Tag Archives: debt

5.26-blog

Your Teen Wants You to Cosign a Loan—Now What?

Let’s paint a quick picture of the college landscape: there is $1.2 trillion in outstanding student loan debt, and, if the current system remains, every graduating class from this point forward will become the most indebted class in history.

That may seem dreary, but it’s important not to paint college affordability with a broad stroke because a picture may still be worth 1,000 words, but a solid financial college plan is worth way more than $1,000.

Part of that plan may include student loans. Before you sign on the dotted line as a cosigner for your teen and send them on their merry way, consider these important facts:

  1. Consider ALL options

Federal loans never need a cosigner and have more favorable terms for students to pay back the money in a fair and timely manner. Look into these types of loans first, along with any and all scholarship or grant opportunities. Only then should you look into private loans, which require a cosigner.

  1. Know the implications of becoming a cosigner

If you’re thinking about making a big purchase like a car or a house, you may want to reconsider your choice to cosign a student loan. Becoming a cosigner makes it more difficult to take out other loans or credit cards. Plus, if you miss any payments, your credit score will suffer. And if you want to get out of the pact, think again. It’s next to impossible to relinquish your responsibility once your teen is 21 years old and your name is still on that paper. In extreme cases, cosigners sometimes remain responsible for payments even if the person who is receiving the loan passes away. That is why many experts recommend a life insurance policy in conjunction with a private student loan.

  1. Be sure your teen is on board with the plan

Every parent will differ in their approach to their teen’s financial contribution. If you expect your teen to contribute, ensure that they can do so responsibly. You can get your teen accustomed to this responsibility by setting up a chores-for-allowance system. A more extreme option is to have your teen sign a document that stipulates they will repay any missed payment and/or fees you cover over the life of the loan. In an ideal world, this will mostly serve as a real-life reminder of the loan and not a first step toward a date in daytime television family court.

  1. Be realistic with the loan

One of five things all students should know about loans is to only take out the amount of money they truly need. The general rule of thumb is to estimate the salary your teen could earn upon graduation and stay below that number. If you learn better through hard figures, The Wall Street Journal reported that between Oct. 1 and Dec. 31, 2015, private debt collection companies hired by the Department of Education garnished more than $176 million in wages from defaulted student loan borrowers in order to pay back their debts. You don’t want that for your teen, do you?

After poring over the reality of the situation, you may find it in the best interest of both you and your teen not to cosign a student loan. You may get a cold shoulder or two because of it, but you will be able to say, “I told you so,” when they graduated debt-free.

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4 Things Teens Absolutely Must Know Before Taking Out a Student Loan

A college degree today is equivalent to a high school diploma 50 years ago. That is to say it’s an expected, if not necessary, level of education needed in order to secure a job in a number of professional fields.

The one major difference between high school and college is, of course, price. But given the importance placed on higher education, many families will do whatever it takes financially to ensure their child can earn that degree.

For most, that means taking out student loans. Before you and your teen go down that road, you should both be aware of the implications going forward.

These are four things you and your teens absolutely must know before taking out a student loan:

  1. Almost 71 percent of bachelor’s degree recipients will graduate with a student loan.

As a parent, you might think loans aren’t necessary since they weren’t when you were looking into college. According to a 2015 Wall Street Journal article, your memory doesn’t deceive you — less than half of students graduated with student loans two decades ago and about 64 percent did 10 years ago. These days, however, roughly 3 out of 4 students will need to borrow money to graduate.

  1. The average 2015 college graduate with student loan debt will have to pay back a little more that $35,000.

If your teen is one of those three students who will take out a loan, they can expect to be saddled with $35,000 upon graduating. That amount is more than double what borrowers had to pay back two decades ago, even after adjusting for inflation. So not only are more students taking out loans, they’re also paying more in loans.

  1. Only borrow what you need.

It’s generally thought the biggest loan you can get is the best. This is not true. A loan should strictly serve to cover the cost of college — this includes spending costs in addition to the basic costs of education, room and board. When taking out a loan, look at what the averages are and then apply yourself and your situation against those. This is one of several tips you should consider during the process.

  1. Know what types of loans are out there

When applying for financial aid, loans are normally included in the school’s offer. Some student loans are made through the federal government, while others come from private sources like banks for financial institutions. Generally speaking, federal loans offer borrowers more ways to pay the money back along with a lower interest rate.

