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Mark Your Calendar for These Important Financial Dates

It’s no secret that as you get older, life gets more complicated. Long gone are the days of simply saving spare change from your grandpa’s pockets in a ceramic piggy bank. Even that savings account you opened in high school is outdated now that your expenses have exploded beyond just food, entertainment, and a cell phone bill. As an adult, you have to consider your student loan debt, saving for retirement, and affording childcare, among an ever-growing list of other financial obligations.

 

One way to effectively manage your money in adulthood is to be aware of important financial dates. This helps you predict and prepare for big expenses to be sure there are no surprises. It even helps you capitalize on saving opportunities. And since it’s a new year, there’s no better time to pull out your calendar and mark these noteworthy financial deadlines.

 

Important Financial Dates

 

January

 

Review Last Year’s Finances – Reassess your retirement funds and allocations based on how they performed last year. If you didn’t get the gains you hoped for, now may be the time to reallocate your portfolio (i.e., adjust where your money is distributed among savings accounts, stocks, bonds, etc.) Also, take this time to consider adjusting contributions toward accounts like your 401(k) if your employee matching program changed.

 

Standardize Financial Dates – It’s hard enough remembering bills without them being due at different times throughout the month. Change payment dates to be on the same day at the end of the month, which gives you 30 days to get money in the right place.

 

Fund Your IRA – If you have a Traditional or Roth IRA (Individual Retirement Account), you can contribute up to $6,000 a year to these accounts. January 1 is the first day of the year that you can make such contributions, and investing as much as you can, as early as you can, maximizes the number of days your money can grow.

 

Revise Your Student Loan Debt Repayment Strategy – If you got a raise at the end of last year (or beginning of this year), be smart with that money and direct it toward your student loan debt. Even a raise of 2-3% can help you pay off loans quicker, reducing the amount of interest paid over the life of the loan.

 

 

February

 

Max Out 401(k) Contributions – Many people aren’t aware that as long as you haven’t hit your yearly limit, you can contribute toward your 401(k) beyond December 31. You have until Tax Day to make these tax-deductible contributions. So if you have the means, now is the time. In 2019, the limit for employee 401(k) contributions was $19,000.

 

 

March

 

Prepare for Tax Day – Be ready for April 15 by getting your documents and information organized in advance. Make sure you have all forms needed from your employer, investment accounts, mortgage accounts, and student loans. TurboTax has a handy guide for commonly-used IRS tax forms, including a Form 1098 that you’ll receive if you paid interest on a student loan last year.

 

 

April

 

File Your Taxes – April 15 is Tax Day in the U.S. For those of us with student loan debt, the interest portion of these payments is tax-deductible, up to $2,500.

 

Maximize Health Savings Accounts – Tax Day is the last day to contribute pre-tax dollars to last year’s HSA. In 2019, individuals could contribute up to $3,500 as an individual or $7,100 as a family.

 

Spend Down Flexible Spending Accounts – April 30 is the deadline for spending last year’s FSA funds. Remember, these are “use it or lose it” accounts and money can be applied to copays or other out-of-pocket expenses. You can even spend it on health-related items at FSAstore.com.

 

 

May

 

Check Your Credit – This important financial date isn’t tied to May, but it should be somewhere on your calendar every year. Your score determines your ability to improve your interest rate with student loan refinancing. A check can also let you know if any fraudulent activity—tied to your name—has occurred that might negatively impact your student loan refinancing.

 

 

June

 

FAFSA Application Due – June 30 is the last day to complete the Free Application for Federal Student Aid (FAFSA) for the upcoming school year. If you already have a student loan, consider student loan refinancing. By consolidating and refinancing your loans, you can make payments simpler and possibly reduce your monthly payments.

 

 

July

 

Refinance Student Loans – Summer is a great time to refinance student loans because you won’t be distracted by the holidays or year-end deadlines at work. When you’re ready, check your eligibility for student loan refinancing at ELFI.com.*

 

 

August

 

Contribute to Emergency Funds and Savings – Unless someone in your family heads back to school this fall, August is typically a sleepy month for finances. Time to double-check that you’re contributing to emergency funds and holiday savings accounts so you don’t get into financial trouble during end-of-the-year festivities.

