College Students and Recent Grads, News

Watch Out for This 16% Student Loan Fee

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Watch Out for This 16% Student Loan Fee

The Trump administration has made it possible for debt collectors to once again charge hefty fees to some student loan borrowers who miss several payments in a row — even if those borrowers make an effort to get back on track right away.

These fees, which can be as high as 16%, are typically levied against the borrower’s entire outstanding loan balance and accrued interest charges. The so-called “collection charges” are meant to help recoup losses incurred by pursuing unpaid debts.

In a recent letter, the U.S. Department of Education rescinded an Obama-era rule that forbade guaranty agencies — debt collectors charged with recouping unpaid federal student loan debt — from charging defaulted borrowers collection fees if the borrowers began a repayment plan within 60 days of defaulting on their loans. In the new letter, the agency said the previous guidance should have included time for public comment and review before it was issued.

The reversal comes days after the Consumer Federation of America released an analysis of Department of Education data that shows the rate of student loans in default has grown 14% from 2015 to 2016.This certainly isn’t the first Obama-era rule or legislation the new administration has sought to undo, with an Obamacare replacement plan on its way to a vote in the House and plans to unravel regulations meant to crack down on for-profit colleges and universities.

A Department of Education spokesperson declined to comment.

Bad news for 4.2 million borrowers

The changes will impact borrowers who took out federal student loans under the old Federal Family Education Loan (FFEL) Program. The FFEL Program was phased out in 2010 and replaced with the current Direct Loan Program, but millions of borrowers are still paying back FFEL loans issued prior to that change. Those who have loans under the Direct Loan Program will not be impacted by the changes.

As it stands, some 4.2 million FFEL borrowers are currently in default on loans that total $65.6 billion, according to Department of Education data. Loans are considered to be in default after 270 days of nonpayment.

The changes will raise the stakes for borrowers struggling to make payments on their federal student loans, and make it even more important for those borrowers to avoid missed payments.

Fortunately, federal student loan borrowers are eligible for several flexible repayment methods, as well as forbearance and deferment.

An Ongoing Debate

The debate over a servicer’s right to charge borrowers a default fee has gone on for several years.

In 2012, student loan borrower Bryana Bible sued United Student Aid Funds after she was charged more than $4,500 in fees after defaulting on her loans. She started a repayment agreement to resolve the debt within 18 days, but was still charged fees.

The Department of Education sided with Bible and said companies had to give borrowers 60 days after a loan default to start paying up before they are charged fees. The Obama administration backed the Department of Education and issued the letter when the court asked for guidance on the issue.

There is one clear winner with this rule change: debt collectors.

“Rescinding the [previous guidance on collection fees] benefits guarantee agencies at the expense of defaulted borrowers,” says financial aid expert Mark Kantrowitz. He adds the change may increase the cost of collecting defaulted federal student loans, since borrowers will have less incentive to quickly rehabilitate their defaulted student loans.

What Happens If I Default on My Federal Student Loans?

Federal student loans are considered to be in default after a borrower misses payments for 270 days or more.

About 1.1 million federal student loans were in default status in 2016, according to Department of Education data.

The consequences of going to default are severe.

  • The entire balance of your loan + interest is immediately due
  • You lose eligibility for deferment, forbearance, and flexible repayment plans
  • Debt collectors will start calling
  • Your credit will suffer
  • And … your wages and/or tax refunds could be garnished

Are you missing federal student loan payments?

You’ve got options.

  • Contact your loan servicer ASAP
  • Find out if you’re eligible for a flexible repayment plan
  • Or ask about forbearance

Already in default?

  • Ask your loan service about loan rehabilitation
  • If you make 9 on-time payments over the course of 10 months, your default status will be lifted

You’ve only got one shot to rehabilitate your federal student loans after going into default. Don’t miss it.

 

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Articles, News

Why You Should Apply the 72-hour Rule to Your Tax Refund

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Why You Should Apply the 72-hour Rule to Your Tax Refund

Ka-ching! Your tax refund just hit your checking account. Time to apply the 72-hour rule.

Whether your refund is in the thousands or hundreds, the urge to spend the funds might instantly become overwhelming. Maybe you already had an idea of what you want to spend the money on and you’re all set to hand over your refund for it. Or, maybe the money means you finally have enough to make a large purchase you’d otherwise need to save for.

Whatever your reason, don’t spend your refund quite yet. If it’s not an immediate emergency (read: root canal, car accident, flood, etc.), let the cash burn a hole in your pocket for about 72 hours.

