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How to Start Repaying Your Student Loan | Paradigm Money
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Student Loan Delinquencies Going Up + How to Start Repaying Your Student Loan

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Student loans that are at least 90 days delinquent or in default ballooned to a record $166.4 billion in the final quarter of 2018, according to Bloomberg analysis. That means the “seriously delinquent” debt continued to rise even as the unemployment rate fell below 4% — a sign that the robust job market hasn’t generated enough wage growth for recent graduates to make payments. “If you have a choice to pay your student loan or for food or housing, which do you choose?” asked a Bloomberg Intelligence strategist. Warren Taylor, Executive Vice-President at BankMobile, says it is time to start paying off your student loans. 

This blog post will not address all the various types of student loans (Federal, State, the private sector, etc.) and their repayment terms – as that would be a very long blog! This article is more about how to pay off your loans as quickly and as cheaply as possible.

Should You Consolidate?

First, you may want to explore loan consolidation. This is where all your student loans are reviewed, with their different interest rates and repayment terms, and then paid off by consolidating them into just one new loan with one monthly payment. For many, this is a good way to go. Your overall interest rate may be reduced, thereby saving you money. It helps that you have one payment to make each month, instead of five loan payments all with different due dates. The only real danger to consolidating loans is that you may lose some benefits that some of your loans may have – like loan forgiveness, loan forbearance, etc.

Choosing the Best Loan Term for You

When choosing a loan term, picking the shortest repayment time in order to get the lowest interest rate may not make sense. Your rate will be lower, true, but your required monthly payment will also be very high. This high monthly payment may hurt your chances of getting other loans – like a mortgage because your “back end” ratio is too high (see my first blog on budgets for an explanation). Picking the longest term may not be wise either. True, your monthly payment will be low, but because you are taking so long to pay off the loan, you will pay the most in interest since the term is longer and your rate will be higher (typically the longer the repayment term, the higher the interest rate). Just when you thought you were “getting” how this loan repayment term thing worked, I need to add another complication. It’s based on rewards. If a ten-year repayment term has a 5% rate, and a 15-year term has a 10% rate, it may be in your best interest to take advantage of the shorter loan term because your interest rate is cut in half. We would be happy to help our BankMobile customers with this decision – just give us a call.

How to Repay Your Student Loan Off Faster

Let’s get to repaying your loan – and sharing some “tricks” on how to repay a loan faster. The average college student graduates owing $27,000 in debt. This is the amount of the loan in our example. Most loan program terms range from 10 to 25 years – consolidated loans have some shorter terms as well. Your monthly payment for a ten-year loan, at 7% interest, on $27,000 would be $313.49. If you pay an extra $24.18 a month, you will shave a full year off your loan – paying it off in 9 years instead of 10! Making this slightly higher monthly payment will save you over $1,150 during the life of the loan. I use the iOS app “Loan Calculator – What If?” to calculate loan payments.

Using the same example above, I could get a ten-year loan @ 7% interest, or they offer me a 15-year loan at 7.5% interest. I might be inclined to go with the 15-year offer at 7.5% interest. Why? Well, my mandatory monthly payment would drop from $313.49 to $250.29. This lower payment might help keep me under my 36% back-end ratio, thereby allowing me to get a mortgage or other financing if needed. Second, if my spouse or I got laid off, if we had an emergency repair, a health crisis, having a required loan payment of $250.29 would allow me to keep my loan current and take the extra money to pay for the emergency. If you do take the longer term, and here is where you need this discipline, I would still recommend you pay the higher monthly payment of $337.67. By paying this extra $87.38 per month, you would pay off the loan in 9 years and four months.

General Guidelines

So what is the right choice?  Without knowing your ratios, income, debt levels, and other factors, it is very hard to tell you what to do.  However, here are some general guidelines to follow:

1. I would probably suggest going with a fixed rate loan instead of a variable rate loan. Why? Interest rates are at historic lows. There’s a greater likelihood that rates will go up than come down. So taking on a variable rate loan now will likely lead to higher interest rates, hence higher monthly payments, shortly. On a fixed rate loan, your payments will not go up if interest rates go up. Again, choosing the right loan depends on your income, debt, and discipline.

2. Whatever your required loan payment is, pay more. Think about it, in the example above, paying $24.18 more a month (that’s basically 80 cents a day), cuts a whole year off your loan term! Imagine if you paid an extra $54.62 a month (that’s $1.80 a day), you would shave two years off your loan term – paying your student loan off in 8 years instead of 10 years. Isn’t that worth not having one Starbucks coffee a day? Trade in a cup of coffee per day, shave two years off your loan repayment! Perhaps I’ll write another blog on easy ways to save $20 to $200 per month.