 

 

September

 

Car Shop – This month is a great time to look for a new vehicle. Dealerships are in a generous mood since new models will soon start rolling into the lot, and they need to clear inventory.

 

 

October

 

Complete FAFSA for Next Year – October 1 is the first day to file your FAFSA for next school year. Filling out this application as soon as possible ensures you don’t miss out on available aid.

 

 

November

 

Open Enrollment – Employers typically hold open enrollment during this time of year. Reassess if your current plan still works for you. Also consider if it’s worth changing plans or opting out of certain coverage (like dental) to reallocate funds to debts, like student loans.

 

 

December

 

Review Accounts – Make sure you’re making the right moves to use your FSA money, maximize contributions to savings accounts, and even if you need to file a new W-4 to withhold more or less money from your paychecks. Withholding less can be part of a new student loan repayment strategy where you have more cash to contribute toward the loan. However, it also means you won’t get as big of a refund next tax season.

 

Shop Around for Car Insurance – While you’ll want to update your car insurance after any major life change, such as moving or having a child, you could score additional savings depending on the time of year. In a 2014 study, December was the cheapest month to obtain car insurance, with March being the most expensive. While the jury’s still out on the exact reasoning behind the shift, market competition and the likelihood of natural disasters could be a contributing factor.

 

Being aware of important financial dates can help you save and manage your money so you have more options down the road for student loan repayment, business opportunities, and real estate investments.

 

If you’re ready to explore student loan refinancing, you don’t have to wait for an important financial date on the calendar. You can learn about eligibility, benefits, and more—today—at ELFI.com.

 

This blog has been prepared for informational purposes only and does not constitute financial advice. Always consult a professional for guidance around your personal financial situation.

 

 

 

 

 

 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: 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.

4 Things That Could Maximize Your Tax Savings Before December 31

This blog has been prepared for informational purposes only, and does not constitute tax or financial advice. Please consult your tax advisor for guidance on your personal tax situation.

 

By Caroline Farhat

 

With the end of the year coming, it’s typically a time people start thinking about the goals they’ll make in the new year. Do you want to refinance student loans, pay down debt, or just cut back on your hefty clothing budget? You’re not alone. In fact, Inc. reported that about 60% of Americans currently make New Year’s resolutions. “Saving more and spending less” was the fourth most common resolution.

 

It may be tempting to wait until the ball drops to start working on your goals, but there’s one area you likely could be saving on that you’ll have to take action on now. Any guesses? If you thought of Uncle Sam, you’re right. With some strategic planning, you can maximize your tax savings so that you’re not left with a big bill when Tax Day rolls around. Ready to start saving? Here are four things that could maximize your tax savings before year-end.

 

Max out your retirement accounts

You’ve probably been told to save for retirement hundreds of times. There’s a good reason for that. The earlier you begin contributing to retirement accounts, the more time it allows for the money to compound and increase.

 

So how does contributing more at the end of the year help your taxes? If you contribute to a tax-deferred retirement account, such as a 401(k), the contributions could help lower your taxable income for 2019. There is a maximum amount you can contribute to retirement accounts and it can change yearly. For 2019 the limit is $19,000 if you are under the age of 50, and $25,000 if you are 50 or older. In 2020 the limit is $19,500 for under the age of 50, and $26,000 for ages 50 and older. Bottom line: If you have not reached the limit and you’re financially able to contribute more, it may be beneficial to contribute an additional amount up to the $19,000 limit so you can lower your taxable income.

 

Be strategic with your income

This tactic is especially important for you freelancers out there who might have more control over when you can recognize income.

 

In order to know how to best be strategic with your income you need to consider if you anticipate being in a lower tax bracket this year or next year. If you anticipate being in the same bracket or a lower tax bracket next year, it’s likely more advantageous to defer your income to the following year. However, if you anticipate that you will be in a higher tax bracket next year, you may want to accept all the income you can now.

 

If you are self-employed, try to collect all unpaid invoices before the end of the year if you think you’ll be in a higher tax bracket next year. If you think you will be in a lower tax bracket next year, wait to collect payment from the invoices after January 1.

 

If you work as a full-time employee, a bonus you may receive is typically the best way to defer income. Check with your HR and/or payroll departments to see if this is a possibility.

