College Students and Recent Grads, Featured

Student Loan Borrowers: Here’s How to Renew Your Income-Driven Repayment Plan

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If you are on an income-driven repayment plan, it’s important to know that you must renew your plan each year in order to remain enrolled. And waiting on your student loan servicer to remind you of that fact isn’t the smartest idea

The Consumer Financial Protection Bureau recently filed a lawsuit against Navient, the country’s largest loan servicer. Among many other claims, the CFPB alleged Navient failed to adequately inform borrowers of their need to renew their income-driven repayment plans.

The outcome of the CFPB’s lawsuit is still unknown. Navient has already taken steps to improve communication with borrowers around repayment plan renewal time. Even so, the news serves as a prime example of why you should learn the details of the income-driven repayment renewal process on your own.

How to Renew Your Income-Driven Repayment Plan

The DOE began offering income-driven repayment, or IDR, in 2009 to help ease the burden of student loans on borrowers struggling to repay federal student loans. If you can meet certain income or family criteria, you could pay as little at $0. Another important benefit is for the first three years after enrollment, many borrowers qualify to have the federal government pay part of the interest charges if they can’t make payments.

IMPORTANT: If you are on an income-driven repayment plan, you have to renew your plan each year.

This will require you to submit updated information about your annual income and family size to your servicer. The time to renew your plan is typically a month or two before the 12-month mark.

If you do not renew your income-driven plan, you’ll get kicked out of your IDR plan and your payment may increase since it will no longer be based on your income.

There are two ways you can renew your IBR plan:

  1. Visit the Federal Student Aid website at studentloans.gov: This is the fastest and generally the most convenient way to renew your plan.

Steps:

  1. When you get to the website, follow the “Apply for an Income-Driven Repayment Plan” link. You will follow the same link if you need to renew your IBR. The form will prompt you to select a reason for your request once you begin.

Select “Apply for an Income-Driven Repayment Plan” to get started:

Choose “submit recertification”:

  1. The application will ask you for information such as your marital status, household size, employment, and income. Once you are on the “Income Information” section, you’ll have the option to retrieve and use your most recent income information from your taxes if you filed them with the IRS.

Choose the “annual recertification” option:

The application asks for your personal information:

  1. Follow up with your loan servicer. If you have loans with multiple servicers, you only need to submit the request once. They should all be notified when you renew online via the Federal Student Aid site. Below is an example of a completed submission with one servicer; your other servicers will be listed if you have multiple servicers.

Completed submission:

  1. Use the Income-Driven Repayment Plan Request form

Steps:

  1. Download the official income-driven repayment plan renewal form here on the Federal Student Aid website or on your servicer’s website.
  2. Once you print and complete the form, you can submit it to your servicer’s website if they allow. Navient allows you to upload the completed form. You also have the option to mail or fax the paperwork to your loan servicer.
  3. Your servicer should notify you once your request has been processed.
  4. You should be able to monitor the status of your renewal on your student loan servicer account.
  5. If you mail or fax the paperwork to your servicer, you’ll need to mail one to each servicer individually as they will not be automatically notified of your request.

How to Enroll in an Income-Driven Repayment Plan

The first time you apply for an IDR plan, you can either do so through the government’s website at studentloans.gov or contact your student loan servicer to help you enroll. You’ll need to log in to the platform and follow directions to fill out the application. It should take about 10 minutes, although you may be asked to mail in supplemental documentation to your servicer for review.

You can use the studentloans.gov website repayment estimator to estimate how much your payments, interest, and total amount paid would be under each plan option.

Repayment estimator results from studentloans.gov

Your servicer will notify you once your request has been processed.

Choosing an Alternative Income-Driven Repayment Plan

When you renew your IDR plan, you can check to see if you’d qualify for alternative payment options. You might find an alternative could work better for your budget.

In addition to the two standard repayment and graduated repayment plans, borrowers have five income-driven repayment plans to choose from. It’s important to note that under most IDR plans, you’ll pay more over time than you would under the standard plans.

Here’s a quick rundown of each:

1. Income-Based Repayment Plan

The traditional income-based repayment plan generally caps your payment at either 10% or 15% of your discretionary income. Your payments will never be more than what they would be on the standard 10-year plan. Payments are recalculated each year and are based on your updated income and family size.

After 25 years of payments, your loan balance is forgiven, although you’ll have to pay taxes on the forgiven amount when you file your taxes for the year.

2. Pay As You Earn (PAYE) Plan

Pay As You Earn increases your monthly payment as your annual earnings increase, but generally sets your monthly payments at about 10% of your discretionary income. Only those who took out their first federal loan on or after October 1, 2010, or who received a direct loan disbursement on or after October 1, 2011, can qualify for the PAYE plan. Applicants must also have a partial financial hardship (disproportionately high debt compared to current income). Your payment is recalculated annually based on your updated income and family size. The loan’s outstanding balance is forgiven after 20 years.

3. Revised Pay As You Earn (REPAYE) Plan

The Revised Pay As You Earn Plan expanded the PAYE plan to about 5 million more borrowers. You may qualify for REPAYE regardless of when you took out your first federal student loan. It doesn’t require you to have a partial financial hardship. REPAYE generally sets payments at about 10% of your discretionary income and doesn’t cap income. Spousal income is considered in calculating payments no matter how you file your taxes. Under this plan, undergraduate loans are forgiven after 20 years, while graduate loans are forgiven after 25 years.

4. Income-Contingent Repayment (ICR) Plan

This plan caps your monthly payment at either 20% of your discretionary income or the amount you would pay on a two-year fixed payment plan, adjusted for your income. The payments are recalculated each year and based on updated income, family size, and the amount you owe. After 25 years of payments, your balance will be forgiven.

5. Income-Sensitive Repayment Plan

The income-sensitive repayment plan serves as an alternative to the ICR plan for those who received loans via the Federal Family Education Loan Program (FFELP). It makes it easier for low-income borrowers to make their monthly payments. Under the ISR plan, you can make monthly payments based on your annual income for up to 10 years. The payments are set at 4% to 25% of gross monthly income, and the payment must be larger than the interest that accrues.

Currently, Federal Direct loans and Direct PLUS loans qualify for both IBR plans, but private loans and Parent PLUS loans do not qualify. Read more about your repayment options here.

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Featured

The One Financial Resolution You Need in 2017: Automation

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The One Financial Resolution You Need in 2017: Automation

“Out of sight, out of mind” isn’t typically the kind of advice you get from a financial professional. However, taking some financial decisions off of your mind and out of your hands can be one of the smartest money decisions you’ll ever make. We’re talking about the power of automation. Automating most or all of your recurring financial decisions can be a huge help when it comes to saving, investing, and digging yourself out of debt.

Even better, many popular financial resolutions for the new year — paying off debt, building an emergency fund, investing, saving for a large purchase, and building your credit score — are easy to automate.

What Is Automation?

Dr. Barry Schwartz, a behavioral economist and author of The Paradox of Choice: Why More Is Less, says we may be naturally programmed to live in the here and now and think about the future when we get there. By learning to use tools and life hacks to automatically make choices for our financial well-being, we’re removing one of the biggest barriers toward financial health: ourselves.

“People have a hard time thinking accurately about risk, and they have a very hard time giving adequate weight to the future,” says Dr. Schwartz. “Automated investment would address both of these problems. But, of course, the software would have to be doing the right thing for the client rather than the company.”

When you automate, you eliminate the opportunity for that negative feeling to affect your decisions because you won’t be actively making that payment.

7 Ways Automation Can Help You Keep Your 2017 Resolutions

If your goal this year is to learn budgeting, save up for a large purchase, or simply try to better manage your finances, automation can be a huge help.

  1. Automate Your Budget

Creating a budget is the easy part. Following it becomes the real challenge.Try these two automation hacks to stick with your budget in 2017.

Create a bank account for your allowance

  1. Open up a secondary checking account with your bank, but don’t get a debit card for this one. The account will act as your “reserve” account. You’ll keep your fixed and flexible spending money there and schedule bills to be paid from this account.
  2. Figure out how much money you can freely spend each week (after your bills are paid).
  3. Set up an automatic weekly transfer from your reserve account to your “spending” account (main checking account) for that amount.

It will be like getting a weekly allowance to spend on whatever you want, just like in middle school.

Use apps that do the math for you

Sometimes all we need is a little nudge to follow through with our goals. Budgeting apps like Level Money, Budgt, or Daily Budget can be the reminder you need to keep to your budget each day. The apps take into account your income, fixed expenses, and savings goal to come up with a daily spending number.

