it will only protect them in the long run. Identity theft to children is an unfortunate reality in the United States. According to CNBC, more than 1 million minors were victims of identity theft or fraud in 2017. What may be even more surprising is that data breaches are just as much a problem for minors as for adults, if not more. According to CNBC, only 19% of adults were fraud victims compared to a staggering 39% of minors due to data breaches. This can happen to your child, but it can be prevented. You have the power to protect your children from falling victim to fraud. Not to mention a credit freeze is free thanks to recent laws passed by the federal government, so it won’t even cost you or your family a dime.

 

To learn more about protecting your child’s credit and preventing identity theft, visit the Federal Trade Commission’s Consumer Information site.

 

TIP 3: Set up a secure credit card account for your child to use.

A secure credit card is similar to an unsecured or the “normal” type of credit card. The only major difference is that a deposit is used to open a secured credit card account. The amount of secured credit card deposit is usually the credit limit of that secured credit card. Now, as long as all payments are made on time and in full at the end of the designated period you’ll receive your deposit back. Additionally, that fact that all payments were made on time and in full means that you should see that reflected in your credit report and you may even see that reflected in your credit score. If your child fails to make on-time payments or fails to pay the full amount of the card this could hurt your child’s credit instead of helping it.

 

If you choose to give your teenager a secured credit card you should be certain that you discuss the responsibilities of card with them. Make sure your child is committed to paying on time, staying within the credit limit, and using the card for only appropriate expenses you have discussed in advance. This is a great responsibility to provide a teenager because it really gives them the ability to start developing good financial habits. Whether that is putting an alert in their cell phone when the payment is due or if that is handwriting it on a calendar. Additionally, your child will have the opportunity to really learn to budget and live within their means. These are fundamental finance lessons and habits that will help to lay the groundwork of what could be a very financially responsible young person.

 

Financial Outlook

 

Regardless of what ways you choose to teach your child about credit or build their credit, know that your outlook on finances can easily become your child’s. If you find yourself scared of money, it’s likely your child will too. So often children learn relationships based on what they see their parents doing, so be sure that you’re laying the right framework for them to be successful. It doesn’t have to be an overly complex and if you aren’t sure that what you are teaching them is correct try looking locally for classes or programs. You should be able to find some financial literacy courses either online or within your local community. These can really help your child to familiarize themselves with common financial terms and create good financial habits. Good financial habits include how to save money, charitable giving, and even what taxes are.  No one knows your child better than you and no one wants them to succeed more than you, so be sure to give them the right tools and resources to do so.

 

Ask These 10 Questions When Hiring a Financial Advisor

 

 

NOTICE: Third Party Web Sites
Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

What’s a Credit Freeze?

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What does buying a house, applying for a student loan, and getting a personal loan all have in common? They are all different forms of credit. Credit is provided to you by a financial lender.  That lender will utilize your credit report in order to evaluate your credit history to decide if you qualify for credit with them. While evaluating your credit history and credit score they will do an inquiry on your credit. This inquiry can affect your credit score and can be placed on a report depending on the type of inquiry that’s completed by the institution. It’s essential to know the two different types of credit inquiries, what a credit freeze is, how it relates to a credit inquiry, the benefits of a credit freeze, and how to put one in place and remove it.

 

What Is a Credit Inquiry?

 

According to myFICO.com, a credit inquiry is a “request by a ‘legitimate business’ to check your credit.” These checks are categorized as either “hard” or “soft” inquiries, which we’ll break down in more detail later. “Credit pulls” are often a casual term used to describe both types of inquiries which gives a person, lender, or company the ability to view your credit report and see your credit score. Both types of credit pulls are included on your credit report but, only you can see the soft inquiries.

 

For example, imagine you’re looking for a mortgage. Let’s say that a credit card company recently did multiple soft credit inquiries on your account to “pre-qualify” you for a new credit card promotion that they have. When the mortgage company you submitted an application too reviews your credit report, they will not see the soft credit inquiries completed by the credit card company.  Additionally, the soft inquiries that were completed by the credit card company will not affect your credit score.

 

Regardless, the type of credit you’re opening, obtaining credit takes time, careful consideration, and patience. Each time a lender accesses your credit score and credit report to make a decision, you run the risk of damaging your creditworthiness. So what types of credit inquiries will affect your credit report and credit score? What type of credit inquiry are they, soft credit pulls or hard credit pulls?