Journalist and money expert Carl Richards came up with the “72-hour rule” to kick his habit of buying every book he wanted on Amazon, ending up with a pile of unread books. Now, he says he lets a book sit in his shopping cart for at least 72 hours before hitting “buy,” and he’s saving money only buying books he will actually read. You can apply a similar practice to your spending habits.

Why wait 72 hours?

Our brains respond positively to instant gratification. It’s why so many of us find it difficult to save money or lose weight. We want the item or food now, and when there’s nothing stopping us, why wait?

You need the space between receiving the money and spending it to think. The shorter that space is, the less time you have to think and the more likely you are to spend the funds impulsively.

“People often look at their tax refund as found money like lottery winnings or inheritance. The temptation to spend surprise money on something fun or frivolous is strong,” says Denver, Colo.-based Certified Financial Planner Kristi Sullivan.

You want to avoid doing that. Your tax refund isn’t lottery winnings or an inheritance. It’s your hard-earned money being returned to you with no interest gained.

Tax refunds averaged $2,860 in 2016, according to the IRS. This year, a SunTrust survey found about 1 in 4 Americans already planned to spend their refund money on a large purchase before they even received the funds. That proportion rises to 36% among millennials and 40% among Gen-Xers, according to SunTrust.

That’s no bueno, considering the average citizen admits they can’t pull together $400 in case of an emergency.

James Kinney, a certified financial planner based in Bridgewater Township, N.J., says “hitting the pause button on spending impulses gives the rational brain time to think” of more practical ways to use the money like getting out of debt, contributing to a college savings fund, or adding to your savings.

Although he acknowledges when you’re living paycheck to paycheck, it’s a little harder to resist a sudden — albeit predictable — boost to this month’s budget.

“People feel constrained by their paycheck all through the year, then suddenly this windfall of money gives them the ability to splurge. The temptation can be hard to resist,” says Kinney.

Here are a few ways you can manage the temptation, and the time.

While you wait…

Weigh your wants vs. needs

The waiting period is supposed to help you to spend your tax refund responsibly, right? Consider all of the expenses the money could go toward. Should you buy the new iPad or pay off your credit card? How about that car loan? Time to weigh your options.

Sullivan says that means you should pit your “wants” against your “needs.”

“A need that you haven’t already bought is rare. Wants are everywhere. Time to reflect might have you making a more mature decision with your money,” says Sullivan.

Do some soul searching to see where your financial priorities lie. You might find your need to pay off your credit card this month to avoid paying more in interest outweighs how badly you want that new gadget. Think about it.

Review your finances

Since your tax refund might consume your every thought for three days, you might as well use the time to think about your overall financial picture.

“Sit down and think about other pressing financial issues, and how you plan on paying for them,” says David Frisch, a Melville, N.Y.-based financial planner. He suggests you review bank statements, brokerage accounts, long-term goals, and other financial considerations, then give some thought to whether or not you’re on track to achieve them.

For example, if you realize you don’t have enough in your emergency fund to cover three to six months of expenses, you might decide to put the money there instead of spending it. Or, if your refund could completely pay off a high-interest debt like a credit card, you might decide to free yourself from the debt burden.

Make sure you don’t get a huge refund every year

Most Americans receive a refund because the government withheld too much in taxes. The government uses information you gave them to decide how much of your paycheck to withhold each pay period.

“Changing your withholding will give you more of your money during the year so that you will not get a large refund that you might be tempted to spend frivolously,” says Alfred Giovetti, president of the National Society of Accountants.

You can change information on your withholding forms on your own if you’d like. Use this IRS calculator to determine your proper withholding and figure out what information you need to correct on your W-4 form. Then, contact your employer’s human resources department to turn in a new W-4 with the correct information.

If you’d rather have some assistance, you can contact a professional. Work with your accountant or financial adviser to change information on your W-4 and its equivalent withholding form for the state in which you reside.

“Plan with a good tax accountant to get a small refund or a small liability by changing your withholding, so that you do not rely on the refund as ‘mad money,’” says Giovetti.

Treat yourself

We admit, waiting sucks, but it doesn’t have to be complete torture. Sullivan suggests taking the edge off with a small reward for each day you wait.

“It could be an ice cream cone, a long phone chat with a friend, an hour reading a trashy novel, or whatever makes you happy,” she says.

