Category: Personal Finance

College Debts – Paying Them Off

As if college weren’t hard enough, getting out of those hallowed halls may be the lesser of your worries. Once you leave the grounds you are faced with the challenge of finding a job – or starting a business – in your new career path. This is much easier said than done since most companies want experience and, unfortunately for you, most college training does not count toward that so-called “real-world experience”. It’s a problem because now that you’ve completed school you have something that is common among a majority of college students: debt.

You struggle to create a life for yourself, and the moment you are out the starting gate you’re confronted with immediate hardship. You’re most likely well aware of debt by now in this stage of the game, but credit cards and some utilities aren’t even a comparison to the possibility of several hundred thousand dollars in school loans. Without a job you certainly can’t repay it in a timely manner.

Though you may figure it can wait, your college debt is not going to disappear, so there is no good reason to postpone the process of repayment. It’s important to realize the critical nature of debt repayment. It’s also smart to be aware that many companies have added a policy to check potential employees’ credit records as part of their pre-hire considerations. So beginning to pay off that loan is in your best interest.

Student loans are typically deferred for at least six months upon graduation. This can, unfortunately, motivate the proliferation of “professional students” who are afraid to complete college, fearing the financial trap of their loans despite running up even more charges. Don’t continue in school simply to postpone the repayment of your college loans. Have you begun to pay it or rather, like most, looked at it then casually discard it into the “I’ll pay this later” pile? Granted, having no job means paying is hard if not impossible. However, a college debt, as well as your other loans or credits, impact your credit rating. So even if you can only pay $20, do so. It’s a start.

The simplest way to get to that debt is to develop a budget plan. Make a list of all your fixed bills like car loans, rent, personal loans, etc. and add to that list your variable debt like credit cards. Prioritize the list and compare it against any income you may have. For some bills, you can briefly postpone them or work with a creditor to lower payments over time or even ask them to temporarily stop charging you interest. Whatever money you have left should be allocated, at least partially, to your student loans.

Unfortunately, the time to pay the loan without hardship may be long past. If you’ve ignored your college debt for too long, claims can be filed against you. It would then be prudent to seek alternative methods of paying off your debts, such as a personal loan. The interest will tend to be lower and the bill will get paid.

You need to repay your debts – college included – as soon as you can. You should practice debt-free living at every step of your life. Think about simple things like extra clothing, trips, dining out, and movies – all of which can be scaled back, if not eliminated, to help repay your loans. Before purchasing such items, consider whether you really need them. If not, at least defer the expenses to later. Make the elimination of debt your higher priority.

Asset Location Is As Important As Asset Allocation

The science of asset allocation gets a lot of attention in the personal finance realm, but it only tells part of the story. In an ideal world, there would be no taxes or transaction costs, so that asset allocation would be the only game in town. You’d simply divide your portfolio between the various asset classes and forget about it.

Rebalancing would be a non-issue because there would be no tax consequences, and you wouldn’t have to worry about which account is most suitable for your small-cap value fund. If you have all of your retirement savings in your 401K or an IRA substantially, you can get away with doing that. Unfortunately for the rest of us, Uncle Sam wants his cut.

Nobody Loves The IRS

Excepting congress, which needs enormous sums of tax dollars for important projects like building bridges to nowhere and llama farms for orphan llamas, nobody likes the IRS. I am no exception, and if you too share my raw hatred of the IRS, you would be wise to think long and hard about asset location.

Asset location is the art of placing different asset classes in various types of accounts, depending on a combination of the tax-efficiency of that asset class and the tax characteristics of the kind of account in question.

Here’s an example to make what I just said make sense.

Suppose you have a target asset allocation for your retirement portfolio of 50% stocks and 50% bonds. Furthermore, about half of that portfolio is in your 401K at work, and half is in either a regular taxable account or a Roth IRA. The best course of action would be to put the bonds in your 401K and stocks in your taxable account or Roth. The reason for this is that bond interest is taxed as regular income and stock dividends, and long-term capital gains are taxed at lower capital-gains rates. Since everything in your 401K will eventually be taxed at standard income tax rates when you liquidate, putting stocks in it would amount to intentionally paying more taxes than necessary.

In contrast, bond interest is taxed as income, so you lose nothing by putting them in your 401K. Proper asset location can make a huge difference in your long-term returns, so it’s well worth paying attention to.