Level Money will connect to your bank accounts and generate the number automatically, while Budgt and Daily Budget require you to enter your spending manually, then generate what you have left to spend for the day. The apps will notify you daily with how much cash you can spend each day and still stick to your budget.

  1. Automate Routine Expenses

This one is for anyone who has ever walked into a grocery store to buy a gallon of milk but walked out with bags full of things they didn’t really need.

You can save time and money on groceries by avoiding the grocery store. That doesn’t mean you have to stop buying groceries and splurge on dining out. Automate your grocery shopping with services such as AmazonFresh or Fresh Direct. The services cost about $150 to $200 annually. With these services, you are able to compare prices and add and subtract items from your cart to stay on budget, then schedule your delivery time.

You could also try a meal delivery service like HelloFresh or Plated to deliver fresh ingredients coupled with recipes for meals weekly. Using these services, dinner for two costs about $10 to $15 a person. If you’re a couple that dines out often, scheduling weekly meal delivery and cooking could help you cut back significantly on spending.

If you live in an urban area like New York or Los Angeles, you may have several other options for grocery delivery available to you.

  1. Automate Your Savings

Automation makes it easy to set aside funds for an emergency fund or a large purchase such as a down payment for a home.

….at work

If you get paid via direct deposit, check with the human resources department at your place of employment to see if you can split your paycheck into different accounts. If you can, send the amount you want to save from each check into your savings account. If your pay is inconsistent, you may be able to set this amount as a percentage of your pay.

If your human resources department doesn’t offer that option or you simply want to handle it on your own, you can set up an automatic transfer to your savings account and schedule it for the dates you get paid.

…on your smartphone

You can also try automated savings software such as Digit, Qapital, or Simple.

Digit, backed by Google’s venture arm, analyzes your spending habits then uses an algorithm to determine how much it can transfer to your Digit savings account and how often to make transfers. When you need the money, you can have it transferred in one business day by sending a text.

Qapital lets you set savings goals and rules to match them, then automatically transfers money toward your goal when the rule applies. For example, you can set a savings goal to purchase $200 tickets to a music festival, then set a rule to round up all purchases you make with your debit card to the next dollar and save the difference. Qapital will transfer the difference to the account designated for your festival tickets.

Some new digital banks have added budgeting tools. Simple, for example, calculates a “safe-to-spend” number so you know how much you can spend freely.

  1. Automate Your Investments

You don’t have to be a financial whiz to invest your money. If you plan to start investing this year, you can do so passively with automation.

An important and easy way to do this is to automate savings to your retirement account(s). If you contribute to a 401(k) or an IRA through your employer, you can set a contribution as a percentage of each paycheck. Some plan providers allow you to automate annual contribution increases. This way, you’re automatically saving more each year without having to do any extra legwork. Even an annual increase of 1% or 2% can drastically improve your savings outlook.

If you use robo-adviser services like Betterment or Stash, set up auto deposits for your accounts and let them grow. Acorns is a great tool for beginners to automate investing. Acorns rounds up each of your transactions to the nearest dollar, then invests the difference.

You can find more details about these apps, such as what fees they might charge to manage your investments, here.

  1. Automate Your Student Loan Payments

If you resolved to stay on top of your student loan payments this year, setting up automatic payments could be tremendously helpful. Automating your payment can help ensure you pay on time each month. With most servicers, you’ll get the added benefit of .25% off interest on your loans.

If you want to pay back your loans faster, you can automate an additional payment to all of your accounts when you set up direct debit. If you can’t set up an automatic additional payment to a specific loan, you can set alerts with a calendar or a budgeting app to remind you to make an additional payment to your loans on payday.

  1. Automate All Your Bills

You can automate most recurring bills like your rent, credit card payment, auto loan payment, utilities, and subscription services to avoid missed payments. This tactic can also help time your payments to ensure you have enough money in your accounts to cover them. There are several options to help schedule bills you know need to be paid each month.

Choose whichever of the following methods work best for you:

  • Set up automatic bill pay through your bank’s online banking platform.
  • Use a budgeting app like Mint, Level Money, or YNAB to link to your accounts and schedule automatic payments.
  • Set up an automatic debit with each individual service provider through their online platform or over the phone.

If you pay an individual each month for something like rent or shared utilities, you can pay them via automatic bill pay to their bank account, or set up automatic payments using a tool like PayPal.

  1. Automate Your Credit Makeover

If your goal is to improve your credit, paying bills on time and lowering your utilization rate are the two most powerful things you can do.

Debitize lets you use your credit card like a debit card. The app automatically transfers money from your checking account to pay off charges to your credit card with money. You’ll be using your credit card, then paying it off in full each month. Even better, it’s more difficult to overspend, since you’ll be using up the funds in your checking account.

If you’re building or rebuilding your score with a secured card or a new credit card, you can try this “set it and forget it” method:

  1. Figure out what 20% of your credit limit is. Example: 20% of $200 is $40.
  2. Find something that you pay for each month that costs less than that. This might be a payment for a streaming service such as Hulu, Netflix, or Spotify.
  3. Set up your account to take the payment from your credit card each month.
  4. Set up your checking account to pay your credit card balance each month.
  5. Watch your score grow with a credit monitoring service like Mint or Credit Karma.

When your score reaches the high 600s or mid-700s, you’ll have an easier time qualifying to borrow large amounts for an auto loan or a mortgage.

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Auto Loan, Featured, Personal Loans

5 Things You Should Do Before You Buy a Car

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

When it comes to buying a car, whether used or new, the real work should happen before you even set foot on the lot. Taking the time to go through a few crucial steps will make your time at the dealership a breeze. To top that, a few pre-checks could save you money, time, and the hassle of dealing with a bad auto purchase in the future.

When you finally get to the dealership, Jack Nerad, executive market analyst at Kelley Blue Book, says it will pay off to come with a price in mind and all of the legwork done. The salesperson is going to ask you questions like what you’re looking for, how soon you’re going to buy, if you’ve looked at other dealerships, and what you do for a living, because they want some sense that they aren’t wasting their time with you.

“Demonstrate to them in your answers that you know about your own finances and that you know largely what you want in terms of a vehicle, and it will go pretty well for you,” says Nerad.

 

Step 1: Set a budget

When you get to the lot you should already know your credit score and how much you can afford for a car. Make sure to set a budget, and stay under your budget if you can. Unless you’re paying cash for your car, you’ll likely finance or lease your vehicle, so you should figure out how much you can afford in a monthly payment. Generally, all your monthly debt payments — credit cards, auto loans, student loans, and mortgage — should not exceed 50% of your monthly income.

Outside of the value of the car, you should budget for the taxes and any other one-time costs such as title fees and dealer fees. It could also be beneficial to create some space in your personal budget for costs such as gas and insurance. You may also want to open an alternate savings account to allocate separate funds to recurring costs such as ongoing maintenance, car insurance, and any future repairs.

“They are going to try to sell you more stuff like the insurance, treatments, etc. Most of that stuff is not worth nearly what they are selling it to you for,” says Nerad. “It could hurt the deal that you’ve worked hard to get. Just say no to most of it or do it aware of the financing.”

Don’t forget to weigh your savings options. Consider putting down a larger down payment if you can. If you won’t need it anymore, selling or trading in your current vehicle can help you come up with extra funds for a down payment. You could also consider a less-expensive vehicle, cut back on the add-ons and features, or improve your credit score, to save on the overall cost of the vehicle.

Step 2: Get pre-approved for financing

Shopping for an auto loan is another tedious process, but you should have already completed the first step in setting your budget.

Your next step will be to shop for the best used-auto loan rates and get pre-approved for the best offer for which you are eligible. What’s better, you won’t need to leave your computer to shop for an auto loan. A growing number of online-only banks, such as LightStream, PenFed, and Capital One, offer competitive interest rates on auto loans. Your best bet is to get pre-approved for financing before you get to the dealership. Coupled with your budget, getting pre-approved will help you have an idea of what your monthly payment will be.

When shopping online for a used-auto loan, the application process will look like that of a brick-and-mortar bank, but more streamlined. You should have the following information at hand:

Your contact information: Name, address, phone number, email address

Vehicle information (if known — required for lenders that do not offer online pre-approval): Make, model, mileage, VIN, dealership information

Your financial information: Employment information, gross income, and expenses

While you’re at the dealership, negotiate the price of the car before telling the salesperson that you are approved for financing. When the salesperson tries to get you to finance the purchase through the dealership’s affiliated lender, you can show them your pre-approved financing offer. There is a good chance they will try to beat your pre-approved offer, which could save you thousands of dollars in interest over the life of the loan. If they can’t beat it, you’ve already found your lowest rate and can continue your vehicle purchase.