Just make sure the reward you choose isn’t too expensive, and you should avoid getting into more debt. Your “reward” could serve as a break while you comb through your finances.

The takeaway

Take some time to think before spending whenever you receive unexpected income, and you might make better spending decisions. Maybe you need only 24 hours, instead of 72, or maybe you need a little longer to decide what to do with money, but the same lesson applies. If you’re considering a purchase that’s a “want” and not a “need,” think before you buy.

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Featured

7 Money Rules Freelancers Should Live By

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Freelance journalist

For years, Russell Wild was one of millions of Americans who didn’t know from where or when his next check was coming. The former freelance journalist says he’s very familiar with living with volatile income, some months raking in far more than he needed and other months scraping by while waiting for the next check to arrive.

“Both the income side is volatile, and the expense side, especially where health care is concerned, because freelancers don’t have corporate coverage,” says Wild.

Nearly one-third (34%) of Americans said they faced large swings in income from 2014 to 2015, according to a recent analysis by PEW Charitable Trusts. The research group defines a “volatile” income change to be an increase or decrease of at least 25%. Among households whose earnings declined, the median loss was 49%.

In 2004, Wild dropped his freelance writing career for something more stable. He’s now a registered financial adviser and author based in Philadelphia, Pa. He says he watched fellow freelancers “go into panic when they saw that there was little chance of covering the next month’s rent, or the latest doctor’s bill.”

Year over year fluctuations in household income occur for a number of reasons. A worker might get an annual bonus or promotion. On the flip side, a worker could experience a sudden illness or job loss. Those in contract or freelance occupations are especially vulnerable to income volatility. Researchers also found Hispanic, less-educated, and low-income American households are most susceptible to income volatility.

Households experiencing inconsistent or irregular income may be able to leverage the following tips to better manage financially and get prepared in case of a financial emergency.

  1. Base your budget on your lowest grossing month

Your household’s income might be volatile, but your goal should be to make sure your lifestyle is as predictable as possible. You can add some stability to your life by establishing a budget.

“Try to live within a fixed income — the lowest point of your fluctuating annual or monthly household income,” says Arlington,Va.-based financial planner Hui-chin Chen. Those with volatile income should also try to limit debt and unnecessary spending.

Monitor your household’s cash flow carefully to see what you’re spending money on, then cut out the unnecessary expenses until you are left with your fixed costs, such as housing or monthly bills.

“Without being aware of what you’re spending and where, you can overspend your sometimes low income without realizing it, or treat yourself to more than you should when there’s a big month,” says Stephen Fletcher, an adviser at BlueSky Wealth Advisors in New Bern, N.C.

Keeping record of your spending might be tough to do at first, but budgeting apps like EveryDollar, Level Money, and Mint can help you keep an eye on yourself or your household.

“Volatile incomes require discipline, otherwise you can end up feeling like you are living paycheck to paycheck,” says Fletcher.

  1. Set your lifestyle now

Once you’ve got your budget together, don’t fall prey to lifestyle inflation when you have a couple of months of steady work or receive a large influx of cash. Try to develop regular spending and saving patterns.

“If you know what you need to keep the lights on and you know what you need to pay yourself (save), it’s much easier to plan for influxes of cash that need to be set aside,” says Chicago-based financial planner Nick Cosky. He says households can get started by setting monthly and annual spending and savings goals.

Try to make as many monthly and annual expenses as possible predictable and planned. For example, if you know your expenses totaled about $5,000 last month, then you should plan to spend no more than $5,000 this month and the following month.

“Live below your means, especially until you have achieved sufficient cash reserves and savings,” says Anne C. Chernish, president and managing member of Anchor Capital Management in Ithaca, N.Y.

Once you’ve maintained a certain level of monthly cash flow and your emergency stash is all set, you can adjust your quality of life accordingly. If you can afford to, Patrick Amey, a financial planner at KHC Wealth Management in Overland Park, Kan., suggests those who experience regular volatility keep one to two years of living expenses available — just in case you need to maintain your lifestyle without a paycheck for a while.

  1. Anticipate large expenditures

If you are aware of a large expense coming up — maybe your car needs repair or you’re aware of necessary medical services or even paying your taxes each year — you should plan to save as much as you can before the bill comes.

Create a separate savings account and allocate funds toward it periodically for the upcoming expense. Make sure your savings goal considers all of associated costs, so you won’t get caught off guard.

“With purchases like cars, homes, and other large items, these types of purchases require insurance, property taxes, etc., so buying when you have just enough cash to make the purchase can have serious and crippling long-term effects,” says Fletcher.