Here is a list of asset classes and the optimal type of account they should be placed in, if possible.

Least tax-efficient

place in a tax-deferred account (401k, traditional IRA, etc.)

High-yield bonds
TIPS
Taxable Bonds

Medium tax-efficiency

place in a tax-free account (Roth IRA, Roth 401k)

REITs
Balanced Funds
Small-cap stock funds
Actively-managed stock funds
Value stock funds
International Stock funds

Most tax-efficient

fine to place in a taxable account

Broadly diversified stock index funds
Tax-managed stock funds
I/EE savings bonds
Tax-exempt municipal bonds

College Savings vs. Retirement Savings

If you’re like most families and have limited financial resources, should you put your money toward your child’s college education or your retirement savings?

Although it can be nerve-racking to make that choice, while you can borrow money for college, you’re on your own when it comes to retirement. Here are a few reasons why parents should consider saving for retirement before saving for their children’s college costs:

  • Parents have to think of college and retirement as two competing needs for their money. You can’t think about one without the other.
  • Saving for college is optional, but saving for retirement is not. There is no such thing as a college loan for retirement. You can borrow for college—your kid can borrow for college—and they have a whole life to pay it off.
  • Talk to your kids early on so they know what their responsibilities are. No one likes surprises.
  • If you’ve already promised your child a college education, revisit the conversation. Explain the things they can do to help out, including earning scholarship-worthy grades or going to a state school instead of a private one. Also, young adults would probably prefer to finance their college education themselves rather than having to support you during your retirement.
  • People value things more when they pay for them — so you’re doing your children a favor by giving them the responsibility of paying for college. You are teaching them responsibility and the value of that education and a dollar.
  • If you still can’t wrap your mind around it or feel too guilty not paying for college, save for retirement while your children are young. Then, when they reach college age, put the brakes on for a bit and start giving them some money.

Now, we are not saying that you should not give your kids any money. Grades are important, and you want them to worry more about reaching for a high GPA then making minimum wage at Burger Barn. If you have a good retirement savings plan, then you can probably help them out during college years without sacrificing your golden years. Just use some common sense.

Retirement Savings Planning

Most people look forward to retirement. After years of hard work, you’ll finally have time to take that cruise or those golf lessons. You can travel across the country or volunteer for a cause that interests you. Of course, these things cost money.

Here are some vital steps you need to take to secure your financial future:

  • Invest in tax-deferred vehicles, like a Roth IRA, traditional IRA, or 401k. Keep in mind that this is just an account—you then have to take that money and invest it in the market.
  • We recommend something we call the 15 percent solution. You ought to be saving at least 15 percent of your salary every year. Don’t let that scare you, though, as the 15 percent includes employer matches. Depending on how much your employer contributes to your 401k, you could be pulling as little as 7 percent out of your pocket.
  • Take into consideration when you started saving. If you start saving when you’re ten years away from retirement and can put in more than 15 percent of your salary, do so to play catch-up.
  • Look into life-cycle funds, which will take your money and make investments based on how much time you have left before retirement. The closer you get to that date, the less risky your investments will be.
  • Look at online calculators to help you come up with your magic numbers.
  • The key to making your money last is the amount you withdraw the first year. Set yourself up so that in the year you start withdrawing, you take out 4 percent. Then, every year after, multiply the previous year’s withdrawal by 1.03 to keep up with inflation.

Use a Prepaid MasterCard, Avoid overspending on your Credit Card!

In previous article, I’ve written about the pros and cons of the Credit cards and how we need to be careful on how we use them. In this post, I write about another plastic/virtual MasterCard that can be used just like a credit card, but you will be less likely to overspend on!

Prepaid MasterCard is designated to be used exclusively for remote transactions, such as online shopping, phone purchases and ordering. With online prepaid MasterCard you can enjoy the great benefits of credit cards and at the same time have a secured online shopping and manage your spending as well as enjoying anonymous and discreet online purchase.

Enjoy an upgraded online shopping experience; control your monthly budgets, purchase discreetly and comfortably, be generous to people you care about, be in control with your kids’ spending – All in one virtual prepay credit card anywhere and anytime. You can find more information at https://tbffinance.com/visa-cards/.

Tight Economy? Tighter Budget!