 

 

Student Loan Refinancing: How to Avoid Predatory Lending

 

 

 

Soft Credit Inquiries vs. Hard Credit Inquiries

 

There are many differences between soft credit inquiries and hard credit inquiries. For example, soft credit inquiries can be part of the employment process if you are applying to a financial institution. Soft credit inquiries won’t affect your credit score, and they won’t show up on a credit report. Soft credit inquiries can be done without your permission. You may be wondering, “who’s sitting around running my credit report on a Saturday night?” Involuntary checks on your credit report will typically come from financial lenders who want to market a “pre-qualified” offer to you. We’ve all seen these types of mailers that you get from unfamiliar companies that say “Hey, you’ve pre-qualified for an auto loan! Here’s your special code go sign up today!” Soft credit inquiries usually consist of employment verification checks, pre-qualified credit card offers, when you check your credit score, and pre-qualified insurance quotes. Now, we know what a soft credit inquiry or soft credit pull is, but what is a hard credit inquiry or hard credit pull?

 

 

Hard credit inquiries are usually completed for larger banking requests like submitting an application for a mortgage. For example, you’d submit an application if you were applying for a mortgage, personal loan, auto loan, or student loan, among other types of loans. After having a hard credit inquiry completed there is a chance that your credit score may be affected. Multiple hard credit inquiries can affect your credit score negatively and all the hard credit inquiries will be visible on your credit report. These inquiries can show up on your credit report for up to two years after the inquiry is completed.

 

Typically when you’re submitting an application or applying for new credit – it will affect your FICO score if you are applying for a loan with multiple lenders. You should still apply to multiple lenders to find yourself the best interest rates. Now, if you are applying for the same type of credit, it is likely that if the inquiries are done within a certain window, they may be counted as a single inquiry. Inquiries are important to understand because they are the building block to your credit score and credit report which illustrates for lenders your financial wellness. Be sure that you know what you are signing up for before you proceed to submit those application documents. Speaking of financial wellness, what is a credit freeze and how can you benefit from it?

 

What is a Credit Freeze?

A credit freeze is pretty self-explanatory, it’s a freeze or hold that is placed on your credit to stop lenders from completing any inquiries. You may have heard a credit freeze referred to as a security freeze. Having a credit freeze will not impact your day-to-day financial wellness routines. You’ll still have the ability to pull an annual credit report to review it for accuracy. If you want to open up new credit that will require a hard credit inquiry all you need to do is simply lift the credit freeze temporally until it is completed. It’s important to note that though you may have a credit freeze in place, creditors, debt collectors, who actively have an account that belongs to you and government agencies utilizing warrants, and subpoenas will have access to your credit report.  All these simple things to secure your financial wellness and guess what? It gets better, all credit freezes are free!

 

You’re protecting your identity from thieves who may be trying to open accounts in your name, but it doesn’t cost a dime – no brainer! As we learned above, when you’re applying for credit like a mortgage, a lender will need to do a hard credit inquiry. If you’re not expecting to have your credit reviewed, it’s recommended that you place a credit freeze on your account. It’s important to know how to put a credit freeze into action and get it onto your account ASAP to keep those thieves away! Also, if you are a parent of a child under the age of sixteen, you should consider freezing their account too as per the FTC.

 

How to Implement a Credit Freeze

Now it sounds like it’s a lot harder than it actually is to implement a credit freeze. It also sounds way expensive too, but we know thanks to government laws it is free! Here’s how to place a credit freeze with each of the major U.S. credit agencies.

 

Equifax:

Visit https://www.equifax.com/personal/credit-report-services/ to setup an Equifax account.

 

Step 1 –

Provide Personal Information (Name, Date of Birth, Social Security Number, Mobile Number, Address)

 

Step 2-

Create Account Details (Email Address, Password)

 

Step 3-

Verify your identity using a text message or answering financial questions about yourself. My phone was broken, so I got to take my very own financial quiz to confirm my identity.

 

Step 4-

Once the quiz questions are answered you’re queued to sign in.

 

Step 5-

Select “Place or Manage A Freeze”

 

Transunion:

Visit https://www.transunion.com/credit-freeze to setup a Transunion Account.

 

Step 1- Select “Add Freeze”

 

Step 2- Provide Personal Information (Name, Date of Birth, Last 4 Digits of Social Security Number, Address)

 

Step 3- Create an Account

 

Step 4- Verify finance history via questions provided.

 

Step 5- Add Credit Freeze.

 

Experian:

Visithttps://www.experian.com/freeze/center.html and select “Add a Security Freeze”

 

Select Whose Credit You’d like to Freeze

 

Step 1- Provide Personal Information (Name, Date of Birth, Social Security Number, Address, Email Address, Create a Pin)

 

If you are serious about freezing your credit you’re going to want to utilize all three U.S. major credit agencies Equifax, Transunion, and Experian. Most of them provide a pin once the freeze is placed, so be sure that you keep that pin for your records. When you are ready to lift the security freeze or credit freeze you should have it readily available to you.

 

How To Lift a Credit Freeze

 

You can lift a credit freeze or you can choose to remove it altogether. In order to do so, it’s similar to the credit freeze sign up process. You need to contact each credit agency and make a request to remove the credit freeze. As we discussed previously many of the three major agencies utilize a pin, almost like a password, that you’ll need to provide to lift or remove the credit freeze from that bureau.

