Many college graduates leave college and enter the work force with the double burden of student loan debt and credit card debt. Many recent graduates do not earn enough out of college to keep up with the financial demands of debt and living expenses leading to credit problems that may delay or complicate purchases of a car or a home. Developing good spending habits and making credit score enhancing financial decisions should be the aim of every college student and college graduate. Following are financial decisions that college students and college graduates should make to build a foundation for future prosperity.
- Limit yourself to one credit card and use it judiciously. Once the student has turned 21 and has gained some credit history off the parent’s card, the student can apply for a card. Do some research to find the best card, ideally one with a low interest rate and no annual fee. “College students are credit card dunces”
- Check credit reports. Every 12 months, you have the right to receive a credit report from the three credit bureaus: Equifax, Experian, and TransUnion, every 12 months. Make a habit of checking your report once a year for errors. Most likely it will be correct but mistakes do happen and it will be worth your time to clean up your record.
- Pay all bills on time. Companies increasingly report unpaid bills to the credit bureaus. Your credit score can be damaged by unpaid cell phone bills, cable bills, or utility bills.
- Minimize your student loan debt. College students should estimate the total costs for college through graduation. Based on that amount, students should seek to limit living expenses, increase income, and take only what they need. Students should have an idea of their work after graduating and whether they will be able to afford the payments they will face after graduation.
- Manage your financial affairs so as to achieve and maintain a high credit score. This will save you money by reducing the interest rates you will have to pay when you buy a home or a car.
With the cost of a college education escalating and students graduating with upwards of $20,000 or even $100,000 of debt depending on the degree, many students must apply for numerous private student loans to complete an education. If you are paying multiple loans or are paying high interest rates, Ball State Federal Credit Union may be able to help you consolidate your private student loans. Consolidation allows by combining your loans so you make only one payment each month instead of several, possibly at a lower rate of interest.
The advantages of consolidation are that it saves you time, it could reduce your monthly payments, give you more flexibility in repayment, provide you with a fixed rate, and eliminate prepayment penalties that some lenders impose so you have the option to accelerate payment. Student loans from traditional banks have left students having to pay interest rates of up to 14 percent. Credit unions, which are not-for-profit financial institutions, will probably offer better rates and better consolidation loans.
Some of the possible disadvantages to consolidation are that you may take longer to repay and it could cost you more over time. The type of loan is important, and federal loans such as Stafford, Perkins, Direct Plus and Supplemental loans, can only be consolidated with other federal student loans. Also, it is possible that you might not be able to consolidate your entire amount, but sometimes combining a portion at a fixed rate can provide some relief.
It is important that you do your research first and weigh the benefits and costs of going forward with consolidation. You may want to consider the advantages between a variable rate or a fixed rate. Since your situation is unique, discussing your options with one of our advisors may help you to find a solution that best meets your needs.
For 40 years until the late 1990s, The Yellow Pages ran an advertising campaign that urged the public to “Let your fingers do the walking.” These days fingers are walking on flat screens and computer keyboards instead of yellow paper but the idea is the same: a few minutes using your fingers can save you both money and hours. The new online marketplace offers savvy buyers many new opportunities that were not available during the days dominated by thick paper phone books. Following are some strategies that can help you find deals and pay less.
Compare prices and look for coupons online. The best way to find out whether you are getting a good deal is to take the time to compare. If you do your homework, you will save. Bankrate.com lists several shopping comparison sites: DealTime.com, BizRate.com, Shopping.com, PriceGrabber.com, Google Product Search and Pronto.com. Coupon codes can be found at RetailMeNot.com, CouponCabin.com, CouponMountain.com and BradsDeals.com. Also, if you want to try your luck at local brick-and-mortar stores, print out some of the deals that you found online and see if the store managers will give you a discount or match the deals you found.
Haggle with your online shopping cart. One of the best tricks of the online shopping trade is to add items you want to your shopping cart and not make the final payment. This gives you two advantages. It gives you time to think about your purchase and compare elsewhere. Also, many online retailers will offer you discounts to complete the transaction. Reuters listed Land’s End, Best Buy, Home Depot and Zappos as online retailers that will lure shoppers back to their carts with incentives.
Set up a dealmail account. When you go shopping and the clerk requests an email address to send you coupons and deals, offer an alternate “dealmail” account. Set up an alternate free Gmail, Yahoo, or Microsoft email account and sign up for promotions and marketing so you don’t receive marketing clutter in the email account where you receive messages from friends and family. Hillary Mendelsohn, author of “the purplebook” online, recommends logging into this alternate account when you plan to shop at a certain store to find current deals and coupons.
Stay safe. Avoid using a debit card online, and only buy from reputable, trusted websites. Read our article “Protect yourself against credit card fraud” for more information.
In the age of high-tech pickpockets, consumers must be ever alert to scammers, thieves, and their electronic devices. While you shouldn’t live in constant fear, being aware of the risks and taking precautions will go far in preventing you from becoming a victim of credit and debit card fraud.
