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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.

How To Find The Best College For You

Picking the right college for you is quite a task. There are so many to choose from! Plus, with the birth of digital experiences, vlogs, and just plain slick marketing materials, it can be a challenge to determine what matters when making such a big decision. It’s important throughout the college search process to remember the main goal which is getting an education. It can be easy to become distracted by the brand new apartments on campus and the conveniences that the college offers. Yes, it’s important to be comfortable while attending school, but it’s not worth losing out on education. How do you find the right college for you? Here are some things that you should take into consideration. Not every aspect will matter to you, but it’s nice to think about big-picture options.

 

Major Malfunctions

The major that you’re interested in studying and how the college meets the major’s needs could be a huge deciding factor. For example, does the college have a good reputation, appropriate resources, and a notable department? Really take into consideration what the school’s reputation for the program.  Is your major available and are there classes that will challenge and engage you? Is the reputation of the college’s program going to further your career upon graduating?

 

Most people know their preferred major or industry before starting, but it’s common for college students to change majors. Does the school have a few appealing options for you? Get in touch with an advisor or the head of the department of your choice and see how you can find out more. You are attending college to further your education and get a career, so if that program isn’t available that could be deal-breaker.

 

Location, Location, Location

Have you always wanted to live on the east coast, dreaming of the mountains, or would you prefer to stay closer to home? Being close by to your family and paying lower in-state tuition could be great options for you. A school in the city could be a better option since you’ll have the ability to take in everything that urban life has to offer. From expansive green grounds to bustling urban towers, there are so many different types of locations you could pick. Don’t rule anything out too soon. You might be surprised how friendly a university in the city can be, or how lively you’ll find a more rural campus.

 

 

When selecting a school it’s important that you consider the distance from your home. Many people often times will want to be available to go home on some weekends or for big events. What the cost is to go home? Can you take public transportation, can you have a car on campus your first year, can a friend or parent pick you up, if needed? A primary consideration for location is the cost. In-state-schools provide a much lower cost to attend than an out-of-state school. If you know you’ll need to borrow student loans for college it may be best to stay with an in-state-school. Paying to attend an out-of-state school will mean more money you’ll have to borrow and eventually pay back. Your decision on school location should be influenced by your comfortability level with being away from home and the cost associated with the location.

 

Tally Total Cost

Cost is a huge factor in selecting a college.  Fees aren’t only limited to tuition but can be dependent on the school. One school may have lower tuition, but fees like room and board, off-campus housing, meal plans, or transportation. We touched on this previously but, if you opt for a school that’s farther from home, how much will you spend coming home to visit? If you really want to go far away from home you may need to factor in the cost of airfare to visit home. Plus, look into fees like a parking permit and departmental fees. It’s worth doing a little math to see what the total cost is before you get your heart set on one or another.

 

Finding Financial Aid

If you can qualify for financial aid and are being provided with financial aid from a college that should heavily impact your decision. Can you get more aid at one school vs. another? Are there more scholarship options available through one college over another? Does staying in-state offer enough benefits that you don’t want to leave? There’s nothing wrong with picking a school because it will offer you the most aid. Aid is especially important if you are borrowing money to attend college. Even if the school doesn’t check all of your other boxes for wants, the cost savings could help make it a front-runner. Make sure you check into scholarships and applications for aid before you make your decision.

 

What You Need to Know About Scholarships for College

 

Culture Shock

Schools usually have a discernible culture that students or faculty can feel and describe. For instance, a school with a robust exchange student program might be more inclusive and have a culture that appreciates diverse perspectives. Another school might be steeped in tradition and fit better for someone with traditional values. Schools with bigger arts programs or specialties in STEM could have a culture all their own. You really can’t get a good depiction of the culture from marketing materials. Understanding a school’s culture is the kind of thing you can ask while visiting or inquire about online in places like forums or Reddit.

 

Sweet Student Life

You will be spending a lot of time on campus. Even if you are non-traditional or live off campus. You should take advantage of entertainment, attending special activities, and participating in one or more organizations. Maybe you want a certain Greek life experience—check into it! Ask around and see what the reputation of campus life is like. Look at upcoming events and see what types of organizations you can join. It can be difficult the first year to make friends and get connected into a social group. Well-supported campus life can make this big task a breeze and set you up for some awesome lifelong friendships and memorable experiences.