 

Attaining good credit and working hard to keep your finances healthy, isn’t easy. With all the recent data breaches it is so important to take the necessary steps to protect yourself and your family from those looking to complete identity theft. One incorrect credit inquiry could cause a much bigger problem for you then taking the time to prevent it now. Credit freezes aren’t the only way to protect your credit from thieves if you lifted your credit freeze or removed it fully you may want to look into utilizing fraud alerts.

 

 

Are Student Loans Impacting Your Credit Score?

 

 

Fraud Alerts for Credit Reports

If you don’t want to freeze your credit but want added security for your credit reports, try fraud alerts. There are three different types of fraud alerts: initial fraud alert, active duty fraud alert, and extended fraud alert. What’re the differences between each and what makes them different from a credit freeze?

 

Initial 90 Day Fraud Alert

 

The initial fraud alert is an alert that lasts usually around 90 days and is often used when financial information, credit card numbers, or your wallet have been stolen or even lost. The initial fraud alert gets placed on your credit report. Meaning, if someone is, in fact, trying to steal your identity they will have a difficult time because companies will be required to take additional steps to verify your identity before issuing additional forms of credit. You can place these alerts on your credit report by contacting a credit agency. Once one agency is contacted they must notify the other two U.S. credit agencies. Initial fraud alerts can be renewed after the 90 day period.

 

Active Duty Alerts

 

These alerts are designed for people who are on active military duty. They operate similarly to initial fraud alerts in that they require businesses to complete extra tasks to confirm the borrower’s identity before an additional form of credit can be issued. These types of alerts typically last about 12 months or a year but can be renewed to match the deployment period. When you contact a credit agency, it must notify the other two U.S. credit agencies. Also, according to the FTC, the credit agencies must remove your name from any marketing lists for prescreened credit card offers for two years unless you request otherwise.

 

Extended Fraud Alerts

 

Extended fraud alerts are commonly used if you have already fallen victim to identity theft. Extended fraud alerts last 7 years. In order to place this type of alert on your credit report, you’ll need to send proof of identity theft to one of the three major U.S. credit agencies. Here is a great government resource if you ever fall victim to identity theft.

 

Similarities and Differences between Credit Freezes and Fraud Alerts

 

Fraud alerts and credit freezes have some similarities and unique differences. For example, both alerts and freezes are free of charge according to U.S. federal law. Any current creditors will still have access to your credit report even if you have fraud alerts enabled or you have a credit freeze in place. If you choose to open any new forms of credit while these are enabled it could lengthen the process for the new creditor. These are the similarities but what makes fraud alerts and credit freezes different?

 

One main difference is for a credit freeze each U.S. agency will need to be contacted directly. Whereas, for fraud alerts, if you notify one credit agency, that credit agency is responsible for notifying the other two credit agencies. During a credit freeze, prospective lenders will not have any access to your credit report. With a fraud alert, prospective lenders do have access to your credit report but will need to take additional steps before issuing new lines of credit. The last and one of the most obvious differences between these two is that credit freezes don’t have an expiration date. A credit freeze can be placed on your credit report until the end of time unless you request that it is removed. A fraud alert typically will expire within a year, or seven years depending on the type of fraud alert you’ve selected.

 

 

5 Reasons to Refinance Your Student Loans

 

 

NOTICE: Third Party Web Sites
Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

How to Build Credit While in College

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As a child, it’s not uncommon to think that there are monsters hiding under your bed or maybe in your closet. You never actually think it through as to what really could be hiding but it’s something scary. Trust me, you didn’t want to ever have to come face-to-face with it. Thus, my reasoning for staying in bed every night and never moving. Oh, and of course hiding my arms under the blankets. You know you did it too! Well, at twenty-eight I think I’ve finally met those monsters.  It was my credit!

Throughout my life, I was terrified of credit. I, like many others, was taught credit cards lead to lifelong debt and it could ruin my life. Not only that but any minor change like closing a credit card account affected my credit score – SCARY! Credit, like most new things in life can be intimidating or maybe even scary, but we have to start somewhere.

What most people, myself included, don’t understand about credit is that it can be a great thing when used responsibly. A good credit score can help with getting a house or buying a car. I now understand that credit is not a scary thing. Credit is only something you need to be responsible with. If you are a college student looking to build credit purchase only things that you can pay for. If you cannot guarantee that you can stay on top of payments, you shouldn’t be making purchases.

While in college, if you decide to build credit it can help jump-start your life after college. Filling out applications with your credit score will be easy because you’ve already started building credit.  In college, credit can be built through everyday expenses and can benefit you in the long run. Here are some simple ways of building credit that will not break the bank or “ruin your life,” but help you in the future.