  1. Always plan ahead for taxes

If your income varies because you’re a contractor or work for yourself, you’ll need to budget for tax withholding. You can plan ahead and pay your taxes quarterly. You’ll get the payment out of the way, plus you won’t feel it as much as you would if you pay when you file your taxes.

Unfortunately, if you experience income volatility, you might pay a different amount in taxes if you have a particularly good — or bad — year and enter a different tax bracket.

“Higher taxes follow good earnings years and, if one has insufficient reserves for tax, can deliver a double whammy. Just as the income turns down, the tax from the previous year is due,” says Chernish.

For that reason, Cosky recommends you get 6 to 12 months ahead of the tax liability and keep your CPA or tax preparer in the loop so they can help you plan tax withholding.

If you’re doing your taxes on your own, you can use this IRS form to estimate your taxes owed each quarter.

  1. Have multiple income streams

When your main income stream is inconsistent, it might help to pick up a second job to help cover expenses during economic downswings or simply to ensure your expenses will be covered.

As an added benefit, you might also feel more financially stable, as you could possibly put more money into your savings.

Wild, a former president of the American Society of Journalists and Authors, says for most freelancers that might mean accepting a corporate contract and working on your more creative projects in-between the corporate job’s deadlines.

“When I was writing full time, before I started financial planning, I always had a steady gig. I was for years a regular contributor to various magazines, and later I had book contracts with decent advances,” says Wild.

  1. Save at least a year’s worth of expenses

Lynn Dunston, Senior Wealth Manager at Dunston Financial Group in Denver, Colo., suggests those with volatile income have enough money saved in an emergency account to cover a year’s worth of expenses, instead of the usual 3- to 6-month savings recommendation for those with stable income.

“It is critical that if there is a down month, they are not having to accumulate credit card debt or take out loans in order to continue their standard of living,” says Fletcher.

  1. Make sure your money is working for you

After you have your emergency savings funded, it might not make as much sense to continue to put ALL of your extra savings there. Since interest rates on savings accounts currently lag behind inflation, your money would actually lose value in the typical savings account today.

You can stash “near cash” in higher-yield savings options like short-term bonds or CDs. Mark R. Morley, president of Warburton Capital Management in Tulsa, Okla., tells his clients to create a “currency escrow” or a safe bond portfolio that can be liquidated as needed for currency needs. The escrow ideally holds at least one year of expenses in short-term investment bonds. Morley says it can be used to supplement income or added to when income is high.

Fletcher says to avoid tying up all of your cash savings in retirement accounts like a 401(k) or IRA to avoid penalty charges in case you need to withdraw the funds early. Instead, he suggests you invest excess funds in a brokerage account, since you can take money out of that with little or no tax implications.

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Building Credit, Featured

12 Million People Are About to Get a Credit Score Boost — Here’s Why

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12 Million People Are About to Get a Credit Score Boost

Some serious tax liens and civil judgments will soon disappear from millions of credit reports, the Consumer Data Industry Association announced this week. As a result, millions of consumers could see their FICO scores improve dramatically.

The CDIA, the trade organization that represents all three major credit bureaus — Equifax, Experian, and TransUnion — says they have agreed to remove from consumer credit reports any tax lien and civil judgment data that doesn’t include all of a consumer’s information. That information can include the consumer’s full name, address, Social Security number, or date of birth. The changes are set to take effect July 1.

Roughly 12 million U.S. consumers should expect to see their FICO scores rise as a result of the change says Ethan Dornhelm, vice president of scores and analytics at FICO. The vast majority will see a boost of 20 points or so, he added, while some 700,000 consumers will see a 40-point boost or higher.

Even a small 20-point increase could improve access to lower rates on financial products for these consumers.

“For consumers, the news is all good,” says credit expert John Ulzheimer. “Your score can’t go down because of the removal of a lien or a judgment.”

The change will apply to all new tax lien and civil-judgment information that’s added to consumers’ credit reports as well as data already on the reports. Ulzheimer says consumers who currently have tax liens or judgments on their credit reports that are weighing down their credit scores will be able to reap the rewards of removal almost immediately

“The minute the stuff is gone, your score will adjust and you’re going to find yourself in a better position to leverage that better score,” says Ulzheimer.

But, importantly, he notes that just because credit reporting bureaus will no longer count tax liens or civil judgments against you, it does not mean they no longer exist at all. Consumers could still be impacted by wage garnishment and other punishments associated with the liens and judgments.