 

All About Amenities

Relatively little things can make a big difference—especially if you’re between a few schools or have close contenders. Think about recreation and facilities on campus, what their sports, athletics programs or teams are like. Does the school have a special connection to a family member or your culture? Small things like cafes that better serve your dietary needs or campus dining options that stand above the rest can weigh into your decision. Your decision should not be based solely on these relatively small things, but if you’re on the fence of two universities it could be what gives you the push needed.

 

It’s important to understand how you’ll be financing college before you start looking at the school. If you plan on financing college by taking out student loans, they can impact your future. Once you understand your finances, you’ll be able to prioritize what is most important to you and start there. Remember too that schools usually have lots of opportunities for you to visit and learn more. There are entire departments of people whose job it is to acquaint you with the campus and community. Don’t be afraid to reach out and ask questions. Go in person and get a feel for the school if you can. Don’t forget to connect with potential faculty for your preferred major. You’ll probably learn a lot about what life would be like as a student, which will help make your decision much easier.

 

Happy school hunting!

Lower College Costs with These Jobs

 

 

Stop the Trend Spending™

From hoverboards and iPods to boy bands, trends will come, and they will undoubtedly go. Anyone who has experienced and come through the other side of a trend can look back and laugh, but we aren’t sure about their wallets. At Education Loan Finance, we refer to spending on the latest “it” items as “trend spending™”. Always following the latest trends can wreak havoc on your personal finances.  We are not saying don’t do anything trendy and live under a rock. What we are saying is that rewarding yourself for making good decisions is important, but evaluate that choice carefully. Let’s take a look at the latest trend spending™ taking place, how much money is actually being spent and how it could add up over time.

 

Vaping

We’ve all been there, walking or driving along when you see the occasional cloud of vape on the sidewalk. If you’re lucky, that cloud of vape isn’t directly in front of you while you’re walking and you’re able to dodge that second-hand vape cloud. In addition to the envied clouds vaping creates, the flavors can range from cereal flavors to candy flavors.  Just like the flavors, the mods come in a variety of sizes too, from huge mod kits that make tons of vapor to tiny USB chargeable vapes like the JUUL®.

 

Vaping has become one of the biggest trends in the U.S. The more vapor you can produce the “cooler” you are according to the vaping community. According to a CDC report released in October 2018, JUUL Labs® account for nearly one in three e-cigarette sales, nationally. While vaping might be the latest trend, remember that its long-term health effects are still unknown. Couple the possible health effects with the cost and you might just convince yourself to stop.

 

JUUL® Starter Kit – $45

Four pack of pods $16.

Let’s assume those are purchased twice a month, so that is 24 x $16 = $384

Total Cost of Vaping for a Year= $429 

 

Assuming that you bought a JUUL® unit to do your vaping and you bought a new pack of pods every two weeks or twice a month, you’d be spending $429.00 a year. Over the course of four years, that’s about $2,000! We didn’t even include any sales tax in this equation, but many states are rolling out taxes on vaping products.

 

Subscriptions

Subscriptions used to be associated with Highlights® magazine or catalogs your Grandma would receive in the mail, but the 21st century has revitalized the subscription. Now, subscriptions can get us movies, vitamins, clothes, music, even dating sites and all are currently available at our fingertips. The subscription box industry, in particular, is experiencing rapid growth. Since 2014, the subscription box industry has increased by 890% according to a 2018 report by Hitwise. Subscriptions, though convenient, can really end up costing you in the long run.

 

The danger is that once your card is on file, it’s so easy to forget about the service. Here’s a list of the most popular monthly subscription services of 2018. Let’s say, you signed up for the FabFitFun® subscription box for a year. Now, this box is sent only four times a year based on the season. The box comes with full-sized premium products. In addition to the box you receive, you get access to the FabFitFunTV which shares workouts, access to exclusive member sales, and you have access to the entire community online.  Now, that box is $50.00 per season or $200 a year.

 

Fancy “Dranks”

It’s hard for a month to pass without seeing some crazy coffee creation from your local Starbucks®. Recently, the Witch’s Brew Frappuccino outshined the previous favorite, Unicorn Frappuccino and became an Instagram® trend.  Drink trends can really spiral out of control and quickly. If you actively participate in social media by checking your Instagram® or Facebook® every once in a while, you can’t help but notice them. In some weird way, all these Frappuccino drinks and IPAs flooding your news feed put pressure on you to join in and go purchase one of these beverages.

 

This pressure to join in on the cool coffee trend can come down on your wallet like a hammer. The average cost for a latte at Starbucks® as of 2018 was $5.75 for a Grande, and that doesn’t include any fancy cake pops! If you bought yourself a latte, once a week for a year, what are you really spending?