1. Don’t help thieves. Low-tech card theft seems rather quaint with all of the high tech options available but watch your wallet, purse and any documentation that might contain your credit card or bank information. Also, don’t keep any notes containing pin numbers in your wallet or purse and keep photocopies of your credit cards locked in a safe.
2. Shred the paper trail. Paperwork containing personal information including credit card bills can be used by credit card thieves to access your information. Don’t just throw these documents in the garbage intact. Shred, burn, or flush.
3. Avoid online and phone line fraud. Many websites look professional and reliable but may in fact be scam sites. Shop only from reputable sites and make sure any website that accepts your credit card information is secured. Encrypted websites begin with https instead of http and your browser should display an image of a locked lock when using a secured site. Also, never give your credit card information to people who call you. The person on the other end of the line may not be who they say they are. Only provide your information to people or organizations you call and to places you trust.
4. Avoid card exposure in public places. Just because you have your card in your possession doesn’t protect you if you display your card where others can see it. Laying your card on a counter or holding it where others can see your numbers can leave you exposed. Thieves can write down your number or smart phones and their built-in high-resolution cameras can be used to photograph or record credit or debit card transactions. This could take place at ATMs, retail stores, restaurants or other locations. Keep your card covered and out of public view when possible.
5. Check your balance. One of the best things you can do to protect yourself from these attacks and others is to check your balance at least once a week. Call the card issuer as soon as you notice any unapproved purchases or your card missing.
The FTC has more on how to report loss or theft.
Credit cards are a financial tool that can offer significant advantages over other methods of payment if used correctly. Following are some of the ways you can use credit cards to your advantage.
- Emergencies. You could face a crisis and need more money than is available in your bank account. Having a credit card can give you one less thing to worry about in the event of an emergency.
- Travel protection and benefits. Traveling is better with a credit card. Depending on the card, perks may include insurance for lost luggage, travel insurance, emergency assistance, insurance for a rental car, hotel room upgrades, car rental discounts, free airline miles, and other benefits. Also, when traveling to foreign countries many businesses will not accept payment with a debit card even with the logo of a major credit card. Even if you decide to use a debit card while traveling, a credit card can serve as a backup if your debit or ATM card becomes damaged during a trip.
- Widespread acceptance and convenience. Some purchases are much easier using a credit card than a debit card, such as renting a car or staying in a hotel room. Car rental companies often will place a hold on several hundred dollars in a deposit that will be released back to you once the vehicle is returned.
- Build credit. Responsibly using a credit card will help you improve your credit score as the credit card companies report to credit bureaus.
The most important thing to remember about using a credit card is paying your entire balance on time. If you start to fall behind, you might consider paying with a debit card. If you never carry a balance from one month to the next and can use your credit cards strategically to purchase those things that you planned to buy within a budget, you may benefit from having a credit card in your wallet.
Now that summer break is here, people are marking their calendars and making arrangements at work to go have a good time. Vacations are all fun and games until there are money troubles during the trip or back at home. The best vacations are those that are well planned and budgeted. Following are some financial arrangements you should consider while planning your summer travels.
- Research and budget for your trip. Consider transportation, lodging, food and drink, entertainment, gifts and souvenirs and unknowns. Search online and invest in one or more available travel guides for your destination such as the Frommer’s, Fodor’s, Let’s Go, or The Lonely Planet series. Search discounts and lower price alternatives.
- Segregate your savings. Laura Edgar of NerdWallet.com advises that travelers not leave travel funds in a checking account because you might end up spending that money either by accident or by temptation.
- Plan access to your money. If you travel in the states, make sure you secure the debit cards, credit cards, or travel cards that you will need. If you travel internationally, be sure to sign up for the Ball State Federal Credit Union Worldwide Master Card Travel Card. Your BSFCU Visa Debit Card will not work outside of the United States. Travel Card is a prepaid debit card that you pre-load, activate, and then you are ready for adventure. In either case, be sure you advise us in advance of your travel plans so that we can maximize your ability to safely use your cards while you are away.
Whether we like it or not, civilization defines us by numbers. It is the price we pay for living in society.
The credit score is a measure between 300 and 900 that determines whether we can be trusted to pay back a loan and may also be used by potential employers to vet us for a job opening. The credit score, which measures how likely we are to pay our bills, is a summary of our decisions and can rise or fall based on our financial choices. These scores are also known as “FICO” scores, named after the Fair, Issac and Company that provided software to the credit bureaus. Every person over the age of 18 has a credit score and the lower your credit score, the greater risk you will be assumed to pose. Responsibility for formulating these scores lie with three American companies: Experian, TransUnion, and Equifax.
Bankrate.com notes some of the far reaching impacts of poor credit scores:
- Car insurance: consumers with poor credit pay 20 percent to 50 percent more than those with good credit.
- Car loans: buyers with poor credit scores pay interest rates that are substantially higher than those with high credit scores.
- Job: seventy percent of companies check credit before they hire a candidate.
- Housing: rental property owners often reject prospective tenants with poor credit scores.