“This is the equivalent of taking white-out and whiting it out on your credit report. You can’t see it any longer, but you still have a lien, you still a have a judgment,” Ulzheimer says.

Solution to a longstanding problem

Many tax liens and most civil judgments have incomplete consumer information.

The changes are part of the CDIA’s National Consumer Assistance program that has already removed non-loan-related items sent to collections firms, such as past-due accounts for gym memberships or libraries. The program also has set a 2018 goal to remove from credit reports medical debt that consumers have already paid off.

“Some creditors may have liked having inaccurate credit reports, as long as they were skewed in their favor. That’s not the way the system is supposed to work. This action is just one more proof that the CFPB [Consumer Financial Protection Bureau] works, and works well, and shouldn’t be weakened by special interest influence over Congress,” says Edmund Mierzwinski, consumer program director at the U.S. Public Interest Research Group.

The move is likely the result of several state settlements and pressure from the Consumer Financial Protection Bureau, the federal financial industry watchdog.  Beginning in 2015, the reporting agencies reached settlements with 32 different state Attorneys General over several practices, including how they handle errors. The CFPB also released a report earlier this month that examined credit bureaus and recommended they raise their standards for recording public record data.


Time to start shopping for better loan rates?

High credit scores can lead to long-term savings. Borrowers who expect their scores to improve as a result of these changes may find better deals if they can wait a few months to buy a new house, refinance a mortgage, or purchase a new car. Even a 10-point difference can lead to lower rates on loans.

If you expect the credit reporting changes might benefit you, Ulzheimer suggests holding off on taking out new loans or shopping for refi deals, such as student loan refinancing.
“Let it happen, pull your own credit reports to verify the information is gone, then take advantage of the higher scores,” Ulzheimer says.

Ulzheimer also says the changes may not be permanent. “There is a possibility that if the credit reporting bureau is able to find the missing information, the negative information could reappear on consumer credit reports,” he says.

There isn’t anything in the law that forbids the reporting of liens and judgments anymore, and lenders can still check public records on their own to find missing information.

Ulzheimer says if he were the CEO of a reporting agency, that’s exactly what he would do.

“I would embark on a project to get this information immediately back in the credit reporting system,” he says, then adds all he’d need to do is find an economic way to populate the missing data.

“From a business perspective, I would do it in a New York minute. Because I would immediately have a competitive advantage over my two competitors,” says Ulzheimer.

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Featured, Investing

3 Strategies to Teach Your Child to Invest

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3 Strategies to Teach Your Child to Invest

Chicago, Ill.-based actor Mike Wollner says at ages 7 and 10 his daughters are already learning how to invest.

Three years ago, Wollner opened custodial brokerage accounts for the girls through Monetta Mutual Funds, which has a Young Investor Fund specifically for young people to invest for the future. Through the fund, parents can open custodial brokerage accounts or 529 college savings accounts on behalf of their children, as well as get access to financial education and a tuition rewards program.

Wollner decided to open the accounts once his daughters began to nab acting gigs and earn an income. They’re already beginning to understand what it means to own a part of the world’s largest companies. “They will ask me to drive past Wendy’s to go to McDonald’s and say, ‘well, we own part of McDonald’s,’” he says.

Wollner hopes his daughters will have saved enough for college by the time they graduate high school. His 10-year-old’s account balance already hovers around $13,000, while his 7-year-old has a little less than $10,000 saved for college in her account.

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The contents of the package a child receives in the mail when an adult opens a Monetta Mutual Young Investor Fund custodial account on their behalf.

The Value of Starting Young

The Monetta Fund is only one example of a way to invest on a child’s behalf. The downside to using an actively managed investment account like the one Monetta offers is that it comes with higher fees — the fund’s expense ratio of 1.18% in 2016 is higher than the 0.10% – 0.70% fees typically charged by state-administered 529 college savings plans.

In addition to 529 plans, parents can open Coverdell Education Savings Accounts, or other custodial brokerage or IRA accounts through most financial institutions like Fidelity, Vanguard, or TD Ameritrade.

A college fund serves as a great way to teach kids a little about the time-value of money, but they’ll need to know more than that to manage their finances as well as adults.

“There’s no guarantee that they are going to be financially successful because anything can happen in life, but you’ll be better off with those skills and have a better chance of being successful with those skills than without them,” says Frank Park, founder of Future Investor Clubs of America. The organization operates a financial education program for kids and teens as young as 8 years old about financial management and investing.