52 weeks a year x 5.75 = $299.00 a Year! You’re paying about $300 on lattes a year. Think of how far that money could go towards your student loan debt.

 

Health Food

The latest trend in the food and beverage industry is likely to come from your favorite online health influencer. It’s also likely that drink ends in a vowel like Kombucha, Matcha, or bubble tea. These drinks have been around for decades, but lately, they are skyrocketing due to a new health movement. Kombucha and other fermented drink sales were up 35.6% in 2017 according to FoodNavigator-USA. This fancy probiotic drink can really end up costing you at $3.75 per bottle. If you’re looking to drink it once a day, it adds up to $1,368 a year in total cost on Kombucha. We aren’t saying to deprive yourself of the latest health trends, but we’re suggesting to think wisely before deciding to purchase it. Really understand how that small amount of money can add up to a lump sum that can easily be applied to debts. Maybe even try making your own Kombucha, there are tons of websites and directions available online.

 

Bubble Tea or as some may know it as pearl milk tea, boba juice, or just boba, has been in the US for years, but it’s recently gaining major trend status in 2018. There have been multiple chains arising that specialize in Bubble Tea. You may know these chains as Kung Fu Tea® or Boba Guys®.  Bubble Tea could make a great date or even a trendy place to stop with friends. It offers a nice alternative to the usual coffee or beer we’ve all grown accustomed to. We wouldn’t recommend making Bubble Tea a daily habit or even a weekly habit because like Kombucha the small amount spent could really end up adding up.  The average cost for a Bubble Tea is $3.50, and if you choose to go every day for a year, it equates to about $1,277. That is some serious money that can be used to get out of debt or start investing in retirement fund money.

 

Quick Food

Food is important because it keeps us alive, but that doesn’t mean we need to spend all of our income on it. Simple changes to your everyday life like packing lunch for work could really help you save in the long run. Eating out can be expensive, time-consuming, and even dissatisfying. Before you pick up your cell and place an online order, let’s take a look at these stats. According to the 2017 Bureau of Labor Statistics’ Consumer Expenditure Survey, Millennials ages 26-34, spent $3,416 annually on food away from home.

 

Imagine for lunch every day at work you bought a burrito from Chipotle®. Just a burrito is about $8.00. Now, our cost has no fancy drinks because we learned our lesson on trend spending™ on sparkling water when the office has free and classic H2O available. We’ll assume that you work five days a week and it’s typically Monday through Friday. We aren’t going to account for vacations or days off in our math. Let’s see what your yearly cost for lunch is…

 

$8 Burrito Cost x 5 days in a work week = $40 a week spent

$40 x 52 work weeks per Year = $2,080 spent a year

 

Though it’s so easy to get sucked into the trend of going out to lunch and grabbing something easy, please be cautious. Apps like UberEats®, GrubHub®, and Seamless® may seem convenient, but they can cause unnecessary costs.  Try to cut back on eating out or ordering in food. We know, easier said than done. Especially, when it comes to working all day and having to make yourself dinner when you get home.  Add to it cleaning up any dishes you may have used, and it just gets overwhelming. This doesn’t have to be an all or nothing situation though, try packing your own lunch weekly. If that seems like a lot maybe only purchase lunch on Fridays. These small life changes could have an impact on your finances, and they are just creating good spending habits as you move further on into adulthood. Just remember that the amount of money spent on food could pay off student loans, or be added to the down payment on a house.

 

Give & Take

Whether you are trying to get out of debt or save up money to achieve a financial goal, there is always a little give and take. You deserve to enjoy yourself and treat yourself every once in a while with the latest trend, but don’t get so caught up in the trend spend™ craze that you lose any sense of the amount you’re spending.  Trends may be great – I mean, after all, they did become a trend, but you need to stay focused. If you are finding it difficult to stay focused on your financial goal, try making a compromise of the situation. It will always help to remind you that it’s just that, a trend. Trends will come, and they will go, but your finances will be with you forever. Be the financially responsible you that we know you can be!

 

Avoid These 7 Money Mistakes

 

 

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 Much of Your Income Should be Going Toward Rent?

You’ve got that first job or a new job. Maybe just got a raise or your moving to a new city, that’s awesome. You’re excited about this new chapter in your life and then you find, “woah, rent is really expensive!”  That’s likely what you’re saying as rising rent is outpacing income in most major cities in the country. So, what do you do? How much can you afford? How much should you pay? Well, you’ll find the standard answer is 30%, but it’s not that simple. Every situation is different and there are a lot of things to consider but don’t worry, you’ll figure it out and you probably don’t have to live in a van down by the river, unless that’s your thing.