Find a Credit Card

While in college, you may see a credit card offer dropped in your mailbox every week. Actually reading through the information and what the card offers is KEY. Look at interest rates and cash back rewards. Some cards have cash back rewards on points earned by using the card on things such as gas and groceries. By using a credit card for necessities and paying it off, you are earning easy credit while still in college.

Some cards offer cash back opportunities on travel. If you’re going away to college, using a credit card could be a great way to earn points for a visit back home or a weekend getaway. Remember, use a credit card on things you will be able to pay back on time. This way you will be building credit while also gaining reward points to redeem on things you want to do.

If you’re attending college you may want to check out student credit cards. Student credit cards can be a really great way to start building credit while you are in school. Be warned that you will still need to demonstrate a decent salary to qualify for a student credit card, simply being a student is not enough. Most student credit cards will not charge an annual fee and many offer additional perks.

 

Learn How Completing College Early Can Save You Money

 

Secure Credit Cards

If you don’t qualify for a student credit card or any traditional credit card because you don’t have a credit history look into secure credit cards. They work just like other credit cards but require a cash deposit, first. This deposit is usually in the hundreds or low thousands. If you make every payment in full and on time you’ll receive back your down payment. If you do not make payments on time or in full the lender keeps your down payment.

Rent

While being in college you will likely be moving into your FIRST apartment. An apartment can be a great way to start earning credit. Putting the rent in your name and paying it on time can assist in building credit. In order for rent to go towards your credit history, your landlord must be reporting the rent payments to one of the credit agencies. If your landlord isn’t reporting your rental payments it will not help you to build a credit history. In today’s society, it is also pretty uncommon for landlords to report rent payments to a credit agency.

If your landlord isn’t reporting your rent payments to a credit agency it can’t hurt to ask if they could start! When sharing an apartment with roommates, it is vital for everyone living there to pay their share of rent on time. Finding roommates that share accountability is important when you are building a good credit score.

Get a Credit Builder Loan

A loan that is in place to IMPROVE CREDIT?! Sign me up! When you have a credit builder loan, you make payments into your savings account. After one year, you will get the amount you paid back and increase your credit score! A credit builder loan does not require good credit to begin, you just have to show proof of income. Start by applying for a credit builder loan, and begin to make payments on time. In order for you to be benefiting from a credit builder loan, you must be paying on time. The pros to a credit builder loan include getting the money you put in and having a better credit score at the end of the year!

Become an Authorized User

Becoming an authorized user is a smart and easy way to embark on creating credit while in college. Being an authorized user means that you can use another person’s credit card and your name will be included on the account. The process simply has the account user add your name to the credit card account. As an authorized user, you will not be responsible for paying back debts on the credit card. This responsibility will legally be in the original account holder’s name. The main goal for being an authorized user is to increase your credit score by having an account holder with an outstanding credit history. If you have an account holder who is known for paying their debt on time, this will increase your score, because you’re on the account. Keep in mind that you should ask someone who is trusted and reliable when becoming an authorized user.

Start on Student Loan Payments

As a former college student, I know that going to school full time while working enough to have money to start paying off student loans can seem impossible. Remember, you do not have to pay off large amounts right away. While in college, consider putting money aside to start paying off loans when you can.

If you start loan payments early you will start to see positive growth on your credit score. The benefits of having student loans include helping build your credit score. If you decide to start paying off loans while in school, it will be before your loan deadline and will create less to pay off later. Even if you are not able to pay off large sums, these small amounts can make for fewer payments later on and a better credit score when you graduate from college.

Credit Utilization

A top way to build credit is not to utilize all the credit that is available to you. For example, if you have a credit card with a credit limit of $2,500 and the balance is $2,500 that would be 100% credit utilization. Credit utilization is important because it impacts your credit score. The maximum recommended credit utilization is about 30%. Therefore, if your credit card had a maximum limit of $2,500 then 30% of that would be $750. In this example, to avoid negatively impacting your credit score you should not spend over $750 on your credit card.

It can be difficult to be disciplined as a college student, but it’s important to remember that this money is not free. It’s also likely that this is probably your first credit card ever! Exciting, but this is a really important rule of thumb! This is a credit that you will eventually need to pay back. In an effort to build credit you want to be sure you’re creating good financial habits for yourself too. Be sure to stay disciplined and not utilize over 30% of your credit card.

BONUS: Credit Reports

While we are on the topic of creating good financial habits, the number one habit you can create is looking at your credit report. If you talk with any financial expert, this will be their number one piece of advice! Yearly, check your credit score and your credit report. Think about it like an annual physical at the doctor, but for your finances. Review your credit report to make sure that there are no errors or fraud to your credit history. If you visit AnnualCreditReport.com you can receive a free credit report from all three major credit agencies in the U.S. and a free credit report can be requested every 12 months.

Having paid off debt or using credit in college will prepare you for future payments on cars, houses, and throughout your adult life. Knowing your responsibilities and taking care of payments on time is key to achieving a better credit score by the end of your college career. Consider these options when deciding how to build credit and choose one that will benefit you in the long run.