He says FICA begins teaching financial concepts at an early age with hopes that the kids who start out with good money management habits now will continue to build on them as they age.

“If they fail to get that type of training now, it may be years into their late 20s, 30s, or 40s before they start. By then it could be too late. It could take 20 years to undo the mistakes they’ve made,” says Park.

3 Ways to Teach Young Kids About Money

Use real-world experiences

Wollner has each daughter cash and physically count out each check they receive from acting gigs.

“They just see a big stack of green bills, but that to a child is cool. It’s like what they see in a suitcase in the movies,” says Wollner.

He then uses the opportunity to teach how taxes work as he has his daughters set aside part of the stack of cash to pay taxes, union fees, and their agent.

“They start to see their big old pile of money diminish and get smaller and smaller,” says Wollner, who says the practice teaches his daughters “everything you make isn’t all yours, and I truly believe that that’s a lesson not many in our society learn.”

Kids don’t need to earn their own money to start learning. Simply getting a child involved with the household’s budgeting process or taking the opportunity to teach how to save with deals when shopping helps teach foundational money management skills.

Park urges parents to also share financial failures and struggles in addition to successes.

“They need to prepare their kids for the ups and downs of financial life so that they don’t panic if they lose their job, have an accident, or [their] identity [is] stolen,” says Park.

Gamify investing

Gamified learning through apps or online games can be a fun way to spark or keep younger kids’ interest in a “boring” topic like investing.

There are a number of free resources for games online like those offered through Monetta, Education.com, or the federal government that aim to teach kids about different financial concepts.
Wollner says his youngest daughter benefited from playing a coin game online. He says the 7-year-old is ahead of her peers in fractions and learning about the monetary values of dollars and coins.

“This is how the kids learn. It’s the fun of doing it. They don’t think of it as learning about money, they think of it as a game,” says Bob Monetta, founder of Monetta Mutual Fund. The games Monetta has developed on its website are often used in classrooms.

When kids get a little older and can understand more complicated financial concepts, they can try out a virtual stock market game available for free online such as the SIFMA Foundation’s stock market game, the Knowledge@Wharton High School’s annual investment competition, or MarketWatch’s stock market game.

“The prospect of winning is what makes them leave the classroom still talking about their portfolios and their games,” says Melanie Mortimer, president of the SIFMA Foundation.

Anyone can play the simulation games, including full classrooms of students.

Aaron Greberman teaches personal finance and International Baccalaureate-level business management at Bodine High School for International Affairs in Philadelphia Penn. He says he uses Knowledge@Wharton High School’s annual investment competition in addition to online games like VISA’s websites, financialsoccer.com, and practicalmoneyskills.com, to help teach his high school students financial concepts.

Adults should play the games with children so that they can help when they struggle with a concept or have questions. Adults might even learn something about money in the process. Consider also leveraging mobile apps like Savings Spree and Unleash the Loot to gamify financial learning on the go.

Reinforce with clubs or programs

For more formal reinforcement, try signing kids up for a club or other financial education program targeting kids and teens.

FICA, the Future Investors Clubs of America, provides educational materials and other support to a network of clubs, chapters, and centers sponsored by schools, parents, and other groups across the nation.

When looking at financial education programs, it’s important to recognize all programs are not equal, says FICA founder, Frank Park.

“Generally speaking, you’re going to go with the company that has a good reputation of providing these services, especially if your kid is considering going into business in the future,” says Park.

The National Financial Educators Council says a financial literacy youth program should cover the key lessons on budgeting, credit and debt, savings, financial psychology, skill development, income, risk management, investing, and long-term planning.

Mortimer suggests parents also try getting involved at the child’s school by offering to start or sponsor an after-school investing club. She says many after-school youth financial education or investing organizations nationwide use SIFMA’s stock market simulation to place virtual trades and compete against other teams.

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Featured, Reviews

Stash Wealth Financial Planning Review – The Planner for HENRYs

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Stash Wealth Financial Planning Review - The Planner for HENRYs

Millennials are a lot more interested in their personal financial well-being at a younger age than the members of the two generational cohorts that came before them. But what else would you expect of the kids that came of age during the financial crisis and saddled with an average $30,000 student loan debt?

Luckily, millennials also came of age during the digital revolution, and a number of the cohort’s members have created platforms designed specifically to help millennials handle their finances.