How much are you really making?

First things first, you need to know how much you’re really going to be bringing home from that paycheck before you know how much you can really spend on rent. People often base their rent on their annual salary, which can really leave you hurting financially because they haven’t considered things like taxes, health insurance, 401ks and other deductions. Here is a good paycheck calculator to help you get to a more reliable number to work with. After that you need to calculate your debts, be it credit cards, auto loans or student loans.

Figure out what you really need.

This isn’t just a tactic to be really frugal, it’s pretty fundamental. Do your research. Know yourself, your habits and what’s realistic for you and the city you are going to live in. Living in the suburbs may be an attractive option because it’s cheaper, but maybe you don’t even need a car? Could walking and public transportation be enough to get you around? If you are moving to a new town or city that you’re not really familiar with, try and stay with a friend or rent an Airbnb for a couple of days in an area you’re considering. It can be a great way to prioritize what is going to be most important to you. You’ll often find that some things that seem like important must-haves could potentially be needless costs.

So, what’s the answer?

You’ve figured out your salary. You’ve weighed your priorities. If you’re like most people, you’ll find that the decision still isn’t easy. If you need something more concrete to avoid yourself financial heartache in the future, try following the 50/20/30 rule. That’s 50% towards the must-haves like rent, utilities, transportation, and food. 30% towards fun and 20% towards savings and/or paying off debt, like cars, credit cards, and student loans. As an example, the average rent in Manhattan, NY is $3,100 for a one-bedroom. In order for that to be a financially sound decision, you’d want your monthly take-home pay to be above $8,300. Using a rent affordability calculator is another great way to see if a particular rent amount would work well for your budget or not.

If all of this still sounds totally unrealistic to you then you may have to look to alternatives like having a roommate, especially if your situation is more temporary. If you know you’re definitely going to be staying somewhere for a while, you may be able to negotiate with your landlord or rental company for cheaper rent.  if you can commit to an 18 or 24-month lease. No matter what you decide to do, just make sure you give it some good thought. Save where you can and spend on what’s important to you.

 

Click Here to Learn About the 50/20/30 Budget

 

Supporting Articles:

https://www.apartmentguide.com/blog/percentage-annual-income-rent/

https://www.nytimes.com/2016/10/23/realestate/how-much-of-my-income-should-be-budgeted-for-rent.html

 

Lease or Finance a Car – What to Do

Is it better to lease or finance a new car? The truth is there is no perfect answer. There are benefits and disadvantages to both, so your answer depends on your own needs.  The real question is, which one will fit your needs and budget best? Here is a breakdown of leasing a car versus financing a car and the pros and cons of both.

Leasing

In the simplest of definitions, leasing a car is very similar to renting. You pay a down payment and a certain amount of money each month to drive your car until the end of the lease term – usually 3 to 4 years. When buying or financing a car, you have to pay for the entire purchase price. When you lease a car you simply pay for the depreciation of the car over the term of the lease (its initial value minus its residual value).

There are numerous benefits to leasing a car including:
  • lower monthly payment
  • a smaller down payment
  • possible tax savings
  • likely under warranty
  • newest auto technology every few years
While leasing a car offers several pros, it also comes with many cons. These cons include:
  • you do not own the car
  • many stipulations
    • Number of miles permitted
    • Possible wear and tear fees
  • GAP Insurance
  • Good credit

Most leased cars have a restriction on how many miles you can drive it per year built into the contract you sign. If you go over this number, you may have to pay a hefty mileage fine. There is also the potential to pay excess wear fees if the car is not returned in its original condition. Another downside is most leasing companies require you to have very good to excellent credit to lease a car, as well as GAP insurance which generally ensures you are wholly responsible if the car is totaled or stolen.

Cost Example:

Car Cost- $30,000

Down Payment– $5,000

Trade In Value– $10,000

Lease Term Length– 48 months or 4 years

Sales Tax- 9%

Interest Rate- 6%

Monthly Payment- $189

Sum of Money  Spent (by end of lease)- $34,417*

Financing

Financing a car is simply taking out a loan to buy a car. If you pay in cash, you own the car as soon as the paperwork is signed. If you take out an auto loan, or finance, the bank holds ownership of the car until you pay it off. Once the final payment is made on the loan, you are the sole owner of the vehicle.

