Personal Finance

Smart Strategies for Coping With Student Loan Debt

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Paying them down and managing their financial impact.

Is student loan debt weighing on the economy?

Probably. Total student loan debt in America is now around $1.5 trillion, having tripled since 2008. The average indebted college graduate leaves campus owing nearly $40,000, and the mean monthly student loan payment for borrowers aged 30 and younger is about $350. (1,2)

The latest Federal Reserve snapshot shows 44.2 million Americans dealing with lingering education loans. The housing sector feels the strain: in a recent National Association of Realtors survey, 85% of non-homeowners aged 22-35 cited education loans as their main obstacle to buying a house. Eight percent of student loan holders fail to get home loans because of their credit scores, the NAR notes; that percentage could rise because the Brookings Institution forecasts that 40% of student loan borrowers will default on their education debts by 2023. (1,3)

If you carry sizable education debt, how can you plan to pay it off?

If you are young (or not so young), budgeting is key. Even if you get a second job, a promotion, or an inheritance, you won’t be able to erase any debt if your expenses consistently exceed your income. Smartphone apps and other online budget tools can help you live within your budget day to day or even at the point of purchase for goods and services.

After that first step, you can use a few different strategies to whittle away at college loans.

  1. The local economy permitting, a couple can live on one salary and use the wages of the other earner to pay off the loan balance(s).
  2. You could use your tax refund to attack the debt.
  3. You can hold off on a major purchase or two. (Yes, this is a sad effect of college debt, but it could also help you reduce it by freeing up more cash to apply to the loan.)
  4. You can sell something of significant value – a car or truck, a motorbike, jewelry, collectibles – and turn the cash on the debt.

Now in the big picture of your budget.

You could try the “snowball method” where you focus on paying off your smallest debt first, then the next smallest, etc., on to the largest. Or, you could try the “debt ladder” tactic, where you attack the debt(s) with the highest interest rate(s) to start. That will permit you to gradually devote more and more money toward the goal of wiping out that existing student loan balance.

Even just paying more than the minimum each month on your loan will help.

Making payments every two weeks rather than every month can also have a big impact.

If a lender presents you with a choice of repayment plans, weigh the one you currently use against the others; the others might be better. Signing up for automatic payments can help, too. You avoid the risk of penalty for late payment, and student loan issuers commonly reward the move by lowering the interest rate on a loan by a quarter-point. (4)

What if you have multiple outstanding college loans?

If one of them has a variable interest rate, try addressing that one first. Why? The interest rate on it may rise with time.

Also, how about combining multiple federal student loan balances into one? That is another option. While this requires a consolidation fee, it also leaves you with one payment, perhaps at a lower interest rate than some of the old loans had. If you have multiple private-sector loans, refinancing is an option. Refinancing could lower the interest rate and trim the monthly payment. The downside is that you may end up with variable interest rates. (5)

Maybe your boss could help you pay down the loan.

Some companies are doing just that for their workers, simply to be competitive today. According to the Society for Human Resource Management, 4% of employers offer this perk. Six percent of firms with 500-10,000 workers now provide some form of student loan repayment assistance. (6)

To reduce your student debt, live within your means and use your financial creativity. It may disappear faster than you think.

Need Additional Help?

Visit the Student Loan Borrowers Assistance website. The National Consumer Law Center’s Student Loan Borrower Assistance Project is a resource for borrowers, their families, and advocates representing student loan borrowers.

Sources

  1. studentloanhero.com/student-loan-debt-statistics/
  2. cnbc.com/2018/05/24/students-would-drop-out-of-college-to-avoid-more-debt.html
  3. cnbc.com/2018/04/19/student-loan-debt-can-make-buying-a-home-almost-impossible.html
  4. nerdwallet.com/blog/loans/student-loans/auto-pay-student-loans/
  5. investorplace.com/2017/06/how-to-navigate-your-student-loan-debt/
  6. shrm.org/resourcesandtools/hr-topics/benefits/pages/student-loan-assistance-benefit.aspx

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What Do Rising Interest Rates Mean for You? (The Upside and The Downside)

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Interest rates are rising.