Online financial planner, Stash Wealth, is one of those resources.

What Is Stash Wealth?

Stash Wealth is the online financial planner dedicated to serving the HENRYs (High Earners, Not Rich Yet) of the world. The startup was founded in 2013 by former Wall Street executives Priya Malani and Rob Kovalesky to serve millennial high earners they felt had been ignored by traditional firms or who may be fearful of financial management.

Stash Wealth’s services include personalized financial planning and investment management. Clients can also get personalized advice from Stash’s in-house experts — dubbed “rebels” — on topics like estate planning, investing, taxes, and accounting. For additional assistance, the company provides financial information to the general public through articles on its blog.

This review only covers Stash Wealth’s financial planning offerings, but we briefly touch on their investment management services at the end of this post.

How Do You Know If You’re a HENRY?

Stash Wealth defines a HENRY as an individual — or couple — who’s already earning about six figures annually. That’s a tough bracket to reach considering only 2.7% of millennials earned $100,000 or more in 2015, according to data from the U.S. Census Bureau. But becoming a HENRY isn’t all about income.

Stash has created a quiz to help potential clients figure out if they qualify as a HENRY. If you’re not quite there yet, Stash Wealth has a partnership with invibed, which runs a low-cost Wealth Coaching program for about $450.

How Much Does Stash Wealth Cost?

Stash Wealth’s pricing makes it clear HENRYs are their target audience. You — or you and your partner — can complete a Stash Plan for a one-time fee of $997. The Stash Plan is a financial plan for your life that will address how and when you can reach all of your financial goals.

After your plan is created, you’ll graduate to Stash Management, a full wealth management service, which you’ll be charged for based on how much money Stash is investing for you. It has two payment tiers:

  • $50 per month for those with less than $50,000 in assets managed by Stash
  • 1.2% of the assets Stash manages for you annually ($100,000 invested = $1,200 annually) if Stash is managing more than $50,000 worth of assets

If you’re an entrepreneur, you can build a Stash Plan for Entrepreneurs for $1,597, but you’ll need to call to learn more about the entrepreneur’s plan.

What Do You Get for $997?

Stash Wealth will create a customized Stash Plan, which is a financial plan customized to your current and future needs. You’ll be prompted via email to fill out two documents that will help establish your “baseline,” then you’ll have two meetings with a certified financial planning duo who will create your Stash Plan.

Even at close to $1,000 plus ongoing management fees, Stash’s completely digital service is a cheaper alternative to paying $1,100 to $5,600 a year for the average personal financial adviser.

Unlike some other online financial advisory firms, Stash Wealth doesn’t offer a payment plan. In the FAQ on the website, the company explains the reasoning is because they want to be sure they are attracting clients who truly can afford the service and qualify as HENRYs.

Stash Wealth has a particular client in mind, so their pricing isn’t comparable to competitors like LearnVest, which will run you about a third of the cost at $299 for the initial financial planning fee, and they will charge $19 for ongoing financial planning, although the LearnVest program doesn’t include investment brokerage.

How the Stash Wealth Financial Planning Process Works

Every Stash Wealth client will receive a comprehensive financial plan. MagnifyMoney reviewed the process over the course of several weeks.

Your baseline paperwork

Shortly after you make your online payment to get started, you’ll receive an email from Stash asking you to do three things:

  1. Fill out your profile.

This is one of the two PDF forms that will be attached to the email. It will ask you to fill in basic information about yourself like your name, address, employment, and income. It will also have you enter basics related to your finances such as which banks you have relationships with, who you already use for money-related items like taxes, and how much you have in your emergency fund. This form will also ask for the same information about your significant other if you’re completing the Stash Plan as a couple.

  1. Schedule your baseline meeting.

In the email, you’ll see a link to book a meeting using the online scheduler, TimeTrade. Once it’s booked, you’ll get an email confirmation in your inbox.

  1. Complete and return the Baseline Workbook.

The final thing Stash asks of you before your meeting is to fill out your Baseline Workbook. Your workbook is an 8-page document that will dive deep into your financial business. You will trace where your money goes after you get paid, check off whether you use cash or credit more often, explain what your savings are consist of, and list your debts and assets, in addition to providing other information.

Stash understands this may take a while, so they give you some time and ask that you email the document back at least a couple of days before your scheduled baseline meeting.