 

Maximize other tax deductions

There are a lot of other ways you can maximize your tax savings at the end of the year. Here are some examples:

  • If you have a mortgage, it may be beneficial to make one extra payment at the end of the year since mortgage interest is deductible on your taxes. If the payment due in January is paid in December that will be more interest you can take as a tax deduction. In addition, if you have mortgage insurance the same principle applies.
  • Make a charitable donation and you may be able to take that as a tax deduction. Be sure to save your receipt as proof!
  • If you have a health savings account, try to contribute up to the maximum allowable amount. Contributions to an HSA are deductible and reduce your taxable income. The maximum contribution limits for 2019 are $3,500 for individuals and $7,000 for families. People ages 55 and older can contribute an extra $1,000.

 

Make an extra student loan payment

Making an extra student loan payment is another great way to potentially maximize your tax savings because you can deduct up to $2,500 of student loan interest paid. Student loan interest can be deducted whether you itemize deductions or not, so this is a great perk for everyone paying student loan debt to consider. The deduction of $2,500 is per tax return not per person, so if you and your spouse both pay on student loan debt you still can only deduct $2,500 of the interest you paid between the two of you. In addition, there are income limits to be aware of. For tax year 2019, in order to qualify to take the full deduction your modified adjusted gross income (MAGI) must equal or be below $70,000 for single tax filing status and $140,000 for married filing jointly. If your MAGI is above $85,00 as single tax filing status and $170,000 for married filing jointly you are not eligible to deduct any of the student loan interest. If your MAGI is between the two limits you may be able to deduct some of the student loan interest you have paid.

 

If looking at your loan payments is making your head hurt, it might be time to start looking at your student loan refinancing options. While saving on your taxes is a great start, student loan refinancing could potentially save you thousands of dollars. You can see just how much you can save each month, and over the lifetime of your loan, by using our student loan refinance calculator*.

 

Bottom Line

While filing for taxes will never be fun, you can make it easier on your bank account by doing a little planning ahead of time. Implement some of these tips and you could see the benefits come tax time. If nothing else, you will be working towards a better financial outlook in the new year!

 

Each person’s tax situation is different. The tips above are not intended to replace the advice of a trained tax specialist. Make sure to do your research and consult your tax advisor for guidance.

 


 

*Subject to credit approval. Terms and conditions apply.

 

Notice About Third Party Websites: 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.

Best Apps for Budgeting in College

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.

 

Note about mobile applications: Some mobile applications may charge fees or allow you to purchase access to content or features through one-time or subscription-based payments.

Motivating your student to apply for scholarships

Do you find your child lacking motivation when it comes to finding grants and scholarships? While some students are intrinsically motivated and will search out and apply for scholarships on their own, other students may need a little encouragement in order to accomplish these tasks. While it can be frustrating, it’s important to remember that this is likely the first time your child has had to navigate financial waters. Because of that, we’re sharing some simple ways you can motivate your child to apply for scholarships before and during their college years.

Discuss college costs and finances with your child.

Your student may not fully understand how much college can cost. Hold an honest discussion with your child where you review the costs of their top college choices, how much money (if any) you will be able to contribute, the significance of creating a college budget, the realities of student loans, etc. While they may be more focused on which clubs they’ll join and their newfound freedom, helping them understand the importance of financial help can make their college year much more enjoyable.

Share scholarship success stories.

Sometimes, all it takes to motivate your student to apply for scholarships is sharing how their peers are reducing the cost of college. Ask other parents which scholarships their child was able to secure, and even let your child know the lump sum their friend was able to save. Take note of the steps each student performed in order to obtain the scholarships and go over with your student ways they can implement strategies into their application process.

Assist with developing a scholarship organization plan.

When it comes to applying for college scholarships, it pays to be organized. From deadlines to account passwords to application requirements, your student will have a multitude of details to remember. Developing a scholarship organization plan will help deter your child from becoming overwhelmed, which in turn will motivate them to complete applications. Share these organization tips with your child to make the process of applying for scholarships a little easier.

Provide incentives.

Using extrinsic motivators, such as rewards, can prod your student into action. Just as you may have bribed your toddler during the toilet training phase, that same concept should work with your teenager. Consider making a deal with your child that if she applies for a certain amount of scholarships, then you will provide half of the money so she can purchase that new phone or outfit for which she has been saving up money.

Give your child a free pass.