The Federal Reserve has hiked the benchmark interest rate twice this year, and it expects to make two more hikes before 2019 arrives. It projects the federal funds rate will approach 3.5% by 2020. (1)

Are you retired, or about to retire?

You will be happy to know rates of return are improving on fixed-income investments. Take 1-year certificates of deposit, for example. Back in 2015, most of them were yielding 0.25%. Now their return is around 2.3%. Money market funds and even deposit accounts should soon feature slightly higher interest rates. The downside of this? If fixed-income investments grow increasingly attractive, investors may pull money out of equities. (4)

Do you have a lot of credit card debt?

The APR on your credit cards should continue to rise in response to the Fed’s moves. (2)

Do you have a fixed-rate mortgage?

You are unaffected. If you have an adjustable-rate mortgage, your payments may reset higher at the start of the next adjustment period. (3)

Are you a business owner seeking a short-term loan?

Try to arrange financing now. The cost of short-term borrowing increases when the Fed hikes. (2)

Do you own a business that sells high-end merchandise?

Your sales may be impacted. Higher interest rates force consumers to put more money toward debt. That means less disposable income to spend on the good life.

Sources

  1. bondbuyer.com/articles/fed-raises-rates-officials-boost-outlook-to-four-hikes-in-2018
  2. smallbusiness.chron.com/interest-rates-affect-businesses-67152.html
  3. tinyurl.com/y74tqh6q
  4. marketwatch.com/story/rising-interest-rates-give-retirees-good-news-and-bad-news-2018-06-20

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

How to Make Sure “Lifestyle Creep” Doesn’t Ruin Your Financial Plan

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Sometimes more money can mean more problems.

“Lifestyle creep”

An unusual phrase describing an all-too-common problem: the more money people earn, the more money they tend to spend.

Frequently, the newly affluent are the most susceptible.

As people establish themselves as doctors and lawyers, executives, and successful entrepreneurs, they see living well as a reward. Outstanding education, home, and business loans may not alter this viewpoint. Lifestyle creep can happen to successful individuals of any age. How do you guard against it?

Keep one financial principle in mind: spend less than you make.

If you get a promotion, if your business takes off, if you make partner, the additional income you receive can go toward your retirement savings, your investment accounts, or your debts.

See a promotion, a bonus, or a raise as an opportunity to save more.

Do you have a household budget? Then the amount of saving that the extra income comfortably permits will be clear. Even if you do not closely track your expenses, you can probably still save (and invest) to a greater degree without imperiling your current lifestyle.

Avoid taking on new fixed expenses that may not lead to positive outcomes.

Shouldering a fixed mortgage payment as a condition of home ownership? Good potential outcome. Assuming an auto loan so you can drive a luxury SUV? Maybe not such a good idea. While the home may appreciate, the SUV will almost certainly not.

Resist the temptation to rent a fancier apartment or home.

Few things scream “lifestyle creep” like higher rent does. A pricier apartment may convey an impressive image to your friends and associates, but it will not make you wealthier.

Keep the big goals in mind and fight off distractions.

When you earn more, it is easy to act on your wants and buy things impulsively. Your typical day starts costing you more money.

To prevent this subtle, daily lifestyle creep, live your days the same way you always have – with the same kind of financial mindfulness. Watch out for new daily costs inspired by wants rather than needs.

Live well, but not extravagantly.

After years of law school or time toiling at start-ups, getting hired by the right firm and making that career leap can be exhilarating – but it should not be a gateway to runaway debt. According to the Federal Reserve’s latest Survey of Consumer Finances, the average American head of household aged 35-44 carries slightly more than $100,000 of non-housing debt. This is one area of life where you want to be below average. (1)

Sources

  1. time.com/money/5233033/average-debt-every-age/

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Are we in for another round of high oil prices?

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Oil prices have a stealthy way of luring investors into the complacency of a trading range, before taking a dramatic turn on the cusp of a single geopolitical factor (often in the Middle East) or variety of coinciding factors.

Supply and demand

With any asset, it all comes back to the confluence of supply and demand that drives final pricing. The prior range of $45-55 was largely kept in check by the various supply and demand factors falling into balance. In normal conditions, demand is far more predictable than supply over the long-term, with steady growth being the norm in most nations as populations and industries grow, and the secular trend of emerging market demand growing at a faster rate than that of developed markets. Recessions and shifts to better energy efficiency can alter this pattern a bit, but growth remains the base case.