Step 3: Choose your vehicle

Research and make a decision regarding what kind of car you want. You can use websites like Kelley Blue Book, Edmunds, and TrueCar to figure out a fair purchase price.

During your search keep in mind all of the specifications that are most important to you. You should think about how you intend to use the vehicle, not just how cool you’ll look in it. If you have a long commute to work, fuel economy may be important to you. If you have small children, having enough space for a car seat could possibly weigh in your options. If you live in the city, you might want to consider how much parking parking space you’ll have access to. Get the picture? A few other considerations:

Do you want a new car or a used vehicle?

Do you want to lease or purchase?

Do you need all-wheel drive?

Do you need a lot of cargo capacity?

How many passengers do you need to carry?

What type of driving do you do: highway, surface streets, off-road?

What safety features are important to you?

Will you drive in ice and snow?

Will you be doing any towing?

Again, think about what you need in addition to what you want.

When it comes to add-ons, remember anything you add — line items such as tire treatments, insurance, etc. — will be factored into the total purchase price and financing. The salesperson at the dealership may try to get you to purchase more than you bargained for, so come in knowing what you want to add on and where your line is drawn in your budget.

Step 4: Pick the right dealership

Next, you should find out who has the car you want within your budget. Back in the day, you would have combed through newspaper advertisements or had to visit several dealerships in person to see the cars you’re interested in. Now, with the internet, you can view multiple cars at several dealerships in your area and set filters to make sure they have what you want, for the price you want.

“More often than not the sales process is going to depend on the dealership and training of the salespeople there. If you come in knowledgeable, then you are going to be in a way better position,” says Katherine Hutt, director of communications at the Better Business Bureau.

After you get a healthy list of the dealerships in your area that have the car you want, you should check out their ratings on the Better Business Bureau website. Search for auto dealers in your area to find out which ones are BBB accredited, then look at the company’s profile to see if and why they have had any complaints filed against them.

Checking the dealerships for any serious complaints regarding their sales tactics or a negative rating will help you decide which ones are worth visiting.

Step 5: Run a background check on the car you want

Consumers for Auto Reliability and Safety (CARS) is a consumer advocacy group for the auto industry best known for leading the nationwide adoption of the lemon law, which entitles consumers to reimbursement or compensation if they are sold a vehicle that fails to perform as it was expected to within a certain amount of time.

Founder Rosemary Shahan encourages consumers to check the vehicle’s background by getting a vehicle history report through resources such as the National Motor Vehicle Title Information System, CARFAX, and AutoCheck.

In the vehicle history report you should check…

Name and description

Check the name and description that pops up to make sure the car you are looking at is the same as the car in the report. This will help you avoid VIN cloning, a type of vehicle fraud that involves using a VIN from another registered car and putting it on a stolen or similar vehicle, as well as other forms of vehicle fraud. Check for the name, color, and even details like the engine type to make sure you have the right car.

Number of owners

The number of owners a vehicle has had should be weighed cautiously in your consideration. You can’t be sure that each owner was a responsible and caring car owner like you, but the chance that the car has had a bad owner rises with the number of owners it has had. However, there is no magic number of owners that will disqualify a used car. Overall, you should place more import on the vehicle’s mechanical condition and how it has been cared for than on the number of owners it’s had.

Routine maintenance

Check to see that the car was regularly serviced. If it was, it will usually last longer and may be more expensive in general. The details about the vehicle’s maintenance may also help you answer any questions you may have about its repairs or servicing. If you know where its other owners took it for servicing, you can call up those locations and ask them if they can clear up anything that concerns you.

Anything suspicious

Be sure to ask about records that don’t quite line up. For example, if you see any records of body work but no reported incident, you should look into why the vehicle got work done. It’s not often that owners want a new side door and coat of paint just to spruce up the vehicle. It’s more likely that there may have been an accident that prompted the body work.

Finally, have the car looked at by an unaffiliated mechanic before buying no matter who you choose to purchase from. You can use a resource like Car Talk to find a mechanic in your area.
When you’ve checked off these steps, pay attention to what the salesperson tells you to make sure you get the best deal.

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Featured, Reviews

The Ultimate LearnVest Premium Review — Online Financial Planning for $299 Upfront, $19/Month

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The Ultimate LearnVest Premium Review

If you’re young, or simply don’t have an extra $1,100 to $5,600 a year on average lying around waiting to pay a financial planner, it can be difficult to know where to turn for financial guidance. Fortunately, several online financial planning companies have made financial planning more affordable. LearnVest is one of many such companies that have cropped up in recent years to provide the service at a lower cost.

What Is LearnVest?

LearnVest is an online financial planning company that was founded in 2009 with a mission to give young professionals access to affordable financial planning services. The platform combines budgeting tools with resources for financial information and the opportunity to gain access to an online financial planner if you upgrade your package. The startup went on to raise $75 million in venture capital until it was finally acquired in 2015 by Northwestern Mutual. The merger allowed LearnVest to develop and expand its offerings. Since its founding, the platform has developed into a more affordable way for members of either gender to gain access to a financial planner and to create and manage a personal financial plan.

How It Works

LearnVest offers both a paid and unpaid version of its services. The free version gives you access to the company’s online budgeting tool and dashboard to help you manage your budget, similar to popular budgeting platforms like Mint and YNAB.

You can also peruse LearnVest’s Knowledge Center, where you’ll find a wealth of articles and videos with information about several financial topics.

If you are looking for personalized financial advice from an expert, you’ll need to sign up for the paid version, called LearnVest Premium. For an initial payment of $299 plus $19/month, the premium service comes with access to a personal financial planner in addition to the online dashboard features.

MagnifyMoney tapped staff writer Brittney Laryea to test out LearnVest’s financial planning service, LearnVest Premium, and review it here. Find out more about LearnVest and Brittney’s review below.

The LearnVest Premium Review

As a 22-year-old recent college graduate, I am in that important stage in life. I reviewed LearnVest from the perspective of someone who has never gotten professional financial advice before and is looking to get her financial life in order as she starts her career. My experience will certainly be different from, say, a single mother or an elderly couple facing retirement. But I tried to demonstrate how each element of the LearnVest experience works so anyone reading will get a sense of what they offer.

The LearnVest Premium Review

The Fees

For $299 up front, you’ll get access to a personal financial planner who will set up a time to speak with you on two separate occasions and work with you to create a personal financial plan. You can split the $299 payment into two payments of $149 or three payments of $99. After the two initial phone calls, you’ll pay LearnVest $19 each month for “ongoing support” from your planner via email.

At $299, LearnVest is certainly delivering when it promises to offer affordable financial planning services. The average financial planner charges an initial fee of $500 to $2,000 and then about $50 to $300 monthly for ongoing service.

$19 per month for ongoing financial planning is only a little more than Spotify premium customers pay for monthly subscriptions.

So far so good. But what are you really getting for that money?

Creating My “Smart Profile”

The first thing you’re prompted to do when you sign up for LearnVest Premium is to fill out your financial profile, which is called your “Smart Profile.”

Creating My “Smart Profile”

You’ll enter basic financial information for your planner such as your annual income, goals, and current budget if you have one. This is also when you would link all of your accounts — checking, savings, credit card, retirement, student loans, etc. — to your profile if you haven’t already done so. In addition to prepping your information for your planner, filling out the financial profile helps put your current finances in perspective in relation to your financial goals. This part was intuitive and took less than 15 minutes for me complete.

After that, I was eager to schedule my call with my planner, which I was prompted to do after filling out the Smart Profile.

The First Call: Strategy Session

The goal of the first call is to lay the foundation for what will become your complete financial action plan with your planner. But you won’t receive the actual plan until your second call. During the first call the planner gets an idea of your financial situation. Your final plan takes all of the details that you discuss with your planner in this first conversation and shows the smaller steps you’ll need to follow to reach your financial goals. For me, those were things like paying off my student loans and saving up for retirement, but for others it could be things like saving up to buy a new home or for your kid’s college education.

The First Call: Strategy Session

During the call, you’ll speak with your planner over the phone, while you both look at the plan-to-be in your LearnVest dashboard. The first thing my planner did was verify all of the information that I entered into my Smart Profile. He then asked if there were any other accounts or information that I needed to add or clarify. Your planner may also ask about your current insurance policies and important financial documents such as a regular or living will or power of attorney.