Most teens would gladly give up their household chores to complete other tasks, even if the task involves academics. Allow your child a free pass on chores if they use that time to search out and complete scholarship applications.

Set realistic goals.

If you expect or nag your child to spend most of her free time looking for scholarship leads and filling out applications, no wonder they aren’t motivated. Work with your student to set realistic goals for the number of hours spent each week on the scholarship application process.

Acknowledge and encourage your child’s efforts.

Positive encouragement can work wonders to increase your child’s motivation. By letting your child know that you have seen and appreciate their efforts to apply for scholarships, you are giving them the confidence they need to continue applying for more.

For more information about scholarships, be sure to read the scholarships and grants from our friends at eCampus Tours. Your teen can also perform a free scholarship search by clicking 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.

5 Financial Tips for After You Refinance Student Loans

The process of refinancing student loans can be like studying for finals: you prepare for weeks, the stress keeps you up at night, and once the big day finally passes, you feel a huge sense of relief. You might even go out with friends to celebrate. But like college, you can’t just forget what you learned. You have to apply that knowledge to the next step. 

 

When it comes to refinancing student loans, the next step is to continue honing your financial savviness. Find other ways to reduce and quickly pay off debts so you can start spending money on the things you want, instead of the things you need! Below are five tips to consider after refinancing student loans. 

Pay Down Other Debts

Take the extra amount you paid toward that student loan and apply it to other debts. With a $50,000 loan at an 8% interest rate, you could owe approximately $480/month for 15 years. Your total interest over the life of the loan is $36,000. But if you’re able to reduce that interest rate to just 6%, your monthly payment drops to $420/month and the total interest paid is $26,000. What could you do with an extra $60/month? What could you do with an extra $10,000 over 10 years? A lot. 

 

Consider all the types of debt and ongoing expenses you have that you could apply that $10,000 toward:

  • Credit cards
  • Car loans
  • Home loans
  • Medical bills
  • Childcare
  • Cell phone bills
  • Utility bills

 

You can also opt to keep that extra money aimed at your loan. Refinancing student loans often establishes terms with no prepayment penalties. So paying off loans faster can alleviate the burden of debt. This can take many forms, including:

  • Make an extra payment: In addition to your minimum monthly payment (12 payments a year), consider an extra payment every few months. In the example above, if you save $60/month on your refinanced student loan, you will have enough money for a whole extra payment every 7 months, with no additional work done on your part. Just a little saving!
  • Pay more than the minimum: If you don’t want to worry about orchestrating extra payments, overpay during each regular monthly payment. By going above and beyond the minimum payment, you’ll keep from accruing as much interest on your principal balance. Going back to our example again, if you were to keep that extra $60 applied to your monthly payment of $420 (for a total of $480), you could pay off your loan 2–3 years earlier at a savings of $5,000. It might seem tempting to use that extra $60 as play money right now, but $5,000 could be an even bigger play day in the future!
  • Make single lump-sum payments: Use your tax return, annual bonus, or an inheritance to make lump-sum payments toward the principal balance on your refinanced student loan. Again, the mindset here is to pay off that loan as fast and comfortably as you can.  

Negotiate Other Bills or Debts

Don’t stop while you’re on a roll. Once you secure better terms for your loan, find other ways to lower your bills. Use that financial savvy you picked up refinancing student loans, and negotiate with other debt collectors. This negotiation isn’t limited to loans—you can often get better rates with your cable and internet provider too. 

 

You also likely have a dozen or more automatic monthly payments coming out of your checking account or linked to a credit card. Some banks or apps like Truebill® and Trim® can help you find and cancel subscriptions that are unused or that you forgot you signed up for in the first place. What started as $60/month saved could possibly turn into $150/month after canceling unused subscriptions. 

Consolidate Credit Card Debt

You can consolidate loans, but did you know you can also consolidate credit card debt? If you have multiple cards that you owe money on, you can roll those cards into a single loan. Depending on your credit score and other factors, a consolidated loan can have lower interest or a lower, more achievable payment. You could also take out a personal loan with a lower rate to pay off cards directly with the credit card company.

Keep At It

Refinancing only sounds like the hard part. The real challenge comes after you sign the papers. Getting a new interest rate and a new loan term won’t save you money if you don’t make on-time payments and pay off your loan according to those new terms. Adult life has a lot more things on its to-do list. Set up automatic payments so you don’t risk forgetting. At the very least,   set monthly reminders in your calendar app to write a check or manually process your payment. 