When you finance a car, you actually own the vehicle so there aren’t any restrictions on what you do with it or how many miles you drive in it. You can customize the vehicle however you please and don’t need to worry about excess wear fees. Another pro is once you have made the last payment on the car, there aren’t any more monthly payments – you just have to pay for gas, maintenance fees, and insurance. Unlike a lease, if you get tired of your car and decide to buy a new one, you can sell it and use the money you make towards the down payment on a new one. While interest rates will depend on your credit score, you do not have to have perfect credit to get a loan on a car.

There are, of course, drawbacks to financing a car.

 

  • Banks require a down payment on the purchase of a car- usually between 10% and 20% of the value of the car.
  • Cars depreciate rapidly
 In the short run, buying a car is also more expensive than leasing. The overall cost of the car is more expensive as well as the interest you pay each month on the car loan.

 

Cost Example:

Car Cost– $30,000

Down Payment– $5,000

Trade In Value– $10,000

Loan Term Length- 48 months or 4 years

Sales Tax- 9%

Interest Rate– 6%

Monthly Payment- $416

Sum of Money  Spent (by end of loan)- $34,953*

How to Choose

When deciding whether to lease or finance a car, here are some things to consider: Do you frequently drive long distances? Do you enjoy driving a different car every few years? Do you always want to make a payment? There is no right or wrong answer to the leasing vs. buying question. The answer to the question lies in your personal wants and needs. If you do not drive frequently and always want the newest and the best, lease a car. If you want to be able to customize and own your own car, consider purchasing a used car. Explore different buying and leasing options until you decide what is best for your own budget and lifestyle.

7 Money Mistakes Young Professional Make 

 

*This is an estimate and doesn’t include any additional fee such as wear and tear or over mileage. Estimates and totals are according to the cars.com/car-loan-calculator

Should You Save Money or Pay Off Debt First?

One of the most challenging things about setting financial goals is managing two short-term goals at once. What should you do if one of your goals is to pay down debt as quickly as possible, but you want to build an emergency fund or save for a down payment on a home as well? If you are currently in this situation, you know that deciding what to do with that extra chunk of cash in your bank account each month is difficult. The longer you wait to pay off debt, the more you may end up paying in interest — but having solid savings is essential, should emergencies arise. If you are trying to juggle saving and paying off debt at the same time, here are some questions to ask to help you decide which to prioritize.

How Much Do You Have in Savings Right Now?

Do you have money set aside in case of an emergency? Ensuring that you are prepared for anything life throws your way is a fundamental step toward financial health. Experts recommend having an emergency fund of three to six months of living expenses set up to protect against unexpected events. Without it, you could risk falling into more debt. If you do not have an emergency fund set up, that should be your first priority. Pay down what you owe each month on your education loans and credit card balance(s), then allocate extra cash to your rainy day fund.

How Much Does Your Debt Cost You?

Examine the interest rates of your debts in comparison to how much your savings earn you. For example, if you have credit card debt with an interest rate of 10 percent, and a savings account earning you 1 percent, it may be more beneficial to tackle that credit card debt before saving for a down payment or putting more money in a retirement fund.

If you have multiple loans and credit card balances, it could help to list all of them and include the corresponding interest rate beside each. Multiply the interest rate by the debt amount to see how much each debt or loan is costing you per year. Then, write out the total amount of cash you have in savings and multiply it by the interest rate of the account. What is the rate of return on your savings? How does that compare to what your debts are costing you per year? This could help put everything in perspective, not only to help you decide to start focusing on paying off your debts faster, but to know which debt to tackle first.

Remember, the earlier you pay off debt, the less you may end up paying in interest. Therefore, after establishing a solid emergency fund, your next priority is working toward paying off your debt.

Can You Potentially Lower the Cost of Your Debts?

Whether you have credit card debt, student loan debt, or both, there are a few tactics you can look into that could potentially lower the cost of your debts.

If it is credit card debt that is weighing you down, you could transfer your balance onto a new card. On her blog, Suze Orman recommends looking for cards that charge no interest for at least a year, allowing you to have a longer amount of time to pay off your debt without incurring interest. For transferring the balance, she recommends searching online for transfer deals that do not charge a fee for the amount of the transfer. From there, the goal is to use an online calculator to calculate the amount you will need to pay per month to knock out your credit card debt by the time the zero percent interest rate expires.

For education loans, find out if you qualify for student loan refinancing or consolidation through a private lender. People who possess a strong credit history and a reliable source of income may be able to take advantage of one single payment with potentially lower interest rates or lower monthly payments. With the possibility of lower interest rates or lower monthly payments, refinancing or consolidation could take you one step closer to achieving your financial goals.

To Save or to Pay Off Debt? That Is the Question.