At the end of the call, you should have a general idea of the plan-to-be, and your planner may assign some follow-up homework for you to complete before your next call (ideally, about a week later) such as sending additional information that will help them create your action plan. Your planner may also assign you a challenge — which you can see when you log in to your dashboard. The challenge may be to practice a budget for the week or to create a bank account.

My experience:

My first call was enjoyable, and we spoke for about an hour. My planner was patient as I clarified and adjusted information I entered into my Smart Profile.

After we sorted out my personal accounts and debts, my planner asked about my short- and long-term financial goals such as saving for an emergency fund or for travel. I’d given some thought to retirement before. I actually already started contributing to a 401(k) through my employer. I think of travel as more of a luxury, and definitely not a necessity. If I had extra money and the ability to travel, then I would, but everything else comes first. This would be the first time I’d specifically set aside funds to travel in the future. Keeping my savings goals in mind helped to inform the budget he would create for me. The planner made sure to factor in the monthly $19 for LearnVest’s ongoing support into my overall expenses.

Then he calculated a tentative weekly spending budget based on my outlined plan. The weekly spending number was the amount I could spend each week and still accomplish all of my monthly goals. It’s determined by splitting up what was left of my flexible spending over the number of weeks left in the month.

One aspect I appreciated was that my planner gave me three different budgets with varying levels of spending flexibility. I chose the budget that gave me the tightest weekly spending allowance, meaning more of my money was going toward my goals each month.

budget strategy

He also gave me a few financial tips during the first call. I’ve listed a few below, although there were many more.

  • Freezing (in a bag of water, in my freezer) or hiding my credit card to trick myself into not using it to help with paying down the balance.
  • Opening high-yield checking and savings accounts with an online bank. My planner recommended Ally Bank, where I could earn 1% on my savings, versus the 0.01% I earned at Wells Fargo. Luckily, I was already in the middle of switching to Ally from Wells Fargo. His encouragement gave me the extra boost I needed to get it done.
  • Setting up two checking accounts — one as a regular checking account but without a physical debit card linked to it, the other a “spending” account that was linked to my debit card. Then I was to set up an automatic weekly transfer of my weekly budget into the spending account to use. This way, it would be impossible to go over my budget without deliberately transferring funds over to my spending account.
  • Think about insurance options. He also explained to me the importance of having different types of insurance plans that many don’t get through an employer such as renters insurance or life and disability insurance. The explanation was helpful, and easy enough to understand. But I have to admit, I didn’t follow the advice. I hadn’t yet considered paying for what I see as “extras” like renters insurance or life and disability insurance. I rent, but I don’t own anything of substantial value so, for me, renters insurance is a waste. I figure I’ll just get it when I have something more valuable than my rice cooker to protect. One of my parents pays for a small life insurance policy that I’ve had since high school, and I’m young so here’s hoping I don’t suddenly become disabled while I look into it. I’ll likely start paying for disability insurance in February 2017.

After we covered those details, we scheduled a follow-up call, which would take place about a month later.

The Homework

After our talk, my planner sent me a follow-up email with my homework for the week. I had two assignments: to open new checking and savings accounts and to double-check my existing insurance policies and coverage amounts.

He also assigned me a “challenge,” which are little tasks your adviser sets up for you on the LearnVest website. You can see your challenges when you are logged in to your LearnVest dashboard, and you’ll get email reminders when the deadline for the challenges are close. You can check off your challenges as you complete them, or mark them as missed. Be honest; your adviser will ask you about them in the follow-up call.

action program

My first challenge was to practice the weekly spending budget he created for me during the initial call. The added challenge was to use cash only (so that I could physically see what I would be spending). Having the challenge helped me to keep my budget in mind; however, I didn’t complete it. My 22nd birthday was that week, and I take my birthday celebrations pretty seriously.

Since my weekly budget was determined by splitting up what was left of my flexible spending over the remaining weeks of the month, I just subtracted what I used up on my birthday celebrations and determined a new weekly budget for the rest of the month.

The Second Call: Getting My Action Plan

This is the call that solidifies your financial action plan. During the second call, your planner will explain to you all of the ins and outs of following the plan they have created for you to follow based on information from the first call.

The second call will be about a week or two later, depending on your scheduling availability and that of your planner. I scheduled my follow-up call at the end of our previous conversation for two weeks later, but I had to reschedule via email because I had other obligations come up. Rescheduling was painless and completed in less than 24 hours. My planner responded to my initial email with the times he would have available coming up, I emailed back with the time that worked for me best, and I was booked.

My experience:

Because I had to reschedule our initial follow-up call, our second call was about a month later. By then, I was used to my new weekly budget and felt good and ready to begin my new action plan. Before we got to my actual action plan, my planner checked in with me to see how I did with my suggested weekly budget.

He even gave me the option to switch to one of the other versions he created with a little more flexible spending, but a longer road to my savings goals. I struggled a bit with my birthday spending and a few emergencies, but I knew those were outliers and I could easily stick to the weekly allotment in a regular week.

I chose to stick with my budget. He also asked me if anything about my financial situation had changed since we’d last spoken. One thing did change: I planned to move into a cheaper apartment the following month. My planner made a note to adjust my action plan accordingly and said the final plan would include the update. Afterward, he talked me through how to implement the action plan he created for me.

Toward the end of our conversation, he explained important financial documents I should have at any age such as a living will and where I could look for resources to complete them in my dashboard. In the dashboard, under the “Program” tab is a section called “Planner Picks” that has the company’s approved recommended resources.

Action Plan and a $2.5 Million Surprise

My planner delivered my action plan to me via my LearnVest dashboard. It was a PDF file of about 20 pages that I could download to my computer if I wanted. It was super simple to understand and split into three parts:

  1. A recap of my current financial situation
  2. My financial goals
  3. The action steps that would help me to reach my goals over time

The Recap

The recap restated my weekly spending number (that’s the amount I was allowed to spend each week) and still accomplish all of my monthly goals.

The Goals Summary

The goals part broke down each of my stated savings and debt goals and showed how I would go about reaching them over five years.

The Goals Summary

The goals changed over time to reflect when smaller goals like my emergency fund and credit card payoff would be complete. Of course, this part also included my retirement needs.

I was shocked at his calculation: I would need to save more than $2.5 million to maintain my current income in retirement. To get there, I would need to continue contributing 10% towards my 401(k) and bump that contribution up by 2% every year or any time I get a raise. The idea here is that I would save more as I earned more over time. Sounds doable enough. Finally, it listed what estate documents I needed, such as a living will and beneficiary forms. To be honest, I haven’t completed my living will yet. You can upload these documents to your dashboard once they are completed.

The Action Steps

The final part outlined the action steps that I would take monthly to reach my goals. It briefly reviewed my monthly budget and showed how I should set up my accounts so that each month of successful budgeting would contribute to my overall goals.

I had a few more challenges assigned to me, such as learning to categorize my purchases and create goals in the dashboard. My planner sent a follow-up email after both calls recapping what we discussed. Moving forward, I would have ongoing support from him via email and had a copy of my plan available to me in my LearnVest dashboard.

For now, I’m following the plan as best as I can. The first month was rough with moving expenses and holiday expenses, but I’m confident I’ll be able to beat my weekly spending target and pay down my debts even faster when life settles down a bit.

What Is Meant by “Ongoing Support”?

Ongoing support from LearnVest means that you can reach out to your planner for help or advice via email, anytime. Your planner will also continue setting up challenges for you in your dashboard and may, on occasion or when you email them, ask you about your progress.

I follow up with the challenges when they are assigned to me, but I’ve only had to contact my planner once via email to clarify my insurance needs. Other than those little questions, I don’t have much of a reason to contact the planner since my entire plan is on my dashboard, and I have a feeling I’ll be following the same plan for a while.

Pros and Cons

Pro: Quick Responses

Having email access to your planner actually works out pretty well. I was impressed when I emailed my planner late in the day with a question and he got back to me via email in less than 24 hours.

Pro: Online and Mobile

LearnVest is accessible to you on the computer and in an app for your mobile device. Having both platforms makes it easy and convenient to check your progress toward your goals or edit your budget whenever or wherever.

Pro: Challenges

Each time your planner sets up a new challenge for you, you’ll get an email. They will be challenges such as watching an educational video, practicing a shopping fast for a month, or automating contributions to one of your savings accounts. The challenges help in a couple of ways. They are a reminder to log in to your dashboard if you aren’t prone to doing so on your own. The challenges also serve as a way for your planner to contact you and keep you motivated with creative short-term financial goals.