 

Are Student Loans Impacting Your Credit Score?

 

NOTICE: Third Party Web Sites
Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

What You Need to Know About College Scholarships: Part 2

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Part 1 of this series covered the basics of searching for scholarship money to lessen the cost of college and the average cost of college. Part 2 looks at scholarships available through the federal government and gives you additional information about qualifying and applying for these opportunities to help you achieve your educational goals.

 

Federal Scholarships for College

 

It’s a big part of the American Dream: graduating from college to pursue a productive and rewarding career. In fact, Americans value a college education so much that our federal government awards over 120 billion dollars in annual aid to help students achieve this goal. Much federal financial aid is in the form of student loans, work-study programs, and tax credits for education. However, the government also awards “free money,” which often doesn’t have to be repaid. Instead of calling this type of award a scholarship, the government calls it a federal grant. Grants are awarded based on need, plus special conditions and circumstances. A federal scholarship or grant could be your ticket to a great education at a lower cost.

 

Federal Grants & Private Scholarships: What’s the Difference?

 

You may be eligible for both federal grants and scholarships from your college, state, service club, foundation or business. One of the main differences between the two types of aid is the application process. Each private scholarship has its own process, and you must carefully adhere to the instructions and meet all deadlines if you hope to qualify. Eligibility for a federal grant is determined using the comprehensive FAFSA® form, which students submit to apply for all federal student aid (grants, loans, work-study and other types of federal assistance). An exception to this is military ROTC scholarships and VA programs, which have varying application processes. ROTC and VA applicants must go through the appropriate service branch or agency to apply.

 

Private scholarships are frequently awarded on merit (scholastic or athletic achievement), specified condition (area of study, heritage, college or state) or financial need. Sometimes, more than one criterion is used to determine the award. Federal grants are based primarily on need, although some federal programs have been established for specific purposes like promoting teacher education or community service. Such grants may have additional requirements, like academic achievement and service commitment, in exchange for education benefits. Likewise, scholarships awarded through U.S. military ROTC programs come with a specific commitment to serve.

 

How Do You Apply for a Federal Grant or Scholarship?

 

Application for federal grants begins by filling out the Free Application for Federal Student Aid (FAFSA®) form. To apply for scholarships through military ROTC programs, you must apply with the associated military branch. Application for VA benefits can be accessed through the Dept. of Veterans Affairs website. The Dept. of Defense also offers scholarships and graduate fellowships with their own application process. Links to these federal sites are listed here:

 

 

Resources for Grants & Scholarships Through the Federal Government

Check out these federal grant programs that could help you lower the amount of money you have to borrow to attend college.

 

Pell Grants:

These grants gave eligible students a maximum amount of $6,195 toward their education in 2019 – 2020. Students may receive this assistance for up to 12 semesters of college.

Available To: Undergraduate Students

Qualifications:

  1. Must show exceptional financial need.
  2. Have not earned a bachelor’s, graduate, or professional degree. May be eligible if enrolled in a post-baccalaureate teacher certification program.
  3. Must not have been incarcerated in a federal or state correctional institution.

Amount Received Dependent On:

  • Expected Family Contribution (EFC). Defined by the Department of Education as “an index number that college financial aid staff use to determine how much financial aid you would receive if you were to attend their school.” The FAFSA form information is used to calculate this. The formula takes into account your family’s taxed and untaxed income, assets, benefits, family size, and the number of family members who will attend college.

Cost of Attendance – Expected Family Contribution = Financial Need

  • Cost of Attendance. Determined by your school for your program.
  • Attendance Schedule. Will you be a full-time or part-time student?
  • Are you attending school for the entire year or just a semester?

 

 

Federal Supplemental Educational Opportunity Grants:

This is an additional grant program distributed by participating colleges and allocates anywhere from $100 to $4000 toward a recipient’s undergraduate education. Submitting your FAFSA early can have a direct impact on this type of grant. Each school sets its own deadline for campus-based funding. You should be able to see the deadline on the school’s website and if it’s not there be sure to speak with a member of your financial aid office.

Available To: Undergraduate Students

Qualifications:

  1. Must show exceptional financial need.
  2. Have not earned a bachelor’s, graduate, or professional degree.

 

 

Teacher Education Assistance for College & Higher Education (TEACH) Grants:

You must also be pursuing a career in teaching. In order to qualify you will need to teach at the elementary or secondary level school in a high-need field in a low-income area after graduation.

Available To: Undergraduate Students, Post Baccalaureate Students, or Graduate Student (Attend a Participating School)

Qualifications:

  1. Enrolled in a TEACH-Grant-eligible program.
  2. Meet academic achievement requirements (scoring above the 75th percentile on one or more parts of a college admissions test or maintaining a cumulative GPA of at least 3.25)
  3. Receive TEACH counseling to explain the terms and conditions of the service obligation. Must complete counseling each year you receive a TEACH Grant.
  4. Sign a TEACH Grant Agreement to Serve.