You might think the answer is simple — but the truth is, it is a little more complicated. Both options are great financial moves, but the answer varies depending on where you are in your saving and repayment journey. A typical rule of thumb is to focus on establishing an emergency fund first, then shift to paying off your debts as quickly as possible so that you can move on to your other (more fun) goals like purchasing a home or a car. If you already have that fund set up, assess your debts to decide which ones to begin paying off first. Look at what your options are for minimizing the interest on your debts, and put those plans into action. While it might require determination and sacrifice, the feeling of being debt free with a secure savings account is worth it in the end.

How to Save Money on an Engagement Ring

The season is upon us, the most popular time of the year to get engaged. Getting engaged is often one of the most memorable events in a couple’s life — but it can be pricey. Society’s expectations for engagement rings have become more expensive every year: larger diamonds, designer jewelers, and the “three months’ salary rule” are the new normal. In fact, a recent survey found that 28 percent of Americans think spending over $3,000 on an engagement ring is appropriate, and 17 percent said money is not an object. However, if you are looking for a beautiful ring for your partner without breaking the bank, there are plenty of options. Here are some creative ways to save money on an engagement ring:

Consider the Specifics of the Ring

There are many factors to think about when choosing the perfect ring, like the gemstone, shape, setting, and precious metal — and each characteristic has cheaper alternatives. It is important to explore your options for each to get the best value for your money.

 

  • The Gemstone: Diamonds are the most commonly-used gemstone on engagement rings, but they are also the most expensive. Instead of a diamond, consider a sapphire, emerald, or ruby for the center stone. These gemstones have grown increasingly popular and offer an unconventional look for a unique bride-to-be. If you want a more traditional look for your new fiancé, a light blue or peach sapphire may be right for you.

 

  •  The Shape/Cut: Diamonds are traditionally cut into ten standard shapes, and a round diamond is the most popular (and expensive) choice. According to Brilliant Earth, you can save up to 40 percent by choosing a different shape. Other popular shapes that are less expensive include the princess, cushion, and oval cuts, adding a unique factor to the ring.

 

  • The Size: The weight of a diamond or other precious gemstone is measured in carats. As one would expect, the higher the carat number, the higher the price. Many jewelers price their gemstones based on this factor, with some pricing disproportionately at the 1 and .5 carat marks. Thus, if you are looking for a gemstone around the 1-carat size, you can get a nearly-identical .9 carat one for a lower price.

 

  • The Precious Metal: For long-term durability, platinum rings take the cake. However, like most commonly-used ring characteristics on this list, it is also the priciest. To cut costs, opt for white gold, yellow gold, or rose gold band instead.

 

  • The Setting: Getting strategic with the setting is a great way to save a little money. If you cannot afford the gemstone size you would like, try a halo setting (smaller diamonds surrounding the center stone). This makes the gemstone appear larger. If you want to add a little something extra, but smaller diamonds around the band are not in the budget, try a pavé-style band, which features tiny and inexpensive diamonds encrusted into the band to give extra sparkle.

Shop Online

Shopping online allows you to sift through a wide selection of gemstones and setting styles to create the perfect ring, while also comparing prices to get the best deal. Some online jewelers like Blue Nile, Brilliant Earth, and James Allen even let you “design your own” ring by first choosing a setting and then selecting a loose gemstone at the best price based on your specifications. In addition, many of these online retailers do not charge a sales tax in most states, and most have sales and promotions throughout the year.

 

Think About an Antique

If your future spouse loves the vintage look, scoring a one-of-a-kind antique ring may be your best bet. Vintage engagement rings are timeless, cost-effective, and environmentally sustainable — you just need to know where to look for them. There are plenty of online options, but you can also try estate sales or antique shops.

 

Get a Beautiful Ring Without Blowing the Budget

It is no secret that engagement rings are expensive, and you want to find one that your partner will love and wear forever. However, if you shop smart, you can get a beautiful piece for a price you can afford, simply by choosing cheaper ring features, shopping online, or purchasing an antique.

If you are in the process of accumulating funds to buy the ring, there are a wealth of creative ideas to save money out there. If you have a few months to go before you take the plunge, revising your budget to include your ring savings may be a good option. If revising your budget includes refinancing your student loans, talk to Education Loan Finance. We would love to help you free up some extra funds for the ring that not only fits your budget but fulfills your partner’s dreams.