Con: No Face Time

Both meetings with your financial planner will take place over the phone. You can’t video chat or otherwise see the person to whom you are giving your financial information face to face, which may make some feel cautious or uncomfortable. Your planner may do as mine did and exchange some polite banter or offer to answer any questions you may have about LearnVest or the process to help you feel more comfortable.

Con: No Credit Score Information

You’ll need to download a separate app it you want to monitor your credit score. Unlike other popular budgeting apps, such as Mint, you won’t be able to see any information related to credit score or credit report information with LearnVest.

Con: Can’t Split Transactions on Mobile

The LearnVest mobile app’s budgeting software doesn’t allow you split up one transaction into multiple categories. So if you spent money on both clothes and food in one location, you’ll have to log in at a desktop computer to split the transaction.

Con: No Investment Management

Unlike the robo-advisers out there and some other financial planning platforms, LearnVest doesn’t manage your investments. You can check out this article for a few robo-advisers if investment management interests you.

Other Financial Planning Platforms to Consider

There are a host of other robo-advisers and online financial planning tools that target millennials cropping up to choose from that you may prefer over LearnVest.

Stash Wealth

A newer online financial planning platform, Stash Wealth, operates very similarly to LearnVest, but is aimed at what it calls H.E.N.R.Ys (High Earners Not Rich Yet). It costs $997 to get started, then $50/month to continue the service. Stash Wealth does do more of the work for you — like setting up automation for your savings and checking your tax information — so you don’t pay any taxes that you don’t have to pay. Once you’re ready, they start investing your money for you in accordance with your goals.

XY Planning Network

The XY Planning Network is a network of fee-only financial advisers who focus specifically on Gen X and Gen Y clients. There are no minimums required to get started as a client, and advisers in the XY Planning Network are not permitted to accept commissions, referral fees, or kickbacks. In other words, no high-pressure sales pitches or hidden agendas. Just practical financial advice doled out at a flat monthly rate. The organization is location independent, offering virtual services that enable any client to connect with any adviser regardless of where they reside.

Garrett Planning Network

A national network featuring hundreds of financial planners, the Garrett Planning Network checks many key boxes for millennials. All members of the Garrett Planning Network charge for their services by the hour on a fee-only basis. They do not accept commissions, and clients pay only for the time spent working with their adviser. Just as important for millennials, advisers in the Garrett Planning Network require no income or investment account minimums for their hourly services.

Mvelopes

Mvelopes is an app that provides a spinoff of the cash envelope budgeting system popularized by Dave Ramsey. Like LearnVest, its basic version is free and allows you to link up to four bank accounts or credit cards. Mvelopes has a second tier called Mvelopes Premier. It costs $95 a year, and you can link an unlimited number of bank accounts and credit cards, among other features. Mvelopes’ top tier, Money4Life Coaching, adds one-on-one coaching tailored to your financial needs as LearnVest Premier does. However, there is no price for this tier specified on the website.

The Final Verdict

LearnVest Premium is a convenient and cheap alternative to an in-person financial adviser if you need a little additional help planning your finances or a convenient reminder to stick to your budget, but it’s not worth the $299 + $19 a month if you just want to keep an eye on your spending. For the latter, stick to the apps that do it better, like Mint and YNAB.

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Building Credit, Credit Cards, Featured

Where to Get Your Credit Report for Free

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Where to Get Your Credit Report for Free

If you haven’t checked your credit report lately, you’re not alone. A 2016 survey conducted by Princeton Survey Research Associates International found more than half — about 54% — of Americans hadn’t even checked their credit score — the number constructed from factors in your credit report — within the past year. What’s worse, almost a quarter of respondents had never checked their score, making them extremely vulnerable to financial crime. Checking your credit report may seem like any other financial chore, but you shouldn’t keep placing it on the back burner. Similarly to getting a check-up at the doctor’s office, checking your credit report is a preventative measure you should take at least once a year with a bonus: it’s free.

What Is a Credit Report?

Your credit report paints a financial picture of your life. It is a complete history of your use of credit going back at least seven years, good and bad. This includes credit card accounts, student and personal loans, and mortgages, and information about how you use them such as payment history or accounts that have gone to collections. It may also include any utility and other bills that have gone unpaid and were sent to collections. There are three main companies that track your credit report: Experian, Equifax, and TransUnion.

Don’t confuse your credit report with your FICO credit score. Your credit score is a numerical figure that is calculated by using the information from your credit reports. Banks and lenders weigh information from your credit report to create a credit score to gauge how responsible you are when it comes to credit. If your credit reports show a solid history of on-time payments and a good mix of different types of loans, your score will reflect that. Likewise, if your credit report shows lots of missed payments and debt collection accounts, you can expect a poor score.

Knowing the information that is currently on your credit report can help you stay ahead of fraudsters and give you details about how you can improve your credit score. If you don’t check your credit report annually, you may not be able to accurately track the health of your credit score, or know when someone has used stolen personal information from you. In addition to those benefits, checking your reports annually can be an exciting way to benchmark your financial progress.

Where to Get Free Credit Reports

You should check your credit report annually for yourself, but you may also need a report to apply for a car loan or to rent an apartment, etc. When you do need a copy of your report, you can get one for free from a few sources.

You are entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting bureaus. You can order a free copy of your credit report from all three bureaus from AnnualCreditReport.com. Like the name implies, you can only order each report once a year for free.

Since you only get one free report from each of the three bureaus per year, stagger them throughout the year. For example, once every four months, request a report from one of the bureaus.

If you want to get an update on your credit report more than once a year, but you don’t want to pay for it, there are a bunch of tools out there that offer credit monitoring for free.

Credit.com offers a Credit Report Card tool to monitor your Experian credit report. All you need to do is go to credit.com, and click “Free Credit Report Card” under the “Credit Cards & Score” tab to create an account. The report card updates every 14 days.

Credit Karma gives you access to your TransUnion and Equifax credit reports for free. You can also sign up for their free credit and account monitoring services. If you do, you’ll receive an email alert whenever your credit score changes, and you’ll be notified whenever a new account is opened. The reports update weekly.

Credit Sesame gives you access to your TransUnion credit report via their credit monitoring service. The service updates your report each month.

Mint.com, a free money-management website and app, gives anyone with a Mint account access to their free Equifax credit report. The report is updated every 30 to 60 days.

Quizzle offers a free VantageScore — a scoring model developed by all three credit bureaus — and a free Equifax credit report, which is updated every six months.

Once You Have Your Report

Once you see your credit report, you should check it carefully for any wrong or negative information impacting your credit score. Double check to make sure the open accounts reported all belong to you. Check that the payment information is accurate and all of the account balances are correct. If you find any errors, you should dispute them directly through the bureau websites. MagnifyMoney has a more in-depth guide about how to do that here.

You might not see any errors, but realize that you need to work on rebuilding your credit. A healthy credit score can be very helpful to you when making a large purchase like a car or first home. MagnifyMoney’s complete guide to help you rebuild your credit can be found here.

You may also notice that you’ve been a victim of identity fraud. That may take a few more steps to clear up, but you can find what to do here.

 

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Featured, Pay Down My Debt

Research Proves This is The Best Method to Pay Down Debt

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Research Proves This is The Best Method to Pay Down Debt

If you’re struggling to pay off several debts at once, a group of researchers may have found the best strategy for success.

In the study, which was highlighted in the Harvard Business Review in December, researchers found people who concentrated on paying off just one of several debts before moving on to the others repaid their debt 15% faster than people who consolidated their debts and tackled them all at once.

The researchers, who hailed from Boston University, University of Alberta, University of Manitoba, and Georgetown University, collected anonymous data from more than 6,000 HelloWallet users over 36 months. HelloWallet is an online financial program that allows employees to make financial goals and track their spending and debt payments.

By analyzing the methods HelloWallet users used to pay off their debt — focusing on one small debt at a time or paying all debts at once — the researchers could tell which method worked best.

“Our research suggests that people are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest,” Boston University professor Remi Trudel, co-author of the report, told the HBR.

If this strategy sounds familiar, it should. It’s exactly how the popular “debt snowball” strategy works. In this method, the key lies in building momentum early on by achieving small “wins,” paying off tiny debts first and working your way up to larger debts.

When you pay off your first  $200 account balance, you’re more likely to be excited to tackle the credit card with $500 on it, then the card with a $1,500 balance, and so on. Likewise, by focusing on smaller debts, consumers are doing the crucial work of building good financial habits at an early stage. Once those habits become ingrained in their financial picture, they are more likely to keep them up, even as they take on larger debts.

If anything, Havard’s research simply supports why the snowball method is so popular — it really works.