Make sure your teen has a basic idea of what they’d like to study and what they hope to achieve while in college. They can figure it out while already there, but that’s a costly deliberation period. Getting some real world experience first either through a job, volunteering, or even traveling can help hone their interests and formulate a plan for a worthwhile college experience.

Remember to remind your teen to speak to someone in his or her desired college’s financial aid office. They’re there as resources to help you!

4.26-blog

5 Ways to Use Your Tax Refund Wisely

Tax season gets a bum rap.

While tax day is often associated with having to pay the government, most people actually will receive a check compensating for money they’ve overpaid in taxes throughout the previous year. In 2015, the average refund was $2,893.

Adults usually direct this tax refund toward boring stuff like bills, but teens are free to spend this lump sum of money as they please, right? This is a free country, so technically, yes; but we suggest applying a bit of wisdom when it comes to your refund check.

But before you can start planning what you’ll do with your sweet, sweet cash, you should first know if filing a tax return is even necessary. Once you’ve got that straightened out, follow these five suggestions on how to use your tax refund wisely:

  1. Save for college

Nearly 70 percent of students are taking out loans to pay for college, and on average those loans amount to $33,000 per student. When you account for the interest, many people continue paying off student loans well into their thirties. By starting your own savings now, you could avoid or diminish the realities of this inconvenient, postgraduate truth. 

  1. Pay down debt

The average U.S. household carries $15,762 in credit card debt. While you shouldn’t have nearly that much as a teen, you’d be surprised how quickly it can pile up. If you have a credit card with even a small amount of debt, using your refund check to pay it off is a smart move. Not only does it help you prevent the dreaded black hole of debt, it also improves your credit score — win-win.

  1. Start an emergency fund

The definition of an emergency is a serious, unexpected situation, which is why you ought to plan for one ahead of time. If you don’t have money saved, the effects of a serious emergency (e.g., a medical emergency) can be compounded. Only 51 percent of Americans have enough cash in their emergency accounts to clear themselves of credit card debt. Be like the other 49 percent.

  1. Buy something useful

This may come as a shock, but when you move out of your parents’ house you lose the use of all their things. From food to paper towels, these are things you’ll need to budget for as an adult. Even more pressing is the fact that items you need like cars and computers tend to need repairs and you’ll have to cover the costs. Use your refund check now to upgrade any item you simply will be lost without.

  1. Invest

What’s the only thing better than having money? Making more money with it! Investing is no doubt complicated, but there are very safe ways to invest money. Not only will it boost your bank account, it will also prevent you from spending it frivolously.

For more info on jumpstarting a better tomorrow with your refund check, read this post from H&R Block Talk.

Are Your Money Habits Thrifty or Wasteful? [VIDEO]

Just because you know the foundations of responsible money management doesn’t necessarily mean you adhere to them. H&R Block Dollars & Sense hit the streets to find out what people are spending their money on and what money lessons they’ve learned over the years. Are people ignoring everything they’ve learned about managing money? Watch the video to find out.

 

3.29-blog

5 Tips for “Spring Cleaning” Your Finances

When you hear the word “spring,” uttered for the first time after months of dreary winter, what kinds of images are conjured up in your head?

Warmth. Sun. Birds. Flowers. Cleaning?

It may not be the most alluring aspect of the new season, but according to the American Cleaning Institute, 72 percent of people will likely engage in some sort of spring-cleaning this year. So if cleaning is top of mind when you think of spring, you’re not alone.

But don’t limit spring-cleaning to only your home. This is also the perfect chance to give your finances a nice tidying up. Here are five financial spring-cleaning tips that will give your finances a fresh new shine for the rest of the year:

  1. Form a realistic plan for getting out of debt

Without a strategy, you could suffer from the fiscal strain of debt for years. Apply a simple plan for your debt, and you’ll be able to mark a date on your calendar when you’re free from the shackles. Start by spending less than the amount you earn each month, and then decide on an amount you’ll put toward debt each month and stick to it.

  1. Do your math before taking out a loan

Whether you’re planning for your teen’s education or considering furthering your own, loans are often part of the equation. Make sure you understand the commitment before accepting a loan or you’ll be in for a rude awakening. A $100,000 loan at 6.8% interest will demand monthly payments of $1,100 for the next 10 years.