 

Budget Tips for a Wedding

Wealth Building Basics

“Live like no one else will now so you can live like no one can later.” This Dave Ramsey quote is the epitome of what it means to be frugal early in life so that you can live comfortably all of your life. Most Americans dream of going to college, securing a great job, and eventually, building wealth and retiring happily. The problem is, we do not all know how to do it, and the idea of wealth-building often sounds lofty. However, like most tasks and new ideas, building wealth becomes approachable and feasible when you break it into easy-to-accomplish steps, such as these:

  1. Acquire Wealth:


    First and foremost, you need to start accumulating wealth by focusing on your income sources and your expenses in order to determine what your savings potential can be over the near term and long term.

How to Do It:

The wealth-building journey begins with your income. For those starting out, this is the first and most basic step. We have all seen graphs showing how saving a small amount of money each month can compound into substantial savings over time. In order for this to be possible, you must have and save a consistent amount of income over the next 30-40 years. The best course of action is to proactively secure a career that you enjoy and maintain a steady stream of earned income. Next, it is what you do with that income that really helps acquire wealth.

  1. Save the Wealth:

After your basic expenditures are covered — like living expenses, insurance, and utilities — you should determine the income available for investment and establish a strategic savings plan. That savings plan can include a wide range of opportunities to save and may include: short-term or long-term savings accounts, investment products, and more.

How to Do It:

A dream job and smart investing can help generate money, but it is what you do with that money that matters. If your savings are not increasing, evaluate your expenses. Generally, financial growth occurs when your expenses do not exceed your target budget. It may be helpful to assess and track your outgoing spending for a month or two to create a visual layout, a roadmap of sorts, of where your money is currently going and where you could potentially be saving. At this point in your wealth-building journey, you should be taking a critical look at your financial health and deciding whether your expenditures are necessities, given your earnings. Sometimes, simply being aware of where the money is going at the end of the month can make a huge difference in budgeting. For optimal results, make routine contributions to your savings or retirement accounts. Pay your necessary bills, avoid excess spending, and set money aside for savings. Many will feel like it is too late to start saving. It is not. No matter how young or old you are, start saving your money today.

  1. Invest the Wealth:

Money makes money. Once you have accumulated some savings, you should start or continue to invest it, and then watch your fortune grow with time.

How to Do It:

Once you have started to conquer your budget instead of your budget conquering you — and your savings are consistently growing month by month, then you are ready for the investment stage. If you are not an experienced financial or investment professional, it can be beneficial to meet with a financial advisor to discuss asset allocation, goals, risk tolerance, and establish a personalized strategy. Your investment allocation will vary depending on your own wealth-building goals but can include stocks, bonds, real estate, and more. You can also obtain investment advice by utilizing online tools provided by websites such as Betterment.com or Wealthfront.com.

Final Thoughts

While the above steps are simple to grasp, implementation can often be a different story. Wealth-building calls for a strong level of self-discipline and restraint, but the efforts are well worth it when, in exchange, you attain a solid financial footing. People who develop wealth-building strategies commonly change their perspective on spending, and the first step usually involves a commitment to living within their means. This simple action can be the primary reason someone is able to begin building their personal wealth and enjoying it later. The path to wealth-building begins with a strategic and clear plan. You can find great success with wealth-building if you only follow your set plan and diligently execute it.

 

7 Money Mistakes Young Professionals Should Avoid

Creative Ways to Save Money After Graduating from College

Graduating from undergraduate, graduate, or professional school is an exciting time. There are parties, celebrations, new jobs, and more. It is hard not to enjoy this time however, there may be one thing – student loan debt. Student loan payments don’t have to be a source of trepidation. There are a variety of income-driven repayment plans for federal loans, or the ability to refinance and potentially lower interest rates and better terms. Today’s graduates are in a great position to be able to focus their energy on advancing careers and enjoying new lifestyles benefitting from flexible loan payment options that align with financial goals.

Along with Education Loan Finance’s potential to help lower the cost of your student loans through refinancing, we believe there is a simple strategy. A strategy that can significantly increase the speed at which you are able to pay off student loans — saving money! When you are able to save (or make) more money, you have the ability to apply greater payment amounts to your monthly student loan payments. Paying more than the monthly, minimum payment (without penalty) enables you to reduce the life of the loan. In addition, the overall interest that could have been accrued could be decreased. The easiest way to achieve this and begin saving money involves creating a monthly budget and adopting ways to save money.