Control bad spending habits with easy access to reliable credit. Secured prepaid plastic MasterCard enables you to stay on top of your monthly budgets and pay debts to avoid much needed utilities from being cut off due to late bills. If you cannot qualify for credit or have trouble staying on top of your debit card usage- you can now budget your monthly allowances by reserving cash in the form of a prepaid MasterCard and avoid the embarrassment and hassle of getting bills paid on time.

Let your family enjoy the freedom of a prepaid

With a prepaid MasterCard, parents all over the globe are letting out a collective sigh of relief. By utilizing prepaid money cards parents can now effectively monitor their children’s spending habits with an allowance card. Whether it’s a prepaid plastic money card for a monthly gas allowance or giving children the ability to shop online with constraint- virtual prepaid money cards is the new carefree alternative in giving children freedom with a budget.

Are you gifted?

Prepaid visa cards are the perfect gift for anyone, anywhere, anytime. Since a prepaid VISA card isn’t a just ordinary gift card or a voucher, and it is not restricted to a specific store or brand, it can be used through any online service. This, literally, puts a world of possibilities in your hands.

 

 

The Pros and Cons of Having a Credit Card

I am a full time student and recently I applied for a student credit card with a limit between $300-$500. This is not a lot but it will be very releasing for me to use my card online and begin to build up my business and be released to do that. I am very disciplined so I know that I will not get into excessive amounts of debt. I will be using my credit card to move my financial situation forward.

Seeing as I am applying for a credit card I thought I would share with you guys what I believe to be the pros and cons of having a credit card. You should weigh up the pros and cons for your situation before you ever decide to get a credit card for yourself.

Pros:

  • You can buy whatever you need to now and pay for it later
  • You can receive rewards for using it such as frequent flyer points
  • You can use it to make purchases online
  • Many hotels require a credit card to be able to check in
  • It allows you the freedom to do whatever you want
  • Many companies and stores accept credit card as the easiest form of payment
  • You can use the money you don’t have as a way of investing into your business (as long as your return is greater than the debt you pay).

Cons:

  • You can get into some nasty debt if you are not careful
  • If people find your credit card or details then they can easily use it to make purchases
  • You can live beyond your means spending more than you can afford
  • You have to pay sometimes over 20% in interest on your payments
  • Sometimes if you are not aware of the fees you can be charged fees for reasons you weren’t aware of

So I weighed up the pros and cons of getting a credit card and decided that I needed wanted a credit card because it would be useful to move my business forward and it would release me now to buy some things that I need which I can pay off when I start working full time.

Note: Personal Finance tip 101 is to never get a credit card if you can avoid it. But if it is seriously going to make your finances better through investing in appreciating assets then a credit card can be a great tool. But be careful you don’t get into too much debt or get stung by fees. The convenience of credit cards makes it extremely difficult to avoid accruing tons of debt. The general rule of thumb is: If you always ran out of money before your next paycheck, you probably shouldn’t be getting a card. On other other hand, if you saved your money and had some left before you got paid again, you probably can handle the freedom that comes with having credit.

Emergency Fund vs Credit Card Debt: What’s the Top Priority?

Is it better to start an emergency fund or pay off your debt as quickly as possible? If you are anything like most human beings, you want a definitive push in one direction or the other. Most financial advisors and ten-year-old kids can tell you which is better to go with by simply looking at the numbers. However, like all things in life, it is not quite so simple. This is a great example of people thinking the world is in black and white.

Paying Off Debt Saves You Money

It does not take a genius to tell you that paying off your debt as quickly as possible is the best numerical choice to go with. You get one to two percent interest a year from a dollar in a savings fund while the dollar in debt collects fourteen percent interest a year. Each year you don’t pay that dollar off you are losing by twelve percent. The smart thing to do would be to pay off the dollar and start building an emergency fund now that you are out of debt in order to avoid possibly falling into debt again. That is the whole argument made by those that advise it is better to pay off your debt before creating an emergency fund.

Real Life Has Emergencies

Unfortunately, most of us cannot start from scratch with nothing saved without ending up in debt again. It is an unpleasant fact that things go wrong. The emergency fund side of the issue is a bit more realistic. Basically, you want an emergency fund set up so that you can avoid going into more debt than you have already gotten into. The idea is that, even though the debt you currently have is creating interest and destroying your credit, you aren’t adding new debt on top of the old debt. This raises a good point. Using all your money to pay off debt only to end up penniless will lead you back into debt the second an unexpected expense puts a vice grip on your finances.