  1. Save for retirement

And do it now! The sooner you start putting in money for your golden years, the shinier those years will be. Once you’re retired, you won’t have a source of income to support yourself. Seems obvious, but then again so does saving now for retirement, yet plenty of people neglect to do so.

  1. Make a budget

Putting your plan on paper in the form of a budget will help make the first three tips easier. If you don’t know where to start on a budget, follow the 50/20/30 rule: 50 percent to essential expenses, which includes housing, transportation, utilities and groceries; 20% to financial priorities, which are retirement, savings and debt (in that order); 30% to lifestyle items, which are gifts, travel, dining out, shopping and everything else.

  1. Check (and understand) your credit report and credit score

A good indicator of how tidy you’re keeping your finances is your credit report and credit score. They will determine if you’re eligible for big savings when you make major purchases like a car or house (anywhere from thousands to hundreds of thousands in some cases). Additionally, make sure there aren’t any mistakes on these documents as that can have serious effects on your credit and your ability to borrow money.

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5 Things to Avoid Buying with a Credit Card

As much as you try to reinforce to your teens that credit cards are an adult responsibility that should only be used with proper planning and budgeting, it’s hard to deny the magical aspect of using a plastic card to buy things you need or want without having to fork over cash at the time of purchase.

The concept that you will be paying for this later, and sometimes paying more if you cannot make monthly payments and incur high interest rates, can be a difficult concept to grasp for even seasoned credit card users. Make sure your teen knows what NOT to pay for with credit cards to ensure they don’t fall into a pit of debt as soon as they head off on their own after graduation. It’s easier than cataloguing the numerous items they can buy with credit, and will at least safeguard them from buying expensive items they will never be able to realistically afford.

Here are five items your teens should never pay for with a credit card:

  1. Tuition: 

Yes, a college education is important, if not a requirement for success these days. Trouble is, the cost of college tuition is perpetually on the rise and college students are still as broke as they always have been. Due to the exorbitant costs of education, most teens receive financial help either from their parents or through scholarships and loans. But if your teen is responsible for even a portion of their tuition, they should not use a credit card to pay the bill. Many schools will add a convenience fee (roughly 2-3%) for paying with a credit card. On top of that, the amounts are so large your teen wouldn’t be able to pay off the credit card before having to start paying interest on it. If your teen is having trouble paying tuition on time, talk to the school and find out about the types of low-interest student loans, grants or work-study programs that are available to offset the cost.

  1. Vehicle:

Not every auto dealer will accept credit card payment, but the ones that do will likely charge a transaction fee of 1-2%. When you’re buying an expensive item like a car, 1-2% can add up to several hundred dollars. Also, the chances your teen has a credit card with a high enough limit to handle the initial down payment on a car are slim. More than likely, your teen would max out their cards, negatively affecting their credit score. Instead, consider borrowing from a bank or credit union. Interest rates would be around 3-4%, compared to 15% rates your teens would endure on the average credit card. Another benefit of receiving an auto loan is adding it to your credit report, which helps the health of your credit score.

  1. Medical bills:

The cost of healthcare is not cheap and paying for it with a credit card will add high interest rates to the overall bill. Your teen could wind up digging an early debt hole that could affect their future finances if they go down this road. Contact a hospital’s financial department to help your teen set up a payment plan. This result in smaller or no interest charges and give them a clear road to paying off the balance completely.

  1. Taxes:

If your teen needs to file taxes and ends up owing money to the IRS, they should not use a credit card even though it is an option. Like vehicles, taxes can end up being a large dollar amount and tax preparers will charge a convenience fee for using a credit card. The 2-3 percent fee could tack on a good amount of added money if the initial amount owed in taxes is high to begin with. Plus, interest rates on credit cards are other higher than what the IRS charges through its range of payment plans. Speak with the tax preparer to figure out the best way your teen can pay taxes or contact the IRS ahead of time to work out a payment plan.

  1. Business startup:

So your teen is using their education to begin a business. Excellent! But they use a personal credit card to expense their venture to get it off the ground. Not so excellent. This tactic is risky because it generally takes a few years for business to become profitable. In that time, your teen will pay high interest rates on those costs, effectively negating any profit from the business. Small business loans are more suitable in these situations.