Tell Your Friends

ELFI offers options for student loans and refinancing student loans. But did you know ELFI also has a referral program1 that can help you make (and save) even more money? Sign up and create a personalized referral link to share with friends or family. When someone refinances using your link, you’ll get a $400 referral bonus check and your friend will receive a $100 credit toward the principal balance of an Education Loan Finance loan. There’s no limit on the number of people you can refer. Learn more at elfi.com/referral-program-student-loan-refinance.

 

 

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.

 

Terms and conditions apply. Subject to credit approval.

 

1Subject to credit approval. Program requirements apply. Limit one $400 cash bonus per referral. Offer available to those who are above the age of majority in their state of legal residence who refer new customers who refinance their education loans with Education Loan Finance. The new customer will receive a $100 principal reduction on the new loan within 6-8 weeks of loan disbursement. The referring party will be mailed a $400 cash bonus check within 6-8 weeks after both the loan has been disbursed, and the referring party has provided ELFI with a completed IRS form W-9. Taxes are the sole responsibility of each recipient. A new customer is an individual without an existing Education Loan Finance loan account and who has not held an Education Loan Finance loan account within the past 24 months. Additional terms and conditions apply.

How to Know When It’s Time to Refinance Your Student Loans

There are plenty of milestones in life that give us reason to celebrate– high school graduation, marriage, the birth of child, paying off student loans. Yes, seeing your debt decrease and your savings increase for many people are a time worth remembering. And truth be told, being further out of debt can make those other milestones much more enjoyable. This blog is designed to help you reach that debt-free milestone quicker by refinancing your student loans. After all, getting them under control and adjusting the repayment terms to something more favorable could help make a dent. Here’s how to know it’s time to refinance your student loans:

You Earn Good Money

No one wants to see their hard-earning income fly out the window. If we’re talking about milestones, we would argue that the 15th and 30th of the month are recurring ones that give us plenty of joy, albeit short-lived. When we see money deposited we want to hold on to it and protect it. However, your debt doesn’t go away. Even though you’re earning good money you will have to face the music and pay off the education that helped get you to the position you’re in. Refinancing your student loans often means a better interest rate and the option to choose a better term.

You’re Credit-Worthy

Many people simply aren’t aware that federal interest rates are not dependent on your financial circumstances. There are a few factors involved, but the credit history of the borrower isn’t one of them. If you’ve been on-time with your credit card, mortgage, car loan, or any other debt, and maintained a good balance between the money you earn versus what you owe in debt, you’ve likely got a high credit score. When you refinance your student loans with a private lender that credit score helps determine your interest rate, and that in return can help save some money.

You Love One Payment

One of the added benefits of refinancing your student loans often means consolidating your loans. While it’s true you can still refinance partial loans, lumping them all together with a nice bow on top not only helps you feel empowered to pay them off, but also reduces the likelihood you’ll miss a payment due to the sheer number of them floating around out there.

You’re Incentivized at Work

A growing number of companies are taking a long, hard look at the benefits they offer their employees. Gone are the days of sticking with one job from graduation to retirement. Today, it’s all about working for an employer that offers great benefits, compensation and work/life balance. And because of that, repaying part of an employee’s student loan obligations is starting to become the norm. If you’re in this category, it may be wise to refinance your student loans, consolidate them, and watch your employer help pay down your debt.

 

If you can check these boxes chances are you’re ready to refinance your student loans and are one step closer to that all-important milestone of getting out of debt. Speak with one of our Personal Loan Advisors to help walk you through the process.

 

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 web sites 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.

Should You Pay Off Student Loans Immediately or Over Time?

When you start your post-college career, you may be tempted to breathe a sigh of relief. Before you do that, you have important decisions to make. You’ll have to stretch your paycheck to cover your new lifestyle and associated expenses: a furnished home or apartment, vehicle, insurance, and hopefully a 401K contribution. If you are like 70% of college graduates, you also have student loans that need to be repaid.