Finding Balance

So then, which should be top priority? Neither. One extreme or the other will only condemn you in this situation. If you ignore credit debt, it will be 20 years before it’s paid. Ignore emergencies and you may go into bankruptcy. That is why you have to take the eclectic approach and do a little of everything. Save money in an emergency fund in order to keep from ending up with new debt, but also pay as much of the debt you already have accumulated as quickly as possible. At the very least, keep yourself from being late on credit payments, amassing more expense.

Here’s how to calculate how much needs to go into your emergency fund to make sure your credit card doesn’t end up costing you more than it needs to. Unfortunately, this has to assume nothing else major goes wrong, like a job loss or the total loss of your uninsured car. (Hint – make sure your car insurance is paid!) In the beginning, there are only so many emergencies for which you can prepare.

Pay a Little Extra on Credit, Build Your Emergency Fund

So, you need to have enough money in your emergency account for the necessities for one month. That means gasoline to get to work, the bare minimum amount you need to get by for food, the monthly payment for your car insurance, and the total minimum payment on all of your credit cards. Most utility bills will let you slide for one month without a large penalty, so if there’s something that has to wait, let it be those…but no more than 30 days. Once you have this amount, you can first focus on getting that amount saved in your emergency fund while paying the minimum plus at least $10 extra on one of your credit cards.

Attack Your Debt Full Force Only After Emergencies Are Covered

Once you have your emergency fund covering the necessities, start throwing everything you’ve got at your credit cards. You can attack the biggest first or not, depending on which method motivates you best. You’ll save more money by paying high interest cards with bigger balances first, but some people need to see one card paid off quickly to feel like they are progressing. Those folks may be better off with snowflaking, or paying of the smallest debt first.

This simple solution will solve your debt issues in a slow yet manageable fashion that, honestly, will take longer than paying credit first, at least in a perfect world. In the real world, this might be faster. You will end up debt free, with a nice cushion should anything unexpected arise.

Credit Card Users & Financial planning

Credit cards can be an excellent tool to help you manage your finances. But sometimes we make poor choices, or sometimes the events in life take us beyond our expectations and we are left to foot the bill. Perhaps you have had a few months of extra, unexpected expenses that you are now paying for. What can you do?

Gather together all of your credit card bills and add up the amount that you owe. Factor in the extra expenses you haven’t heard on your credit cards since you receive those bills. Add to that about ten or twenty per cent, which is the “whoops, I forgot about that” factor. Then, with that figure, start shopping around for a loan.

Get the loan and pay off your credit card bills. If you think that you may still use your credit cards, you may want to hide them away so that you reduce the temptation to use them. Now, instead of having several credit card bills at a high interest rate due by the end of the month, you now have one bill that is due once a month at a lower rate. This is called consolidation. At first glance it may not seem obvious why you’d want to do this but there are two reasons:

The first reason is that you will save a lot of money on interest rates. In fact the interest rates might be as much as half of regular credit card interest rates. The second reason is that you will get one bill with a fixed amount due every month rather than several bills with several amounts due throughout the month. This will help you budget.

Credit cards can be an excellent tool to help you manage your finances and buy the things you want or need. But when things go on a ride and your bills get out of hand, which happens to even the best of us, choosing a personal loan as a way to consolidate those bills will help you reduce your interest rates and set up a fixed amount of payment. Reduced interest rates will ultimately increase the amount of money you keep and a fixed amount due every month will help you plan your budget.

12 Questions You Should Consider Before Signing Up for a Prepaid Card

Curious about a prepaid Visa or Mastercard?

Well they can be extremely helpful to you if you no longer want, need or have no choice anymore when it comes to a bank checking account.

Tired of banks that charge overdraft fees?  Have you had some problems in the past with opening up a checking account?  Do you have no credit history?  If any of these questions apply to you, then you are definitely in the market to find a prepaid card that will give you everything you need.  So what questions might you want to consider before signing up?

One.  How do I open a prepaid account?

The prepaid card company’s website should offer you a user friendly sign up page or the option to call them and sign up by phone.

Two.  How old do I need to be to get a prepaid card?

Some companies will allow you to open a card as young as 14 years of age.

Three.  What do I need to apply for a prepaid card?

Applying for the card should be hassle free.  Most prepaid card companies only need your name, phone number, email address, social security number, and mailing address.  The company usually sends a confirmation letter along with other information about the company and additional services they offer.