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How to Help Your Teen Save Money While They’re in Debt

For teens eager to shed the restraints of adolescence, financial independence is one of the first true milestones. That means saving money, budgeting and paying bills in a timely fashion.

But without the proper money management tools, financial independence can be a tough road to navigate, leaving a lot of teens in debt right out of the gate. It may seem counterintuitive to try and save money while working to pay off debt, but it’s a necessary one-two punch for teens trying to maintain their newfound independence.

Here are three ways to save and pay off debt at the same time:

  1. Analyze spending habits

If your teen quickly fell into debt after opening their first credit card, work with them to assess and audit their spending and lifestyle. If they’re buying expensive items without the ability to pay off even the minimum monthly amount, then they must understand the basics of credit card ownership before going any further.

Even small purchases can take their toll. That pre-class Frappuccino, after school candy bar and weekly mobile app purchase can quickly add up. By helping your teen trim their budget, they can easily save anywhere from $20 per week or more by eliminating non-essential items. If this change is too sudden, encourage them to at least cut back on these types of purchases and make a note of how much they save as a result.

  1. Starting saving NOW!

Even with debt looming over their heads, it’s important for teens to start putting money into an emergency fund immediately. By doing so, teens will have funds to use in an emergency without having to use their credit card, which will put them further in debt. These savings should be kept in a not so easily accessible savings account where they can earn interest and prevent any temptation spending. Once an emergency fund has been established, your teen can start paying off their debt.

  1. Show your interest

The biggest problem with debt is the associated interest rates. Establish how many bills your teen has, how much is owed on each and the associated interest rates. This will help you map out the long-term costs associated with the debt held on each account.

Help your teen figure out the best payment method for them, whether it’s paying off their smallest bill to eliminate it completely, or paying off a larger chunk of the bill with the highest interest and avoiding costly fees. With the second option, it makes sense to compare the amount saved by paying off the debt with the amount that money could earn with interest in a savings account. If paying the debt proves to be a better use of the money, then pay it off until the advantage tips back to the interest earned in a savings account, at which point they should continue to pay the minimum costs. Whatever you ultimately choose, make sure that your teen always pays the minimum amount on every bill each month.

By saving money and paying off debt at the same time, your teen will eventually be debt free with some money in savings. This two-pronged effort may not be the quickest way to become debt free, but it will ensure your teen has a safety net in the process.

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March is Get Motivated Month

March is a muddle of a month, especially when it comes to motivating yourself to improve your family’s finances. The days are still cold; winter seems without end. But those who take advantage of this seasonal lull can get a jump start on finding extra work or planning out a summer of frugal fun.

Acting now, while others are still in the late winter doldrums, can help you get in control and get ahead. So instead of blithering through the blahs, turn March into your personal “Get Motivated Month.” Here are five things you can do right away to ensure you’ll have more money in your wallet come summertime.

1. Set a financial goal now.

There’s nothing like setting a financial goal now to increase your likelihood of having extra money on hand later. Maybe you want to earmark cash for something specific, such as a new phone, money for a trip or the down payment on a car. Decide on a set amount to stash away each month. Getting in the habit will be a big part of making it happen.

2. Start applying for summer jobs now.

It may seem like summer is a long way off, but it’ll be here before you know it, so get a head start on summer job applications before the end of the school year. Summer employers often start taking applications as early as February, and some jobs are already filled by April. If you find that prospective employers aren’t reviewing applications yet, find out when they do plan to accept them. Then, follow up and get your application in.

3. Get the word out now.

Creating personal connections can be especially helpful when you’re looking for employment, even for a part time summer job. Get the word out that you’re looking for work.  If you have specific companies you want to apply to, ask friends, family, neighbors or community connections if they know someone who works in one of those companies. Then, contact that person, and follow up. Be sure to mention the name of the person who suggested you contact them.

4. Set up your network now.

This is also a good time to set up a LinkedIn profile if you haven’t done so already. Even if you don’t have much in the way of experience, you’ll be set up to keep the connections you have and keep adding more as time goes by.

5. Pay off debts now.

One way to have more money later is to use it some of it now – to pay off credit card debt. Make point to chip away at debt before it gets out of hand. Try to pay off your monthly credit card bill each month to avoid finance charges, or if that’s not possible yet, try to pay something above the minimum amount due. This is another habit to get going on now that will pay off throughout your financial life.