- Utilities: utilities companies may require a larger deposit before providing service.
- Cell phone companies: the best deals go to those with good credit.
- Some medical procedures: You may have to pay up front for everything if you have a poor score.
- School loans: A less than desirable credit score could prevent you from furthering your education.
- Marriage: Many end engagements over financial baggage and a low score can impact the ability to purchase a home or a car.
Without a credit history, creditors will be hesitant or may refuse to lend you money even if you have always paid all your bills on time. The best place to start to build your credit is to come to Ball State Federal Credit Union and apply for our VISA Platinum Credit Card. Use this card to make purchases and be sure to pay your bill every month. One late payment can damage your credit score. You should strive to build a high credit score and then protect it by making solid financial decisions down the road.
Living paycheck to paycheck can be frightening, especially if you have no reserves in the occasion of sudden medical expenses, loss of work, or sudden car or home repairs. Also, these unplanned expenditures are one of the primary causes for broken budgets.
One of your first financial goals should be to create an emergency fund so you have some cash reserves to cover sudden expenses for which you couldn’t have planned. Following is advice for creating and maintaining an effective emergency fund.
- Begin with a $1,000 initial emergency fund. These starter reserves will give you immediate access to cash to cover those nasty little surprises and allow you to stay on budget.
- Find a place to start your emergency fund. Consider a Ball State Federal Credit Union savings account as the home for your $1,000 initial cash reserve. You should not keep this fund in your regular checking account but you should be able to easily access this money. Keep it where it will not lose value.
- Determine how much money you need to cover all expenses for one month. Make a list of your monthly expenses including what you pay for housing, food, utilities, transportation, insurance, tuition, and monthly debt payments. Here is a calculator that can help you calculate your monthly expenses.
- Consider in advance the events that would justify using these cash reserves. Sit down with your significant other or with a friend and make a list of events and situations that would justify you pulling from your emergency fund such as medical emergencies and car repairs. Also consider unjustified reasons for which you might be tempted to spend such as a concert or a night out with the friends. Sign the list and keep it where you can easily find it for future reference.
- Increase your emergency fund to cover 3 to 6 months of living expenses. Continue to build to until you have enough in your reserves to cover your regular living expenses for three months. You may want to increase this amount to six month. You may want to put these additional funds into a Certificate of Deposit (CD) to gain a higher return on your money. BSFCU offers investment certificates for terms ranging from thirty days to five years.
Congratulations graduates on your accomplishments. You now have your degree and perhaps you already have a job waiting for you.
When you receive your first paycheck after graduation, how high on your list of priorities is saving for retirement? Beginning your career and your post-college life is important but the how you end your career and how you start your retirement could be defined by how you use your money during the first decade after the pomp and circumstance.
Our graduation message: take little steps to reap big rewards down the road.
One first step you could take is coming by Ball State Federal Credit Union and talking to us about our traditional Individual Retirement Accounts (IRA) and Roth IRAs. Contributing regularly to a traditional IRA will allow you to accumulate tax-deferred high-interest funds which will compound until you are ready to retire. While contributions to a Roth IRA is not tax deferred, the earnings which you will accumulate will be tax free allowing you to owe no tax when you make withdrawals.
In dealing with the many competing demands on your money, a Wall Street Journal article advises that people set goals and tackle simultaneously each of the major goals such as paying down debt, building an emergency fund, saving for your child’s education in addition to saving for retirement. Putting a little toward each over time and increasing when you are able is better than delaying. One these goals are reached you can increase contributions toward other goals.
Following is other advice:
- Develop good spending and saving habits so your finances remain stable and you so you won’t have to cut your contributions to your retirement. Pay your bills on time, don’t run up credit card debt, and be smart when taking out loans. Budget weekly and establish good credit. Prepare for the unexpected by building up an emergency fund.
- Diversify your retirement saving. Enroll in your 401(k) Plan and wisely invest in stocks that have a good chance of achieving high returns over long periods. Invest in bonds, but not too heavily.
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Buying a car is one of the biggest purchases you can make and it is wise to spend some time planning and researching before you venture into the dealerships. Your first stop should be at your neighborhood credit union to learn about loan pre-qualification.
Pre-qualifying for a loan means that you have found a lender prior to making a vehicle purchase so that you can shop on a cash basis. This has many advantages. The process allows you to assess your personal finances in advance and determine the impact on your budget. You will have a clearer idea of the kind of vehicle you will be able to afford. After pre-qualifying for a loan you will know in advance your interest rate, term, and monthly payment and you will be less likely to be lured into spending more than what you had previously planned. And while a credit union representative will clearly outline how much you will end up paying over time, auto dealerships may not.
Another benefit is that securing a loan in advance can give you negotiating leverage with the dealership. You will have a set amount that you will be able to spend thwarting a dealer’s attempts to tack on additional services. Also, you won’t have to wait around for the dealership exhaust your patience while drafting a back-room financing agreement.
If you are thinking about buying a vehicle sometime soon, contact Ball State Federal Credit Union and let us help prepare you for that day.