Of course, if you are a fan of the other popular debt payoff methods like the debt avalanche or debt consolidation, this doesn’t necessarily mean you’re on a path to failure. If you have the option to consolidate all of your debts into one single loan at a lower rate (for example, by taking advantage of a balance transfer), math is on your side. By consolidating your debts at a lower interest rate, you will spend less money on interest over time.

However, if your high interest debts also happen to be the largest of your debt balances, you run the risk of getting discouraged early on and losing momentum because it will take so much more time to pay them off. If you are not confident that you’ll be motivated to pay off one large debt balance, you might be better off — as the Harvard study shows — working on your smallest debt first, even if it means paying more interest in the long run.

If you’re still interested in exploring different debt paydown methods, here’s a quick recap of the debt snowball vs. debt avalanche.

The snowball

When you snowball debt, you order all of your debts by balance and prioritize paying off the account with the lowest amount first. The method was made popular by Dave Ramsey and is the approach many use when tackling debt. The hope is that paying off lower balance loans will motivate you to pay off the remainder of the debt.

The avalanche

Mathematicians would likely argue in favor of the debt avalanche method. The avalanche approach has you order your debt by interest rate in order of the balance. Then, you prioritize paying off the account balance with the highest interest rate and attack the rest of your debt that way. The argument for this method is that it saves you money in the long run since you can avoid paying the most interest and will likely address the principal of your debt faster.

If your account with the highest interest rate is also your highest or one of your highest accounts by amount, the “avalanche” could have the opposite effect of the snowball method. It can be difficult to stay motivated if you don’t feel as if you are making much progress, and you could be discouraged early on.

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Building Credit, College Students and Recent Grads, Credit Cards, Featured

Here’s the Right Way to Use a Student Credit Card

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Here's the Right Way to Use a Student Credit Card

Credit cards can be a great way to build your credit while in college. But if you aren’t careful, they can quickly turn into a seductive debt trap, sending you down a path to poor credit.

If you are an inexperienced borrower, you could easily spend more than you are able to comfortably pay back each month and end up in delinquency or being hounded by debt collectors. You also run the risk of ruining your credit score before you really need it for important purchases after college.

If you’re ready to start building your credit, then that’s great. Before you do, you should get a good idea of what you’re getting yourself into before you apply for a credit card.

What Is a Student Credit Card?

A student card is a credit card specially designed by a lender to get college students started with credit. It helps them build a relationship with customers early on and helps you build your credit score.

The major difference between a student credit card and a regular credit card is that the student card will likely have a higher interest rate. That’s because the bank has no way to prove you are a reliable borrower yet since you have little to no credit history. Regular cards tend to average about 15% annual interest. In a recent MagnifyMoney study, we found the average student credit card carries an interest rate of 21.4%.

Why Should I get a Student Credit Card?

Your goal with your student credit card is to build your credit so that by the time you graduate, you have a healthy credit score in the high 600s to mid 700s. That way, when you graduate, you’ll be in a great position to make larger purchases like a new car or your first home. At that point you may actually want to earn rewards, and you’ll qualify for the best cards because you have a great score.

Many people look to credit when they need extra money.

However, you should only get a credit card if you want to build your credit score, not because you need extra money to make ends meet. This is important, so we’re going to repeat it again: You should only get a credit card if you want to build your credit score, not because you need extra cash to make ends meet.

If you can’t afford your monthly expenses as it is, a credit card might only make things worse. When you take out a credit card, you are paying a company to lend you money for a short while. If you can’t afford to pay the full balance on your card before your bill is due, the bank or credit card company will charge you interest.

Let’s say you charged $300 to your student card for books at the start of the semester. If you made a minimum monthly payment of $9, it would take four years and four months to pay off a card with a 21.4% annual percentage rate (APR). At that point you would have paid a total of $460, assuming your books were your first and only charge on the card.

Choosing Your First Credit Card Wisely

Because you likely have little or no credit history, your main goal with a credit card should be to build your credit score. There are two main criteria you should look for when shopping for your first credit card:

  1. No annual fee

Choose a card that has no annual fee, first and foremost. You shouldn’t worry about finding a card with the best rewards or even the best interest rate. You’re not getting a card for the perks, and since you don’t have much credit history, a low APR isn’t really an option for you right now.

You just need to make sure that the card won’t cost you anything annually to build your credit. Carefully read the fine print. Some lenders may waive the fee for a period, then start charging you.

  1. Easy to set up auto-pay

This next point is almost as important: look for a card that has an online platform that makes it easy to set up automatic payments. This will make it easy to make sure you pay your bill each month.

Three no fee options with well rated smartphone apps for easy payments are The Discover it for Students Card,  Citi ThankYou Preferred Card for College Students, and Capital One Journey.

Discover even gives you your free FICO credit score and offers perks like $20 back annually for customers who maintain a 3.0 GPA.

Your limit may not be very high as a student, but that’s fine because this card is for practice and to build your score. Your limit will likely land somewhere between $500 and $2,000.

The key is to make all your payments on time, and in full each month, which is why having a reliable smartphone app from your credit card provider is so important. Otherwise, penalty interest rates on these card are 29% or more.

You may also want to check with your parent’s credit union to see if they have a student credit card. The mobile apps aren’t always as easy to use for payments, but they can have lower rates in case things go wrong and many credit unions allow parents to cosign for students under 21.

Justice Federal Credit Union’s student card has a 0% rate for 6 months, and a  fixed 16.9% APR afterward with no annual fee. It allows parents to co-sign and anyone can join Justice credit union by becoming a member of the Native Law Enforcement Association for $15. You can apply for the card before you take care of membership formalities.

Since the implementation of the Credit CARD Act in 2010, lenders have been barred from promoting student credit cards on college campuses. As a result, the number of student credit card accounts have fallen by more than 60%. The Consumer Financial Protection Bureau found in its 2016 Campus Banking Report that lenders and institutions have shifted their partnerships to checking accounts or prepaid debit cards loaded with fees instead.

Using Your First Credit Card

Focus on making consistent, on-time payments, and keeping your credit utilization — that’s how much of your total credit limit you use — as low as possible. You should aim to use no more than 20% of your total limit. For example, if you have a credit card limit of $500, you should never charge more than $100 at a time to your card.

On-time payments and utilization make up 60% of your credit score, so it’s a big deal to miss a payment or max out your card.

Automation makes it very, very easy to achieve both these goals.

  1. When you get your card, figure out what 20% of your credit limit is. Example: 20% of $200 is $40.
  2. Find something that you pay for each month that costs less than that. This might be a payment for a streaming service such as Hulu, Netflix, or Spotify.
  3. Set up your account to take the payment from your credit card each month.
  4. Set up your checking account to pay your credit card balance each month.

After you set up all of the payments, you can forget about using your credit card. The automation is doing all of the work for you. Stash it somewhere safe (not your wallet) so that you won’t be tempted to use it.

Sit back and watch your score grow with free tools such as Credit Karma or the Discover Credit Scorecard. By the time you graduate, you should easily see your credit score in the high 600s or mid-700s.You’ll also have demonstrated your self-discipline and responsibility to banks, and will have an easier time getting a loan for a car or mortgage.

5 Other Ways to Build Your Credit Score

There are plenty of other ways to build your credit score if you aren’t quite ready to take on the responsibility of a credit card.

Become an authorized user on your parent’s credit card

Ask your parent to add you as an authorized user on one of their credit cards. If you are an authorized user, the behavior on that card (spending, payments, etc.) will be reported on your credit report as if it were your own, helping you build your credit. This strategy could also backfire. If your parents don’t use credit responsibly, it could hurt your credit score in turn. Negative behavior — even if it isn’t yours — will be reported as if it were yours as well.

Get a secured credit card

A secured card is a simple way to start building your credit history. This card can help prove to lenders you can be responsible without a lender having to take much risk. You’ll put down a deposit, and the lender will give you a line of credit. Typically, your line of credit will equal the amount of your deposit.

Get a co-signer

If for any reason you don’t qualify for a credit card on your own, you might be able to ask someone to co-sign the agreement with you. Big banks generally don’t offer this, but some credit unions like the Fort Knox Credit Union allow parents to cosign for students under age 21.

That means that they will be responsible for the payments if you can’t pay them. If you go this route, you’ll need to be very careful to only charge what you can afford to pay off each month. If you miss payments, it will negatively affect both of your credit scores.

Get a credit-builder loan

A credit-builder loan is similar to a secured credit card, but it requires no down payment. These loans are typically only offered by community banks and credit unions. When you are approved, the bank will deposit your loan in a savings account for you. You can’t access it until you’ve paid the loan back, however.