 

Where to Start Cutting Your Budget

 

Whether you have begun to pay back your student loans or not, an easy way is to create a controlled monthly budget. It’s good practice but doing so helps ensure that money dedicated to student loan payments continues to go towards them.  Keeping your weekly spending in check — through budgeting or creative money-saving strategies keeps student debt at a manageable level. If you are having trouble figuring out when and where to cut down on expenses, our list of creative, budget-friendly tips  can help:

  1. Eating Out:

    Reduce your spending on take-out meals and restaurants by cooking at home more often. Meal planning is key, map out a weekly menu and purchase all of the ingredients in advance. If you choose to indulge every so often, agree to split pricier meals with a friend or family member.

  1. Drink water:

    Drink water whenever possible. Avoiding flavored drinks at restaurants, home, and everywhere in between can lead to great savings. Think of all the health benefits associated with drinking water! Not only will laying off the sugary and alcoholic drinks help your wallet, but you will also do more for your health!

  1. Cable or Satellite Services:

    Reduce or cancel your cable or satellite services. Any subscription services that have duplicate content or are not being used regularly. Instead, stream your favorite shows and movies on your phone, laptop, or tablet through cheaper-than-cable services like Netflix or Hulu. Amazon Prime is another video-streaming option, especially if you find the other benefits useful. If you still want to watch these shows and movies from a TV, consider connecting your streaming device to your TV through an HDMI cable. Another frugal entertainment option: borrow books from the library, which can often be conveniently downloaded for free to your mobile device or tablet.

  1. Grocery and Home Shopping:

    Whether you are shopping for groceries, cleaning supplies, home decor, or health and beauty supplies, there are ways to save at the register. Start with these suggestions:

  • Talk to a manager at your favorite grocery store. See what types of discounts they offer on a weekly basis. Teacher, veteran, senior, and student discounts are some that may be commonly offered.
  • Download all of your favorite stores’ apps, or opt-in for text-based discounts. There are usually some great deals associated with each.
  • Find out if shopping secrets exist, like these ones from Target.
  • Coupon-cutting has always been an effective strategy if you have time to find the deals and like to buy in bulk.
  • Shop on Wednesdays. Wednesdays are traditionally the one day of the week where last week’s sales overlap the new week’s sales. For accuracy, check with your preferred store(s).
  • See what deals exist on a store’s online site. They are frequently different than what is offered in-store. Be sure to check sites like retailmenot.comfor applicable coupon codes. Many brick and mortar stores will price-match their competitors’ print and digital ads.
  1. Personal Grooming:

    Skip any unnecessary salon or spa maintenance, or do it yourself. If there is no easy, at-home solution, consider a local beauty school. Your stylist, beautician, or technician may just be learning the trade, but they are supervised, so the results are often just as good as pricier salons and spas.

  1. Entertainment:

    There are always creative ways to have fun while on a budget. If you like to go to the movies, try to go during matinee showings, rather than prime-time showings. If you are interested in museums and galleries, try going during free entry days. Entertainment options with little to no entry fees may also include minor league baseball games, farmer’s market events, summer events in your local city center, festivals, and more. Check your local city’s event schedule for more budget-friendly events.

  1. Clothing:

    Great ways to save money on clothing include:

  • Buy less. Most people need to buy less clothing than they currently do anyway.
  • Try to create a capsule wardrobe, where you create a small, perfectly curated wardrobe.
  • Sell unwanted, gently used clothing on eBay, Poshmark, at stores like Plato’s Closet, or check to see if someone in your city hosts a clothing consignment sale. Garage sales are also a great option. After you are finished trying to sell any clothing items, document and donate any leftover clothing to an IRS-approved nonprofit. Make sure to get documentation of the donation if you plan to write off the charitable donation in your taxes.
  • Swap clothes and shoes with friends. Whether you have an upcoming special event or just want to wear something different, talk to your similarly-sized friends to see if they would be interested in swapping or lending/borrowing clothing, shoes, and accessories.  
  1. Pinterest:

    No matter what you need to acquire, there is probably a way to make it, renovate it, or do-it-yourself on Pinterest — just make sure you have the know-how and supplies to complete the project cheaper than paying full retail prices. Great DIY options include household cleaning supplies, tasty food recipes, furniture renovations, home decor, sewing ideas, and so much more.

Reduce Unnecessary Spending

Small ticket items tend to be sneaky budget-busters. To see how much of your budget you are using on entertainment, coffee, and other unnecessary expenses look at your past months’ worth of spending. Decide what you can eliminate or reduce. Limiting spending will take some self-control, but with diligence and dedication, you will find that your existing income can be applied in greater quantities to student loans and other outstanding bills. The more you are able to apply to these each month, the faster they can be paid off, and the faster you can use your money for and towards things and experiences you truly desire.

Check out Our Simple Guide to Student Loan Refinancing