 

Iraq & Afghanistan Service Grants:

Eligible students who lost a parent in military service and do not meet the need-based threshold for a Pell Grant can apply for additional college funds through this program.

Available To Qualifications:

  1. Not eligible for the Federal Pell Grant due to Expected Family Contribution.
  2. Meet Federal Pell Grant requirements for eligibility.
  3. Parent or guardian was a member of the U.S armed forces, who died as a result of military service performed in Iraq or Afghanistan after the events of 9/11.
  4. Under 24 years old or enrolled in college at least part-time at the time of the parent or guardian’s death.

 

 

SMART Scholarship Program:

The Dept. of Defense offers undergraduate scholarships and graduate fellowships to encourage participation in the STEM sciences and recruit future civilian employees for the DoD.

Available To Qualifications:

  1. Must be a U.S., Australia, Canada, New Zealand, or United Kingdom Citizen at the time of application
  2. As of August 1, 2019, must be 18 years of age or older.
  3. Ability to participate in summer internships at a DoD facility.
  4. Willingness to accept employment post graduate for DoD
  5. Minimum of 3.0 on a scale of 4.0 and in good standing.
  6. Pursuing one of these disciplines for undergraduate or graduate degrees.

 

Jobs to Reduce Student Loans

 

NOTICE: Third Party Web Sites
Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – The bank is not responsible for the content. Please contact us with any concerns or comments.

 

Why Completing FAFSA Early Is Critical

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The process of completing the FAFSA application might be something you’ve complained about. If you haven’t complained about it yourself, it’s likely you’ve heard others mention as not their favorite thing to do on a Saturday night. Though difficult, it is a crucial step for college attendance each year. Sorry—it’s unavoidable! Doing your FAFSA early can be a huge benefit, it makes it a little easier to get motivated and start the process as soon as you can. Why is it so crucial to complete your FAFSA early each year? Here are the reasons why completing the FAFSA early each year are imperative to your financial future.

 

An early application means a better chance at more money.

If you do your FAFSA early, you’ll have a better chance at more federal financial aid or school financial aid. The FAFSA application can be submitted for the next year of college starting October 1. That sounds early, but the sooner you get it in the better your chances for getting financial aid. For example, some colleges award their aid on a first-come, first-serve basis. If you wait too long, the school’s available financial aid may have been awarded to other students that did the FAFSA sooner. The same applies for federal financial aid. Only so many funds are available, and the institutions can’t wait until the last minute to select who gets awarded the aid. They often dole out aid earlier in the window. Meaning the earlier your application is submitted the better chance you will have at receiving financial aid.

 

Get your Student Aid Report faster.

If you file closer to that October 1 deadline, your Student Aid Report will arrive sooner. This gives you a better idea of where you stand for aid awards faster. The faster you have that report, the sooner you can start planning for how you’ll pay for the rest of your upcoming academic year. Having more time to apply for loans or look for other forms of aid will take the weight off of your shoulders!

 

Skip the stress of procrastinating.

Get it out of the way! There are so many things that you have to do to prep each semester. From registering for classes to picking up housewares and finding a roommate to getting your parking permit. Preparing for the upcoming academic year can usually mean a long to-do list. Plus, you will be wrapping up the previous semester. Do you really want to be worrying about FAFSA when you’re trying to study for exams? Not a chance! You don’t want to be overwhelmed with the amount of work it takes to complete the FAFSA. Be wise and get it out of the way and clear yourself up for focusing on other tasks.

 

These deadlines are real.

There’s not a lot of leniency if you don’t get your FAFSA done in time. Those deadlines are serious, and even being a little late could mean that you’re not eligible at all. Yikes! You don’t want to miss out on aid that could have saved you money on student loans just because you flaked on the application process. Plan ahead and get it done.

 

Other FAFSA Tips

  • Even if you don’t think you’ll qualify for aid, it’s still a good idea to complete the application. Some schools have increased their income levels for aid. The application may be required to qualify for other types of scholarships at some colleges.
  • You generally have until the end of June to file, but some states and schools have earlier deadlines. Know what those deadlines are so that you’re not kicking yourself later!
  • Does your school use the CSS Profile? That’s an additional application required by 400 major colleges and it’s just as important as FAFSA. Check with your financial aid office to verify.
  • When FAFSA changed a few years ago from the January 1 start date to October 1, this also changed the tax information you need to submit. You don’t have to wait until January 1 to file because you use the previous tax year’s information. For example, taxes from 2018 won’t be used until October 1, 2019, which will apply to the 2020-2021 school year.

 

If you have any questions about FAFSA or any other aspect of financial aid, don’t wait to talk to an advisor or someone in your school’s financial aid office. They specialize in these topics and are there to help make sure you get as much aid as you deserve. All you have to do is listen, be on the ball, and get all of your paperwork in order to make this happen!