Build credit with rent payment

Paying your rent on time can help you build your credit score if it’s reported to the bureaus. Ask your property management company or landlord if they report rental payment data to Experian, TransUnion, or Equifax rental bureaus.

If they don’t, you can ask them to either start reporting or you can sign up for a rent payment service like PayLease or RentTrack that will let you pay for your rent online and give you the option to report your payments to the bureaus. The rent payment information will be included on your standard credit report and can help you build a score without a credit card.

A Final Word of Advice

We had to add this, because we know you just love it when a professor keeps talking after the lesson is over. But really, this is important so pay attention.

If you don’t think you have the self-discipline to handle a credit card right now, then don’t get one. College is full of opportunities to be a present hedonist — to say YOLO — and having a credit card can make it tempting to spend money you don’t really have.

Rebuilding your credit takes a long time and can get very expensive. It’s not worth ruining your credit score, and it will make it a lot harder to make those larger purchases when you graduate. If you can’t be disciplined enough to keep your utilization low and make your payments on time, then don’t get a credit card. You will have plenty of opportunities to build your credit after college.

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Featured

5 Lies a Car Salesperson Might Tell You

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Handshake between two business people in a car showroom.

Driving a new car home can be a huge relief, especially after going through the stressful process of purchasing a vehicle. In addition to finding the perfect car and getting your lowest loan rate, you’ll ultimately have to haggle with a car salesperson whose main goal is to get you to spend the most money they can.

“[Salespeople] can sense if you come in blind, and they are going to fill in the holes to their advantage,” says Jack Nerad, executive market analyst at Kelley Blue Book. “It’s not that they are dishonest people. It’s not their job to make the best deal for you. It’s their job to make the best deal for the dealership.”

Staying one step ahead of the salesperson by knowing the tricks they use can help you avoid signing a bad deal. Here are a few ways car salespeople might lie to you:

1. “Wait here, I’m going to consult with my manager.”

Nerad says chances are, if a salesperson says this to you, they aren’t talking to a manager. It’s more likely that they are taking a coffee break and trying to wear you down by having you invest more time in the transaction. They may also be trying to keep you on the company’s grounds while they come up with a deal closer to your asking price.

You can beat them in this game. Say you’ll leave while they talk it over. A salesperson knows your chances of coming back are minimal, and they want to make a deal with you that same day. If they are serious about selling you a car, they won’t let you leave the grounds, and they will return quickly with a better offer.

2. “This is our final offer. It’s the best deal you’re going to get.”

This is usually an outright lie. The salesperson always wants you to believe that you are getting the best deal that you can at their price. That’s because most people aren’t confident in their knowledge and are fearful that if they don’t make a deal right now, they won’t get the best deal.

“They don’t just want to sell you a car, they are trying to sell you a car today,” says Nerad. “Don’t fall in love with a particular car. There’s the same kind of car, in the same color, with the same equipment or comparable darn near everywhere.”

His advice is to stand firm and understand what the vehicle is worth to you. Don’t go over your asking price. He says to remember “if you get up and walk out, you’re going to find an equally good deal tomorrow and the day after that and the day after that.”

3. “There’s no need to test drive the car.”

Always test drive the car. You should have access to the car, you should be able to look inside and outside and be allowed to test drive it. It’s a huge red flag if they don’t let you test drive the vehicle for any reason.

The salesperson might say they can’t find the keys or that it’s in a position where it’d be difficult to move. They might also have you test drive a car that’s similar to it. Don’t do that either. You want to test drive the actual car that you are actually considering paying thousands of dollars and interest for.

Rosemary Shahan, founder of Consumers for Auto Reliability and Safety (CARS), a consumer advocacy group for the auto industry, encourages shoppers to go one step further and hire an independent mechanic to inspect the car first. You can use a resource like Car Talk to find a mechanic in your area.

4. “We can’t print out the contract.” or “You can’t take the contract with you.”

A salesperson could say this to get you to go ahead and sign for the purchase, but it could also be a tactic salespeople use to barrel-roll things you didn’t ask for into the contract.

The contract may be presented to you on a computer to sign electronically, but contracts are long and chances are you won’t have the time to carefully read each section before signing. The contract could include extra fees or add-ons like tire insurance that you don’t need and that will inflate the final purchase price and hurt the deal that you’ve worked hard to get. Just say no to most of it, or sign it aware that you’re financing the add-ons for the next few years.

“Insist on a paper contract,” says Shahan. “We believe it is a violation of the Federal Truth in Lending Act for [dealerships] to sell you a car with an electronic contract, because you are supposed to be able to take it physically with you to comparison shop. But if it’s on a screen you can’t do that.”

You should have reasonable time to make up your mind. Take a day or two to check out the contract and shop around until you are comfortable, but keep in mind that they could sell the car in that time. Don’t feel like you’ve spent too much time not to sign the contract if you’re unhappy with the terms. Even if you are in the contract phase, you can still walk out of the door.

5. “We just sold the car you saw online.”

The dealership may have just sold the car that you saw online, but that could also be a lie. Many dealerships may advertise a popular car for a low price as bait to lure consumers. When you show up looking to buy it, the salesperson will say it’s just been sold or out for a test drive and try to sell you something else.The tactic is called a “bait-and-switch.” The idea behind it is, again, your valuable time.

The assumption is that you wouldn’t want to waste this trip to the dealership, so you might as well stay and see your options. The bonus for the salesperson is that they already have an idea of what your price range is and what you’re looking for so they may even have some alternatives conveniently top of mind.

You have two options at this point. You can either stay and let them show you other vehicles, knowing that they may have used a bait-and-switch tactic, or leave and explore your other options. You could also try calling the dealership before you get there to ask if the vehicle is still available. If they really have just sold the vehicle to someone else, it’s unlikely any online resources like a vehicle history report would have been updated already. Cut your losses and see their other options, or find a dealership that does have the car you want.

How to complain about a shady auto dealer

If you feel as though the salesperson is engaging in questionable practices, you should walk away from the purchase. Nerad says to remember that “as a consumer, you have all of the power. You have all of the power because you are a rare commodity. You are someone who can afford to buy a new car.”

Before you leave the dealership, ask to speak with the manger on duty. After you leave, file a complaint with the Consumer Financial Protection Bureau, the Federal Trade Commission, or the BBB. You won’t be alone. New and used auto dealership complaints ranked 4th and 6th, respectively, of all complaints in 2015.

If you feel as if you’ll need legal assistance, you can find an attorney with experience in consumer law under “Find an Attorney” on the National Association of Consumer Advocates website.

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Consumer Watchdog, Featured, News

Overdraft ‘Protection’ is a Lie

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Young woman taking money from ATM

You wake up the day before payday to alerts from your mobile banking app saying your account has been overdrafted. How could this be? After all, you had $50 in your account last time you checked. So you start backtracking.

Dinner was only $45, right? You should have $5 to spare. Then you check your account and realize your $30 gym membership conveniently posted to your account this morning. Rather than declining the charge due to insufficient funds, your bank allowed the transaction to post — and charged you $35 for the favor.

This is an example of how banks have turned so-called overdraft protection and insufficient fund fees into a multi-billion-dollar cash cow.

According to a new analysis by Pew Research Center, more than 40% of 50 banks studied order transactions in a way that maximizes overdraft fees. The practice is called “high to low processing,” in which the bank posts transactions from largest to smallest rather than posting them chronologically. This can make customers more susceptible to incurring multiple overdraft fees on the same day.

The fees have effectively allowed banks to profit off of some of their most financially vulnerable consumers: those who keep low account balances and are thus at higher risk of overdrafting. Only 18% of checking account holders are responsible for 91% of overdraft and insufficient funds fee (NSF) fees according to research from the Consumer Financial Protection Bureau.

Pew’s analysis found most heavy overdrafters — those who pay $100 or more in overdraft and NSF fees annually — earn less than $50,000 per year. One-quarter of these account holders pay up to a week’s worth of wages in overdraft fees each year.

In 2015, 628 banks with more than $1 billion in assets reported a total of $11.16 billion — about 8% of total net income — of revenue from consumer overdraft and NSF fees according to the Consumer Financial Protection Bureau. That’s more than two-thirds of all consumer deposit account fee revenues.

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Overdraft Protection: The Ultimate Catch-22

When you are enrolled in overdraft protection, you give the bank authority to approve charges when you don’t have enough to cover the full amount in your account. The bank will approve the transaction, then charge you a predetermined flat rate fee — typically around $32 — for allowing your purchase to go through.

