Categories
Young Finances

Should I Pay Off Student Loans or Invest?

As a recent college graduate, it's likely that you have student loan debt. According to the National Center for Education Statistics,

"From academic years 2006-07 to 2010-11, the percentage of first-time, full-time undergraduate students at 4-year degree-granting institutions receiving any financial aid increased from 75 to 85 percent."

With an average 4-year tuition cost of 21,000 dollars, and more and more students taking on student loan debt; a portion of your salary will go directly to paying of this debt. (Source)

However, if you research investment strategies, you’ll see the same advice over and over again. Start early and use time to your advantage.

Starting early puts the power of compounding on your side. That means more money. That also means that you are faced with a difficult question. Should you pay off student loans first or invest?

Before you can answer that question, you should evaluation your personal situation.

Do you have any other debt?

Do you have any other debt aside from student loans such as credit card debt, car loans, or medical bills? Even though your balance of student loan debt will typically be higher, these types of debt often have a higher interest rate. In order to save money on fees and interest. You should work on paying these off first. In addition, student loans give you more flexibility in terms of deferring payments whereas, waiting to pay credit card debt will most certainly affect your credit score negatively.

How much money do you have saved?

If you lack emergency savings, and you have an unexpected expense, you will cause yourself more stress than necessary. Emergency savings of 2-3 months of expenses as a bare minimum will help you manage most unexpected expenses such as hospital bills or car accidents. Take some time to build up an emergency savings fund first before you consider investing.

If you have all other debts in check and you have already set aside your emergency cash, now you can consider if it is better for you to pay off student loans or invest.

What types of loans do you have?

Typically, government issued loans have a fixed interest rate. If you do not have a fixed interest rate, then it would definitely be much wiser to pay off that loan as much as possible (or entirely) before you consider putting your money into investments. This is because when it comes to finances, figuring out what is certain and what is uncertain will help you determine where to put your efforts.

Are you ready to risk investing?

There is no such thing as a safe investment. The market can crash and businesses can go under at any time. Some investments are safer than others. When investing, there is a trade off between the risk you take and the reward you earn. The higher the risk becomes, more money will be returned on the investment. Only you can determine what types of risks you’re willing to take in your investing.

One final consideration is how you feel about your student debt. If you are the type of person who is uncomfortable with knowing that you owe someone a lot of money, or you have concerns about making that payment every month, then the answer should be obvious. Pay off your student loans.

There were many questions posed in this article. That is because there are many things to consider with a question such as this. You are the only person who can determine which choice is the correct choice. Evaluate your situation carefully, and make a decision that works best for you and causes you the least amount of worry.

This post was originally published as a part of the PNC Achievement Sessions helping you get smarter about money. Click here for more articles.

Originally posted 2014-08-20 06:00:42.

Categories
Budgeting & Saving

My Experience with Sallie Mae

LaTisha: This is a reader's experience with Sallie Mae. The purpose of these stories is to help prevent others from making the same mistakes. If you have an experience that you would like to share anonymously please contact me.

Figuring Out How to Pay Tuition

My experience with Sallie Mae has been a rather interesting one. I originally began business with the company back in 1999 when I started college at a private school. Imagine the overwhelming feeling that both my parents and I had when we realized the steep tuition that would have to be paid for me to get a better education. The head of the financial aid department made it sound so simple to just sign up for a student loan and everything would be handled. Well just coming out of high school with zero credit under my wings, my only option was for my parents to be the co-signer for me.

For those who are not familiar with the meaning of a co-signer it’s basically joint signers of a loan agreement who pledge to meet the obligations of the debt in case of default. My parents were only thinking about the present and not how it would affect them in the future. I did not think about how this could negatively affect me also. I took out a private loan, and several federal loans. The day that we decide to sign that loan was the beginning of financial imprisonment with Sallie Mae.

Deferment versus Forbearance

I only attended that particular private school for one year and this set me back $16,000. I figured that I wouldn’t worry about it too much because by the time I finish college I would make payments on the loan and I would be okay. Each year while I was in school I put the loan in forbearance. Anyone who knows anything about loans will know that when you’re in school you are allowed an in-school deferment. I was uneducated when it came to loans so I was gradually wasting my forbearance time away for when I really would need it.

At the beginning of my third year in school, I became extremely ill with major health issues and had to put college on hold. Well, there went my plan of finishing school with a good job so that I could pay my loan. I just kept the loans in forbearance and when I had the money I would pay some money on the interest charges (which were adding up). Eventually, I was not financially able to make payments on the loans and my forbearance ran its course.

I began to receive the phone calls from Sallie Mae and although I explained my situation, they were not in the least bit interested. All Sallie Mae wanted to know is how and when I would be able to make a payment. Once they realized that they had very little chance of receiving much money from me, they began the phone calls and threatening letters to my mom. She tried to help as much as she could but with her small paycheck and her own financial obligations it became a stress factor. At this point, all I wanted to do was put this behind me.