 

What You Need to Know About Scholarships

Pay Down Student Loan Debt or Invest In a Traditional 401(k)?

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Student loan debt in the United States has amounted to $1.5 trillion according to the Federal Reserve. This large student loan debt burden has affected many young people who are looking to start families and create a life for themselves. Despite this tough obstacle, many young people still have excess savings and need to determine what to do with these savings. Should they take their savings and invest in a traditional 401(k) or use that savings to pay down their student loan debt? We’re going to share different situations all spanning 10 years that involve paying down student loan debt and investing in a traditional 401(k) plan.

 

 

Let’s say you have a taxable income of $150,000 and file taxes jointly with a spouse. Under the new 2018 tax brackets, your effective federal tax rate is 16.59%.  Let’s also assume you have $70,000 of student loan debt with 10 years left at a 7% interest rate. Your monthly student loan payment would be about $812.76 assuming you’re making the same payment amount every month.  What should you do? Pay down the student loan or invest in a traditional 401(k) account?

 

 

Income: $150,000

Effective Tax Rate: 16.59%

Student Loan Debt: $70,000

Monthly Payment: $812.76

Term: 10 years

Interest Rate: 7%

 

Scenario 1 – Paying Down Debt Student Loans Then Investing

Let’s start off by taking a look at how you can pay this debt down faster. Did you know that if you pay an extra $100 a month in addition to your regular student loan monthly payment, you’ll save $4,464.13 in interest paid? Not only will you save money by paying extra every month, but you’ll cut down the overall repayment period by a year and a half. Yes, you’ll be debt-free a year and a half earlier than you thought!

 

$812.76 + $100 = $912.76 Monthly Payment

 

After being debt free sooner than expected, you may decide to start investing in your 401(k). If you put all of the money you were paying from your student loan into your 401(k), you’d contribute $1,094.31 monthly.

 

You may be wondering how you can contribute more money towards your 401(k) than your student loan payment. The answer lies in taxes.

 

Student loan payments are made with post-tax income. 401(k) contributions are made with pre-tax income. Since a traditional 401(k) account uses pre-tax income, you are able to contribute more towards your 401(k) than you would have your student loan debt with the same income. Though you don’t pay taxes on 401(k) contributions, ordinary income tax will be applied on 401(k) distributions.

 

$912.76 / (1-16.59%) = $1.094.31 Monthly Contribution

 

After a year and half of contributing $1,094.31 per month, compounded monthly, at an assumed 7% rate of return, you would have $20,826.09. The investment amount of $20,826.09 combined with the student loan interest savings of $4,464.13 would give you a total 10-year net value of $25,290.23.

 

Scenario 2 – Investing While Paying Down Student Loan Debt

 

If you have a higher priority of saving for retirement than paying off your student loan debt, you may want a different option. Let’s see what would happen if you decided to put that extra $100 a month into a tax-deferred 401(k) account. The $100 would be contributed to your 401(k) account instead of your student loan debt balance, but you would continue to make monthly student loan debt payments. Due to the pre-tax nature of a 401(k), your contribution of $100 post-tax would become $119.89 pre-tax.

 

$100 / (1-16.59%) = $119.89 Monthly Contribution

 

With an assumed 7% rate of return, compounded monthly, on your 401(k), you will have approximately $20,872.19 in your 401(k) after 10 years.

 

Scenario 3 – Employer Contributions 401(k)

 

Some employers will match your 401(k) contributions up to a certain percentage of your income. This could be a real game-changer. Turning down your employer’s 401(k) match is like throwing away free money. If you have student loan debt, but your employer offers a match, consider contributing to receive the maximum employer match. If you contribute $119.89 a month with an employer match while making your normal student loan payments, your money can really grow.  If your employer matches the 401(k) contribution dollar for dollar, you will double your investment of $20,872.19 from Scenario 2 to $41,744.37 in your 401(k) account after 10 years.

 

Contributions to a traditional 401(k) are made prior to your income being taxed. The withdrawals on a traditional 401(k) are taxed. The tax rate that is applied to your withdrawals depends on your tax bracket in retirement.  As the average person’s career develops, they typically continue to increase their salary and move into a higher tax bracket. Upon retirement, they will see a decrease in income and move to a lower tax bracket. This means your 401(k) withdrawals could be taxed in a lower tax bracket if done while in retirement, instead of in your working years. Note that this will only be the case if your retirement income is less than your working income.

 

 

Scenario 1 – Paying Down Then Investing

Scenario 2 – Investing While Paying Down Debt

Scenario 3 – Employer Contribution 401k

 

As you can see from the chart above, investing while paying down student loan debt or paying down debt than investing produces almost the same total net value. One debt pays down and investment strategy might perform better than the other depending on the return in the 401(k) account. It’s important to keep in mind that the returns on a 401(k) account are never guaranteed

 

The real deciding factor on whether to invest or pay down your student loan debt will be if an employer offers a 401(k) match. Matching contributions from your employer will make investing significantly more attractive than paying down debt. If an employer match to your 401(k) is available, it’s wise to take advantage of it.