 

In most situations, it’s going to be most beneficial to pay off your loans as quickly as possible so that you are paying less towards interest. The average college graduate’s starting salary, however often cannot allow for enough additional income to cover more than the regularly scheduled student loan payments.  Most student loans have a six-month grace period so you can do some budgeting and planning first – if you need to. We don’t suggest using the grace period unless you find it necessary to organize your finances. During a deferment such as a grace period, the interest could still be accruing depending on the type of loan that you have.

 

If you determine that you may be better off establishing sound financial footing and a workable monthly budget before you begin repaying those daunting loans. Keep these tips in mind as you formulate a strategy for debt payoff.

 

Student Loans Have Advantages

Varying types of debt are governed by different laws and regulations. Banks often base interest rates for consumer credit loans on your established credit rating. Interest rates for auto loans or credit card debt tend to be higher than a mortgage or student loan interest. As you review your debt load and make a plan, remember: student loan debt comes with a few “advantages” that other types of debt don’t offer.

 

  • Preferential tax treatment: With a new job, you will be paying taxes on your income. Student loan interest is deductible up to $2,500 and can be deducted from pre-tax income.
  • Lower interest rates & perks: Federal student loans have lower interest rates and are sometimes subsidized by the government.
  • Lender incentives: Private student loans may come with incentives from the lender that make them a better deal than other credit types. These include fee waivers, lower interest rates, and deferment options.
  • Flexible payment plans: Options for lower payments and longer terms are available for both federal and private student debt.
  • Build your credit score: You can build your credit score with student loan debt. Now, depending on whether you’re making on-time payments or not, you could negatively or positively affect your credit. If you chose to make small payments during deferments, or a grace period, and regular on-time payments you will be more likely to establish a favorable credit record and reduce the amount of interest you pay overall.

 

Programs to Help You With Student Loan Payments

There are few options for loan forgiveness with regular debt, but student loans offer opportunities to reduce or eliminate your debt. These may come with commitments and tax implications, so be sure you fully understand them if you decide to take advantage of these programs.

 

  • Loan forgiveness: Federal student loans may be forgiven, but you’ll want to be sure that you’re following all of the requirements needed of the program. Be sure before choosing this option that the federal loans you have qualify for the program. Also, keep in mind there could be taxes due on the amount that is forgiven. Some student loan forgiveness programs include PAYE (Pay as You Earn) and REPAYE (Revised Pay as You Earn), Public Service Loan Forgiveness, and Teacher Loan Forgiveness.
  • Loan Consolidation: Multiple student loans can be consolidated into one payment with the interest rate determined by a weighted average of your current loans – interest rates. Combining multiple loans may be easier to manage on a modest starting salary. Consolidating federal loans usually doesn’t require a good credit score, either.
  • Refinance, and you could achieve a lower interest rate: Lenders like Education Loan Finance specialize in student loan refinancing, and have options like variable interest rates and flexible terms. Refinancing your debt could make student loan debt easier to manage than other types of credit.

 

Pay Off High-Interest Debt First

Before you decide to pay off your student loans, think about the financial obligations you’ll be taking on. Instead of carrying a credit card balance or making low payments for an auto loan, it makes sense to continue your low student loan payments and pay off more expensive debt first or debt with a higher interest rate. In the long run, you’ll save money and build your credit score.

 

If you still have doubts about not paying off student debt first, consult a professional financial advisor for help prioritizing your goals and setting up a budget that lets you achieve them.

 

Click Here to Learn More About Student Loan Repayment

 

 

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

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

 

 

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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 is a Prepayment Penalty? What’s the Catch?

Imagine finally paying off your loan just to find out you owe the lender more money!  All because you’ve paid your debt off early. Instead of your lender rewarding you for paying the loan off earlier than your contract states, they charge you extra. Here’s what that is, how to avoid it, and what you can do.

 

What is a prepayment penalty?

 

A prepayment penalty is a fee charged to a borrower. If you pay off your loan earlier before the date planned in the contract the lender could charge you a prepayment penalty.

 

A prepayment penalty is charged once you’ve completed paying your debt, if it was paid it off early, or it could be a fee for overpaying the scheduled amount set per year. A prepayment penalty can be a fixed amount or based on what the remaining balance of your loan was set to be. For example, certain loans may allow you to pay off 20% extra each year before facing a fee.

What are prepayment penalties for?