Lessons Learned

As of today, I have graduated college and with the economic downfall I am working part-time, seeking full-time employment. My mom is now disabled and not working at all. This unfortunately does not excuse the loans from so many years ago. I talk with Sallie Mae about once a month and I hear the same thing each time. “You have used up all of your forbearance so you cannot place your private loan in forbearance.” The loans are now around $20,000 because of the interest adding up. I make a small payment of $50 each month to keep the loan from going into default. If I could go back to the day I started college in 1999, I would never have signed that private loan with Sallie Mae.

What to avoid when beginning your college journey………

  • Co-signers: the debt will not only follow you but the person who co-signs for you.
  • Private Student Loans: These loans have more restrictions and usually have higher interest rates.
  • High Interest Loans: Avoid loans altogether if possible. There are many scholarships and grants available if you do your research.

LaTisha: Readers, what are your thoughts on this situation? Have you encountered a similar situation? Any suggestions on possible alternatives?

Make a Plan to Get Out of Debt Faster with ReadyForZero

Originally posted 2014-02-18 10:00:42.

Categories
Homeownership

How Much Home Can I REALLY Afford? Mortgage Calculator

Are you ready to buy a house? We've previously talked about what you should save to buy a house but what if you have saved and you want to know how much your monthly payment will be? That's where a mortgage calculator comes in. There are mortgage calculators online that will estimate certain inputs for you but you might be wondering what those inputs mean.

What Makes Up a Mortgage Payment?

A mortgage payment is the payment on the loan that was borrowed from the lender. Unless you are paying cash in full, you will have to borrow the balance. You will typically borrow from a bank, but there are other ways to pay for the balance, like borrowing from a hard money lender, securing owner financing or contacting the Mafia.
Ok, I was joking on that last one, but I just wanted to make sure you were still paying attention. 🙂
Click here to find a lender in your area.
There are several components to a mortgage payment but the two basic components are principal and interest. The principal is essentially the purchase price, or borrowed amount on the home. The interest is the payment you make for borrowing the money. A loan will amortize, or pay off, over its life. The payments at the beginning of the loan term will be mostly interest but as the loan is amortized and the principal shrinks, the loan payments will be mostly principal.

Taxes and Insurance for Homes

It is absolutely essential to protect your home with insurance and so most mortgage calculators will want you to estimate the insurance payment to factor that into your mortgage payment. There is also a possibility that you will have to pay private mortgage insurance or PMI, if your down payment puts you at less than 20% equity. According to the Mortgage Insurance Companies of America, average PMI will run you about 50 to 80 dollars a month on a home priced at $159,000. You also need to remember that you will have to pay property taxes as a homeowner and that could affect your monthly payment if the mortgage payment makes prepaid tax payments.

Interest Rates and Credit

Before you even start shopping for a home, you should check your credit report and make sure that everything is accurate. There are a variety of factors that go into a bankers decision to loan to you but you don't want to get denied because there is erroneous negative information on your credit report. The mortgage interest rate that you get is directly influenced by your credit worthiness, as determined by your credit score and what's on your credit report so be sure to check it. Then, shop around for mortgage lenders to find the best rate.

Using a Mortgage Calculator

The best part of using a mortgage calculator is the ability to play around with the numbers and test different home prices, interest rates and loan terms. Now that you know what goes into the calculation, try it yourself!

Have you used a mortgage calculator to estimate your monthly payments?Compare mortgage rates in your area.


Search to compare mortgage rates in your area.

How To Qualify for a Mortgage as a Young Adult

Moving out on your own is a big deal, especially if you are purchasing your first home right out of living with your parents. Many young adults assume that you need to wait until you are in a certain age bracket in order to purchase a home, but nothing could be further from the truth. Following the steps below will help any young adult find their way through the housing market and on their way to purchasing their own home.

4 Steps to Buying a Home as a Young Adult

Get Your Credit in Order

As long as you didn’t go out and sign up for several credit cards as soon as you turned 18, then you likely don’t have much if any credit at all. Having no credit is just as bad as having bad credit. Try to sign up for one major credit card and one department store credit card. This will help show a revolving credit history.

Make an Appointment With a Lender

Meeting with a lender and discussing what you need to do to purchase a home is a great second step. They’ll be able to run your credit, let you know if you have any issues that need to be resolved, or if you can move ahead fairly quickly with obtaining a loan. Click here to find a lender in your area.

Find a Home

Once you’ve met with the lender they will give you an idea of the mortgage loan amount you’ll qualify for. A real estate agent will be a great tool in finding a home within your budget. Keep in mind that homes outside of your budget can sometimes be talked down to your budget or close.

Gather your Documents

Once you’ve found your home, had you’ll need to get your loan approved and this require important documents. You’ll need to gather any tax returns you have; if not possible your lender will discuss what else they can use. You’ll also need proof of income you have, social security card, banking information, and photo ID. Each lender is different and may require more or less documents; this should be discussed with you your initial visit.

Once all 4 steps are completed you shouldn’t have to wait too long before your new home is yours and a set of keys is being handed to you. Be sure to shop around to different lenders before settling on one, each one specializes in something different and you may be eligible for programs that help with down payments, closing costs or reduce the interest rate on your home loan. Compare mortgage rates in your area.

Originally posted 2011-11-08 10:00:52.