That’s why overdraft protection is something of a catch-22. On the one hand, it saves you from the embarrassment of a declined card at point of sale. On the other, it is one of the most expensive ways to borrow money for what are typically small purchases.

Let’s go back to the payday example from before.

If you had not realized right away you overdrafted your account, you might have thought you still had $5 in the bank, just enough for a cup of coffee. Your debit card would have been approved for the $3 coffee thanks to overdraft protection — and you would have been hit with yet another $35 overdraft fee, twice in the same day. Effectively, you just borrowed $3 for a fee of $35 — an annual percentage rate of over 1,000%.

Here’s how the math works out (in this example, we assume the person banks with Bank of America, which carries an overdraft fee of $35):

Original balance: $50

Dinner: $50 – $45 = $5

Gym fee: $5 – $30 = -$25

Overdraft fee for gym membership: -$25 – $35 = -$60

Coffee: $-60 – $3 = -$63

Overdraft fee for coffee: $-63 – $35 = -$98

At the end of the day, you would be left with a negative balance of -$98.

Some institutions limit the number of times you can be hit with overdraft fees in a single day. Bank of America, for example, limits overdraft fees to four times a day. Some banks will allow you to link your checking account with another account to pull funds from when you overdraft, but will then charge you for an overdraft protection transfer fee, which is typically lower than a full overdraft fee. Even if your bank doesn’t approve the overdraft and your purchase is declined, you could still get charged an insufficient funds fee, which will usually be equal to the overdraft fee.

Overdraft fees can quickly spiral out of control if the person cannot afford to pay back the bank and bring their balance back in the black. If you maintain a negative account balance for about five days, you are charged on average $20 for what’s called an extended overdraft fee. More than half of the banks Pew studied said they charge an extended overdraft fee.

It’s important to make sure to take care of overdrafted accounts. Excessive overdraft fees could lead to a closed account or loss of check-writing privileges. It could also become difficult for you to open accounts with other banks if your bank reports your behavior to ChexSystems. ChexSystems keeps a record of your banking history similarly to how the credit bureaus keep track of your credit history.

In a worst-case scenario, excessive overdraft fees could damage your credit score as well. If your bank decides to write off your unpaid account and send it to collections, it can show up on your credit report. At that point, your accidental overdraft could seriously damage your credit score.

How to Avoid an Overdraft Fee

Don’t “opt in”

You can’t be charged an overdraft fee if you don’t sign up for the program, but beware: your bank can still charge you an insufficient funds fee.

Choose “no” when presented the opportunity to opt in to a debit card-based overdraft protection program. Don’t miss this step as it can be easily overlooked as part of the process. It may be in the form of a question asked by your banker or a pre-checked box when you enroll in online banking.

Link your accounts

If you are worried about getting denied at a point of sale and are okay with a fee to automatically transfer your own money, you can link your debit card checking account to another account for overdraft protection. This lets the bank pull the money from the account that you’re linked to to cover new transactions. Banks typically charge a median $5 fee for this service.

Track your balance

Keep your eye on your balance to avoid overdraft and NSF fees altogether. If your bank offers them, you can set up banking alerts so that you’ll be notified when your account goes into the negatives and balance it out before you’re charged a fee. You can use a budget-tracking app like Mint that sends you overdraft and fee notifications as well, although they may not come in time to help you.

You should also go over any automatic payments that you have set up and record and set reminders for them so that you won’t have any surprise withdrawals from your account.

Call your bank

If you don’t overdraft your bank account often, you have a better chance of getting the fee reversed. Because banks make most of their money from a small percentage of accounts that are regularly overdrafted, bank agents usually have more flexibility to reverse the charge for those who don’t overdraft as much. If you make a mistake, and don’t do it often, it’s worth a call to ask the bank to reverse the charge.

Best Banks with Low Overdraft Fees

There is no bank account that truly offers no overdraft fees. However, you can find a bank that either doesn’t allow you to overdraw your account at all or doesn’t excessively fine you for overdrawing your account.

Ally Bank is one of the better banks when it comes to overdraft penalties. So long as you link a savings account to your checking account, the bank will transfer funds from savings when you make a purchase larger than your available balance. And it doesn’t charge a fee for that transfer. However, you will be fined $9 per day if you don’t have enough money in your savings to cover the charge. And they will continue to charge you $9 per day until you make your checking account whole again.

Bank of Internet’s Rewards Checking account has no overdraft or insufficient funds fee, but they will decline the charge if you don’t have enough to cover it in your account. The bank also gives you the option to link an account for overdraft protection with no fee for the transfer, or create a line of credit that can be used to cover overdrafts. If you decide to use the line of credit you will be charged interest on the overdraft balance until you pay it off, but there is no fixed overdraft fee.

MagnifyMoney has a full list of best account options for overdraft fees. In addition, you can use the checking account comparison tool to rank accounts based on overdraft fees and other options.

At the very least, opt out of overdraft protection to avoid getting hit with fees each time your card is declined.

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Featured, News

5 Steps Yahoo Users Can Take to Protect Their Data

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Sunnyvale, CA, USA - Apr. 23, 2016: Yahoo Inc. Headquarters. Yahoo Inc. is an American multinational technology company that is globally known for its Web portal, search engine Yahoo! Search, and related services.

More than 1 billion Yahoo customers may need to come up with some super creative new account passwords. The company revealed Wednesday 1 billion customers were impacted by a data breach in 2013, the largest known data breach in U.S. history.

In an email sent out to affected users, the company says it believes the breach began in August 2013. A third party stole data associated with users accounts, including passwords, contacts, birthdays, and answers to security questions. The FBI is helping to investigate the Yahoo breach, but the culprit has yet to be identified.

If you’re feeling some deja vu, here’s why: just a few months ago, Yahoo went public about another hack, which impacted 500 million accounts in 2014. That appears to have been a separate attack entirely, meaning as many as 1.5 billion Yahoo users have been effected in total.

The company said customers’ payment information was likely unaffected, as that information wasn’t stored in the system that was breached. However, it also now believes the attacker found a way to forge their way into users’ accounts without a password.

If any of that banking information was in your emails, you may be vulnerable to identity theft, but you can take a few steps to protect yourself:

Here’s what you should do if you were impacted by the Yahoo data breach:

Change Your Password(s)

Yahoo is already requiring ‘affected’ users to change their passwords, but even if you haven’t yet received an email instructing you do so, you should change yours.

If you use similar passwords or security questions and answers for any other online accounts, you should go ahead and change all of those too. It may be a pain to do so, but it’s worth not leaving yourself vulnerable to identity fraud.

Check Your Yahoo Account for Suspicious Activity

Do a thorough review of your Yahoo accounts and look for anything suspicious like emails you didn’t send or emails received from accounts that you may not recognize. Stay away from emails asking you to click on a link or download an attachment, as these could be phishing scams. Phishing scams gain access to your device or account to get additional information that can be used to access existing credit accounts or create new credit accounts. Finally, watch out for emails asking for your personal information or refer you to websites asking for your personal information. If you see those kind of emails, delete them immediately.

Set Up Two-Factor Authentication

This breach may be a great incentive for you to take a few minutes to set up double authentication via Yahoo’s Account Key tool. You won’t need your password at all anymore if you set this up. The tool sends a notification to your cell phone asking you to authorize account access each time an attempt is made to log into your account.

Check Your Credit Report

It’s a good idea to check your credit report for any suspicious activity whenever you feel your personal information may have been vulnerable. Request your free credit reports from all three bureaus via annualcreditreport.com and look over them for any accounts you may not recognize. It may also be beneficial to you to set up alerts on your report so that you are notified and asked to authorize any requests for your report from lenders. You can find more information about how to do that here.

Close Your Yahoo Account

If two breach disclosures is your breaking point, you could terminate your relationship with the email service provider. All you’d need to do is visit Yahoo’s account termination page, and follow the instructions. After Yahoo confirms your termination was successful, it’ll take about 90 days  for your account data to be totally gone from the company’s system.

Backstory

There’s never a good time for a data breach but Yahoo’s timing is especially unfortunate. The company is currently in the middle of a $4.83 billion acquisition deal with Verizon. However— as Bloomberg reported following the announcement — there may be some indication that this most recent announcement could delay the deal’s close or cancel it altogether. The recent disclosure might also lower Verizon’s asking price for the struggling email service provider.

Yahoo shares lost nearly 6% in afternoon trade Thursday on NASDAQ. Shares are currently trading at $38.80.  Verizon stock is at $51.84, up 0.4% in afternoon trade on the NYSE.

 

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