3. Always pay your debts on time – even paying them a day late or $1 short can hurt your credit rating. But, if you do want to pay off debt quicker than normal, start with paying the extra money on your highest rate loan. This means you use the extra money you have saved from not going to Starbucks anymore to pay off your credit cards first, student loans next, and your car loan will probably be your lowest interest rate loan. It’s amazing what an extra $1 a day can do to reduce a loan balance!

Maintaining a low level of debt is key to creating a successful financial life for yourself.  Now, let’s shed the debt!

Ash Exantus aka Ash Cash is one of the nation’s top personal finance experts. Dubbed as the Financial Motivator, he uses a culturally responsive approach in teaching financial literacy. He is the Head of Financial Education at BankMobile and Editor-in-Chief at Paradigm Money. The views and opinions expressed are those of Ash Cash and not the views of BankMobile and/or its affiliates.

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Celebrities Caught Cheating to Get Students into College + How to Prepare for the Cost of College the Right Way!

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Actors Felicity Huffman and Lori Loughlin are among the dozens charged with using deceitful tactics to funnel students into top colleges. The alleged crimes, uncovered by the FBI, including bribing officials, cheating on exams and wrongfully claiming athlete status in order to nab spots at top universities such as Yale, Stanford, and Georgetown. “Desperate Housewives” star Huffman is accused of paying $15,000 for her daughter’s answers on the SAT to be corrected and was released on a $250,000 bond by a Los Angeles court Tuesday.

As a student, I understand that you want to do what is necessary to help your children succeed but breaking the law to do so is not worth it in the long run. So if you are a parent who wants to help your child with college what do you do? Although, college isn’t something that they will attend until they become an adult it is important that parents start to plan for this expense as early as possible. With childcare being almost as much as rent or a mortgage it can be difficult to save money for anything these days, especially college expenses.

Fortunately, a 529 Plan can help parents save money for their child ’s future college experience. The 529 Plan is a tax-advantaged investment. It was created to encourage parents, grandparents, legal guardians, etc., to begin saving money for the future college educations of their children, grandchildren, are legal wards. It receives its name from Section 529 in the IRS Code, and it is offered by state agencies and state organizations.

Not all states offer the 529 Plan, but those who do individually decide how the plan is designed and what kind of investment options they will offer. Most plans allow investors to come from out of state. The advantages for in-state residents who apply for a 529 college savings plan within their state can include tax deductions, matching grant and scholarship opportunities, protection from creditors, and even exemption from financial aid debt.

The 529 Plan is offered in two different forms. There is a prepaid plan, sometimes also called a guaranteed savings plan, which allows you to purchase tuition ahead of time, based on the current calculations of what the tuition of a specific university is. It is then paid out when the beneficiary of the policy attends a college or university.

There are also savings plans, which are based around the market performance of an underlying investment. These investments are generally comprised of mutual funds. Forty-eight states, plus the District of Columbia, offer the 529 savings plan. Usually, savings plans become more conservative, the older the beneficiary gets. There are also options for risk-based investments, which allows underlying investments to remain in the same fund, no matter what the age of the ultimate recipient.

The 529 college savings plans are a great way for parents, grandparents, or legal guardians to ensure that their young loved ones will be able to afford to go to the very best colleges and receive the very best degrees. It allows children the opportunity to follow their dreams, like before they are actually capable of reaching them. They are ideal plans for adults who want to provide college funds for their children but are unsure or unable to go about it in the way the movies have always told them they should. The 529 plans are realistic and affordable investments, designed to ensure a child’s future successes.

So as you contemplate whether or not you will start your family, keep in mind of these expenses but also know that there are vehicles available to make the ride smoother (pun intended)

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Is It the End for Brick and Mortar Retail Stores? + How to Find a Job with Longevity

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More than 5,300 brick-and-mortar stores are slated to close in 2019. The closures are “more of the same for the retail industry,” according to Business Insider, which suffered the shuttering of more than 250 million square feet of store space in 2017 and 2018. Payless ShoeSource is the driving force behind the latest crop of closures — with 2,500 of the discount shoe stores set to close, it may be the largest retail liquidation in history. Gymboree, Charlotte Russe, and Family Dollar are also planning mass closures.