 

Your comfort level with your student loan debt can be a large factor in your decision to invest in a traditional 401(k) account or to pay down debt. Knowing whether you are more interested in being debt free or being prepared for retirement can help you make a decision. Let’s look at how student loan refinancing can help you amplify your student loan debt pay down and investment strategy.

 

In Scenarios 1, 2, and 3, the big question was whether you should use the additional $100 a month to pay down student loan debt or invest in a 401(k). What if you wanted to spend that $100 a month instead? Is it possible to find a way to save on student loan debt while spending that extra $100 a month? You’re in luck! This can be done with student loan refinancing.

 

Scenario 4 – Refinancing Student Loan Debt

By refinancing your student loan debt, you should be able to decrease the high-interest rate of your student loan. In addition, you should be able to save money over the life of the loan and in some cases monthly.

 

The total interest you would have to pay on your student loans of $70,000 at 7% interest over 10 years is $27,531.12. If you qualify to refinance your student loan debt to a 5% interest rate, the total interest you would pay is $19,095.03. This would mean that refinancing your student loans would be saving you $8,436.09 in interest over the life of the loan or $70.30 a month.  When comparing your new 5% interest rate to your previous interest rate of 7%, not only would you be saving over the life of the loan, but reducing your monthly payment!

 

$8,436.09 / 120 = $70.30 Monthly Interest Savings

 

Learn More About Student Loan Refinancing

 

 

Scenario 5 – Refinancing and Paying Down Debt Then Investing

 

Now, what happens if you refinance your student loan debt, pay down the debt, and then start investing? Refinancing your student loan debt will cut your interest rate, saving you $70.30 a month, making your monthly student loan payment now $742.46 instead of $812.76 per month. By taking the additional $100 a month and the $70.30 in student loan savings from refinancing and applying them to your monthly student loan payment, you will be debt free two years and three months sooner than expected. Two years and three months are earlier compared to the one and a half years from Scenario 1. Just a reminder, in Scenario 1, there an additional $100 a month put towards your student loan debt. With refinancing and making the same monthly payment as Scenario 1, you will save $13,017.87 in interest over your original loan.

 

$742.46 + $70.30 + $100 = $912.76 Monthly Payment

 

Now that you’re debt free, you can use the money that would have been used for your student loan payment to contribute to your 401(k). Since 401(k) contributions are done with pre-tax income, you will be able to contribute a pre-tax amount of $912.76, which is $1094.31.

 

$912.76 / (1-16.59%) = $1.094.31 Monthly Contribution

 

After two years and three months of contributing $1,094.31 per month, compounded monthly, at an assumed 7% rate of return, you would have $32,085.89. The investment amount of $32,085.09 combined with the student loan interest savings of $13,017.87 would give you a total 10-year net value of $45,103.76.

 

Scenario 6 – Refinancing and Investing While Paying Down Debt

 

Now let’s try refinancing while you simultaneously pay down debt and invest. In this scenario, you will cut down the interest rate on your student loan debt from 7% to 5% by refinancing. You’ll be contributing the pre-tax amount of the extra $100 a month and $70.30 a month in interest savings towards your 401(k). You will end up contributing a total of $204.17 a month to your 401(k) account.

 

($100 + $70.30) / (1-16.59%) = $204.17 Monthly Contribution

 

With an assumed 7% rate of return, compounded monthly, you will have approximately $35,544.87 in your 401(k) after 10 years. Combined with the interest savings of $8,436.09, you will have a total net value of $43,980.96.

 

 

 

Scenario 1 – Paying Down Then Investing

Scenario 2 – Investing While Paying Down Debt

Scenario 4 – Refinancing Student Loan Debt

Scenario 5 – Refinancing and Paying Down Debt Then Investing

Scenario 6 – Refinancing and Investing While Paying Down Debt

 

As you can see from the chart above, just from refinancing your student loan debt, you can save money and increase your total net value. If you take it one step further and supplement your debt pay down and investment strategy with student loan refinancing, you would approximately double your total net value! By taking advantage of student loan refinancing, you will be able to supercharge your debt pay down and investment strategy. For those who are just trying to save money on student loans or have more money to invest in their 401(k), student loan refinancing is the way to go.

 

Check Out Our Guide to Student Loan Refinancing

 

NOTICE: Education Loan Finance by SouthEast Bank is not authorized to provide tax advice or financial advice. If you need tax advice or financial advice contacts a professional. All statements regarding 401(k) contributions assume that you have a 401(k) plan and that you are able to contribute those amounts without contributing more than the current federal law limits.

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