 

When you borrow from an institution, they assume that it will take you a certain amount of time to repay the debt back, with interest. If you pay back your debt sooner, that institution may lose out on the interest that they collect. For this reason, loans like a mortgage might have a prepayment penalty to discourage people from refinancing or selling within the first few years.

 

You can think of a prepayment penalty as a way for the institution to ensure that it makes an adequate return amount for the credit they lent. Additionally, lenders charge prepayment penalties because if they place the loan in security and sell it, they need verification that the loan will be outstanding for a particular period of time. Having the security outstanding for a period of time will provide the buyer of the security a yield.

 

Student Loans

There are so many benefits to paying extra on your student loans each month. One of the main benefits – you’ll pay less interest over the life of the student loan. When it comes to student loans, you may be surprised to find out that there are no prepayment penalties. That’s right no prepayment penalties for both federal and private student loans. According to the Higher Education Opportunity Act of August 2008: “It shall be unlawful for any private educational lender to impose a fee or penalty on a borrower for early repayment or prepayment of any private education loan.”

 

Before you begin making extra payments towards your student loans, you should contact your servicer. Verify that the additional payment is being applied to the principal balance of the loan and not to the interest. If the overpayment is directed to the principal you’ll be able to pay down the debt faster.

 

Mortgage Loans

Mortgages don’t always have prepayment penalties, but some do. If there is a prepayment fee on your mortgage you should be able to review the details in the mortgage contract. It’s vital when signing a contract that you pay attention to the fine print. If you don’t understand something or need further clarity, be sure to ask questions.

 

When dealing with Mortgages, if you chose to refinance your loan there could be a prepayment penalty. Typically if you choose to refinance within the first three or five years of having the loan there may be a prepayment penalty fee that applies.  If you ever have any questions about prepayment fees you should contact your mortgage lender for clarity.

 

Auto Loans

When taking out an auto loan there are two types of interest that may be used in your contract, simple interest or pre-computed interest. Simple interest works similarly to a student loan, it is calculated based on the balance of the loan. Therefore, if you have an auto loan with simple interest, the sooner you can pay your loan off, the less interest you’ll pay.

 

The other type of interest is pre-computed interest. This interest is included in your agreement. It is a fixed amount calculated and added on at the beginning of the contract. Using a pre-computed interest rate is typically when you encounter prepayment penalties. Similar to mortgage loans it isn’t guaranteed that these loans have a prepayment penalty, but if so, it should be in the contract. Be sure to contact your lender or institution that services the loan to find out if there are any prepayment penalties before paying extra towards your debt.

 

Personal Loans

Personal loans can be used for a number of different reasons, from medical expenses to travel or even wedding expenses. When it comes to the prepayment penalty for personal loans, most companies will charge a percentage of the remaining balance. Though it’s likely your personal loan won’t have a prepayment penalty, you could still have one. Check with your lending institution or be sure to closely review your contract to see if there are any penalty fees for paying your debt down earlier.

 

 

Soft Penalty vs. Hard Penalty

 

You may have heard of two different types of prepayment penalties: soft and hard. A soft prepayment penalty would charge you a fee for refinancing, but not for other situations. A hard prepayment penalty would charge you for refinancing, prepayment, or selling (in the case of a mortgage – selling your house).

 

How can prepayment penalties affect you?

 

First, assuming you have multiple bills and debts that you pay each month, knowing whether any of them have a prepayment penalty can change how you pay. Imagine you have a student loan and a mortgage loan, you know the student loan doesn’t have any prepayment penalties, but the mortgage loan does. Let’s say that you’ve received some additional income and you want to put it towards one of the loans, but you aren’t sure which one. You’ll want to pay additional money toward the student loan debt because you won’t get penalized for paying it off early. Knowing a loan you’ve applied for has a prepayment penalty might motivate you to find a different borrower and give you the freedom to pay off that debt sooner without a fee.

 

Does this mean you should never pay off debts early? No way! There are plenty of loans and other types of debts that won’t have a prepayment penalty. The important thing is to know what you’re getting into. Read the fine print and ask questions during the application process. Also, for loans like a mortgage, there is typically a page you sign toward the end of the process that includes disclosures on things like whether there is a prepayment penalty, balloon payment, and so on. Always be aware of those disclosures before you take on new debt.

 

What is lifestyle creep? Is it affecting you?

 

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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.

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

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.

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.