This may be due to Amazon.com low prices and fast delivery or due to consumers being more and more comfortable to shop online. Regardless of the reason, Brick and Mortar retail stores closing have a big implication for young people since these jobs are usually the first job they get. So how do you find longevity in a job and how do you prepare for it? Here are four ways to prepare for the job you want no matter your age:

1. Focus on Your Strengths, Not What You’re Lacking

Whether you are 20 years old or over 40 instead of focusing on your age, you need to focus on your strengths. Many young people with limited experience or older people who may not be up to date with the latest technologies focus on what they’re lacking, and this is a big mistake. Do you have the qualifications for the job? Can you bring value to this position? Whatever your strong suits are you should play that up in your resume, cover letter or communications with the recruiter. It’s easy to focus on why you can’t get the job, but the trick is not to let that get to you. Focus on your value!

2. Attack Your Job Search from All Angles

Networking, Answering ads and/or working with recruiters are the most effective ways to land a job. It is important that you just don’t focus on one method but all three. Networking obviously is the ideal way because it allows you to communicate your value directly, but the other methods have their benefits as well. Be proactive and use each method effectively.

3. Show/Explain Your Leadership Abilities and/or Innovation

Leadership and taking the initiative have nothing to do with age. Young leaders and old leaders can be more or equally effective as those who have the “ideal” age. Focus on your leadership abilities and be sure to display this to your current or potential employee. Also, make sure you are keeping up to date with current trends in your industry. This will allow you to show your innovation and add more value to your company.

4. Ask For What You are Worth

Lastly, ask for what you are worth. Don’t let being “too young” or “too old” deter you from asking for a salary you deserve. In fact, trying to downplay your worth may very well backfire on you. Also, if you have been with a company for a long time and your salary outpaces what the position is worth making sure you are adding to your skill set and not staying complacent.

Following these four tips can help you gain or retain employment. What are some other ways? Comment below>>>

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President Trump to Send 2020 Budget + How to Stick to Your 2019 and Beyond Personal Budget

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President Trump will send the White House’s proposed 2020 budget to Congress today — a month later than usual following the partial government shutdown. Trump is expected to ask for $8.6 billion for additional barriers along the Mexico border, with $5 billion allocated to the Department of Homeland Security. The budget is also expected to seek increased military funding and a reduction in domestic programs, according to The New York Times. We will see in the upcoming days whether the budget will be improved or not.

When it comes to properly managing your personal finances, a budget is the best tool you can use to guarantee your success. It is your roadmap to tell you how to get to your desired goal in a timely manner. Contrary to popular belief a budget doesn’t limit the amount of money you can spend. Instead, it gives you direction based on what you tell it to do.

Despite this unrestrictive control everyone has, it is still a difficult fear for some to stick to their budget. The following are five ways you can hold yourself accountable and stick to your budget:

1. Create Affirmations

Affirmations are a great way to achieve any goal. They keep in your mind’s eye what is most important and transport those ideas to your subconscious. Put them in your smartphone as an alarm in the morning so that as you begin your day, you are reminded as to what your goals are. For example, if you have a financial goal of saving $5,000 this year to invest, your affirmation could be, “I am so happy that I have saved $5,000, I will use and spend this money wisely to grow my net worth.”

2. Limit Your Access

Many people falter on their budgets because the access they have to their money is too easy. Separate your bill account, savings account, and a spending account. Automate all of your bills to your bill account, automate your savings into your savings account, and what is left over goes into your spending account. Managing your money in this way removes the temptation that you undoubtedly will have to use the money for other purposes.

3. Track Your Spending

Most people who don’t stick to a budget don’t really know where they went wrong. It is usually small unplanned expenses that do the most damage. When you track your spending consistently, you are creating a mechanism that will hold you and every dollar accountable. As you spend and subsequently track your spending, you can assess where you are unnecessarily spending and stop as soon as possible.

4. If You Can’t Stick to Your Budget, Change It

You are in total control of your budget so, in order to hold yourself accountable, you need to face the fact that if you can’t stick to your budget, then you must change it. Whether it is by decreasing expenses or increasing income, focusing on how to recreate a budget that will be more suitable to the lifestyle you want is imperative. Don’t assume you will fail at something that you have the power to change.

5. Find an Accountability Partner

Sometimes holding yourself accountable requires some reinforcement. Because of competition or the fear of letting someone down, having an accountability partner is a powerful tool in trying to stick to any financial goal. Creating a system that allows you to have periodic check-ins on your budget can go a long way. Whether it’s a friend, a significant other, a financial coach, or co-worker, align yourself with someone who can help you stay the full course of sticking to your budget.

We want to hear from you! What are some other helpful ways that you can hold yourself accountable to your budget?

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