Supply remains the wildcard

We’ve been told we’re awash in domestic oil, thanks to new North American finds resulting from increasingly efficient extraction techniques, such as directional drilling, which is pulling more oil from nooks and crannies deeper in the ground (and ocean floor). Also, the advent and increased cost-effectiveness of shale oil production has allowed for the opening of large swaths of locked oil previously unusable. This potential volume has threatened global supply, traditionally managed by OPEC, and particularly the leader of the group, Saudi Arabia. The problem has stemmed from the Saudis and neighboring countries needing a certain price per barrel in order to maintain adequate incoming revenue to balance government budgets—these breakevens have generally been well over $75/barrel. In response, OPEC has implemented production cuts in order to artificially constrain supply and keep prices higher. In the past, this has been difficult, due to widespread ‘cheating’ (producing more than promised) by members, but in this case, with everyone needing more revenue, compliance seems to have improved. This last week’s pullout of the Iran nuclear deal by the U.S. and potential for re-imposed sanctions has created another problem for supply abroad (the Chinese tend to be heavier users of Iranian oil). Internal political tension in Venezuela, another large producer, has also threatened supplies.

U.S. infrastructure is an issue

Many of these issues appear manageable, however, one that has created problems for the safety valve of U.S. shale acting as the swing producer is infrastructure. While the oil is there, pipeline and rail capacity hasn’t kept up, due to a lack of upswing in capex spending in recent years. Oil companies and pipeline operators will typically tend to push more significant infrastructure investments if prices are expected to stay high and they have a better chance of recouping their initial fixed costs, so this tends to be a multi-year effort rather than a short-term remedy.

Crude could trade in the range of $60-70 over the next several years

Price movements, especially those due to fickle geopolitics, can be impossible to predict, but it appears consensus from a variety of sources is for crude to trade in the range of $60-70 over the next several years. Not surprisingly, estimates for future prices tend to anchor themselves around current prices. This is a bit higher than the expected range in the $50’s not that long ago, but certainly not exorbitant.

Source

  1. LSA Portfolio Analytics

JULY: 3 Things To Do This Month To Help Keep Your Financial Life On Track

Like maintaining a healthy lifestyle, maintaining a healthy financial life requires ongoing maintenance. It’s much easier to stay on track if you break the necessary tasks down into smaller more manageable tasks. So, here are three quick personal finance tips to help you stay on track this month:

TIP #1

Run a Retirement Plan Projection

Run a retirement plan projection so that you know where you are and what you need to do to get closer to your goals. You should do this once a year to see if you are heading in the right direction. For a quick calculation of what you need to be saving for retirement you can use this calculator at CNNMoney. If you need a more thorough calculation you should consider work with a CERTIFIED FINANCIAL PLANNER™ (CFP®). They’ll have access to more sophisticated software and will look at your entire financial life. If you are already working with a CERTIFIED FINANCIAL PLANNER™ (CFP®) you will want to revisit their projections at your annual review to account for changes in your finances.

TIP #2

Increase Your 401(k) Plan Contributions

For most people, setting a goal to max out your 401(k) or 403(b) plan contributions should be key. At minimum, shoot for at least contributing enough to get your company match. If you’re saving in a 401(k) or 403(b) and aren’t already on track to max it out, increase your contributions by 1%. Re-evaluate in 6 months and increase your contributions by another 1% until you ultimately max it out.

TIP #3

Review Your Investment Strategy

Has anything changed over the last 6 months that would cause you to have to make changes? Births? deaths? New goals? If so, review your plan or speak to your CERTIFIED FINANCIAL PLANNER™ (CFP®) to help you make smart choices.


Sources:

  1. http://www.learnvest.com/knowledge-center/your-january-2016-financial-to-dos/
  2. http://money.usnews.com/money/personal-finance/articles/2014/12/02/your-end-of-year-financial-checklist
  3. http://www.forbes.com/sites/learnvest/2013/01/04/your-financial-to-dos-for-every-month-in-2013/#14fe6d3d41d4