Four.  How much does it cost to sign up for a prepaid card?

It’s usually free to sign up; however once you add money to your prepaid account, they will charge you an activation fee and monthly service charges will begin. If you use direct deposit to add money to your prepaid card, some companies will waive your activation fee.

Five.  How much does it cost to activate a prepaid account?

Activation for a prepaid account is usually free if the company offers a service where you can setup direct deposit to your account. However, if you choose not to use direct deposit, a small activation fee will be applied.

Six.  Can I open an account if I am on ChexSystems?

Yes. Prepaid card companies do not do a ChexSystems verification when opening new accounts.

Seven.  Do I have to maintain a minimum balance on my prepaid account?

No minimal balance is usually required for prepaid accounts; however read the fine print.

Eight.  Does prepaid cards provide monthly account statements?

Yes.  Prepaid companies typically provide monthly online statements free of charge. You can also sign up to receive monthly paper statements sent to your home and some charge a small fee.  Also, some  prepaid card companies do offer options to get free text or email alerts.

Nine.  How long does it take to receive a card?

Most prepaid cards are typically delivered within 5-7 business days after you sign up. If you need a replacement card, you will have to request it and you may be charged a fee .

Ten.  How do you know that a prepaid card company is legitimate?

Be sure to check to see if they are an accredited member of the Better Business Bureau.   A full report on the company can be found on the Bureau’s website.

Eleven.  Can I use the prepaid card like a credit card too?

No, only money that is added to the prepaid account can be used; however check to see if the company offers a line of credit if you have direct deposit setup on your prepaid account.

Twelve.  Who can I call with questions about my prepaid card?

Every prepaid card company should provide business hours and contact information.

Other things you may want to consider when signing up for a prepaid card would be:

  • Do they have a referral program?
  • Are there any special promotions?
  • Can they help me build up my credit history?
  • When you are satisfied with the information you have obtained and all fees are outlined, sign up.

How Many Credit Cards Does One Person Need?

It’s all in how you use your card. Personally, I think one credit card should be enough for any person. Consider these points before applying for your credit card:

  1. How are you planning to use your card? Interest rates are much too high to use a credit card as a loan.
  2. Can you pay the balance off every month? If the answer is no then you should apply for a bank loan instead, they have cheaper interest rates than a credit card.
  3. Are you a compulsive buyer? If so maybe cash is a better way to control spending. Packing a limited amount of cash will slow down your spending.
  4. Do you need to keep certain expenditures separate from other expenditures? A credit card for specific expenses may work – if you pay the bill off every month!
  5. Are you observant and responsible? You need to keep track of your credit card – don’t lose it! – and review statements to catch errors and avoid theft.

Remember a credit card is relatively easy to get but nothing can drive you into debt faster than the unquestioned credit available from a credit card.

PROCEED WITH CAUTION!

Finding the Right Credit Card for Seniors

Before even considering a credit card, check your income. If your surplus cash at the end of the month is always near zero, any credit is going to be hard for you to repay. This also means that you will be tempted to buy things near the end of the month on the credit card. This will result in less cash next month when the payment comes due, and that is how a vicious cycle of unending debt begins.

For you the best card is no card. However, if you feel that you need a credit card for things like car rentals and genuine emergencies, get one card and put it away until you really need it.

Start your search for a good card by realizing that your debit card is not a credit card. If you spend beyond your checking balance, overdraft fees will kick in. You will regret it in a hurry. Not very many accounts these days return checks until you are way overdrawn, but the fees still apply.

Sort through the applications that come in the mail. Look for a card with a fixed low rate. Low introductory rates will expire within the first twelve months and a higher rate will be applied to outstanding balances. This will make for higher payments and possible financial hardship on you.

Any card that costs you more than 15% is too high. It is better if you can get it into the 10% to 12% range. Cards that offer cash back are good, but not at the expense of higher interest rates. Read the fine print.

Citibank and Bank of America tend to be two cards that are not too quick to pull the trigger on rate increases. They also work with customers to keep rates manageable if you have minor problems arise. Chase tends to have a short fuse in this area and is not flexible about fixing it, but will sometimes offer a great rate as long as you never have a late payment or a spot on your credit report.

Look for cards that offer better deals to seniors. This can sometimes keep you out of trouble by having room for a mistake or two in the fine print.