Your baseline meeting

This will be your very first meeting with your Stash advisers. It will take place over video chat and recap all of the information you entered into your Baseline paperwork. The meeting should take no longer than an hour. Your planners will share a screen with you during the call to show you a Baseline Results document, which was created from your information. It will show, with charts and diagrams, how you spend your money, what your money map should look like, and how you’re doing so far saving for retirement.

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The Stash program is intended to be educational as well, so your advisers may sound very similar to your finance professors in college. They will spend a good portion of the time explaining things like a money map (see above) or how different kinds of retirement accounts work. They’ll also make sure to ask if you understood everything and will re-explain if necessary.

The “reverse budget”

Stash will create what they call a “reverse budget.” The reverse budget calculates how much you can spend guilt-free each month after subtracting your fixed and flexible expenses. They will show you a budget with and without debt, so you’ll be able to imagine how much extra cash you’ll have on hand once your debts are settled.

The homework assignments

After this call, you’ll get some more homework to complete before your second meeting. The second meeting is meant to help align your life to your reverse budget. I was advised to open up an online savings account with Capital One 360 and nickname it “emergency fund” and to keep a checking account open at a brick-and-mortar bank. I had just closed my checking and savings account with my brick-and-mortar bank, Wells Fargo, and opened checking and savings accounts with Ally, so I didn’t take this advice. I was earning 1% on my savings account with Ally anyway, which was slightly more than the 0.75% I would have earned at Capital One.

I did, however, set up multiple savings accounts for emergency, travel, and moving costs to correspond with my savings goals.

My other homework was to find my most-recent monthly statements for my credit card, my retirement accounts, and student loans and send this information to them as soon as I could.

The follow-up email includes a link to schedule your second call, which should take place in about three weeks, and will have a final workbook attached to it. A PDF copy of your Baseline Results will be attached to the email for your use.

Your Stash Plan Workbook: goal setting

Your Stash Plan Workbook will come attached to the follow-up email for your first call. It’s intended to make you think about your financial goals and how you’ll reach them. A major part of this workbook requires you to think of what you want your life to look like in retirement.

You might already keep a few basic goals in mind like saving for retirement (check) or an emergency fund (double check), but your workbook will force you to consider savings goals to which you may not have given any thought. Some examples: traveling twice a year, returning to school for a post-bachelor’s degree, taking a six-month hiatus from work in Europe, remodeling your home, or saving to care for your parents in their old age.

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You’ll rate each goal from 1 to 10 based on its importance to you, and make note of how much you think you’ll need and when you’ll need the money. For example, going back to school for a graduate or doctorate degree is about a 7 in importance to me, and I want to have about $25,000 saved for it and (ideally) start my post-college education in 2020. I also want to travel to see family members, who live in Ghana, every few years. I set that travel goal at about a 9 and allocated about $2,000 for a trip every two years.

The workbook continues to a section called “Retirement Lifestyle Goals,” which addresses any big dreams or goals you have for your life in retirement (think: buy a yacht) and asks you to put them down even if you’re not sure if you’ll be able to afford them. You’ll move on to a “Retirement Living Expense” section that asks you important questions like when you plan to retire, what your retirement income will be, and if you’re willing to delay retirement to reach all of your goals.

You’ll finish the workbook by filling out detailed information about all of your current assets, investments, and liabilities. While you’re doing all of this, be sure to gather any supplemental financial documents to send back digitally with your completed workbook. Examples include:

  • Bank and investment statements
  • Retirement account statements
  • College fund account statements
  • Employer benefits
  • Social Security Administration Statement
  • Liability statements
  • Insurance policies

Stash asks that you send in your completed Stash Plan Workbook and documents via email 10 to 14 days before your second call.

Filling out the workbook was a lot of work, but it was worth it. It took about an hour for me, and I only use one bank and one credit card and my only other debt is in student loans. Most of my time went to setting financial goals for the long life ahead of me. It was eye-opening as there were a lot of things I knew I wanted in life — like rental property — that I had yet to set a deadline or budget to. Completing the workbook helped me realize I should start saving now for almost any larger purchases I wanted to make within the next decade like a possible wedding or owning rental property. I was a little confused when it came to the investing and retirement parts of the document like retirement income but was able to complete the form using context clues.

I did have to fill out the form three times, as it had trouble saving some of the information I had input. I’m still unsure whether the problem was the way I was saving it to my computer or the form itself. In the end, it was no big deal. I typed up some of my goals in an email to supplement what the form had held onto.

Your Stash Plan meeting: how to execute your Stash Plan

Your final meeting with your advisers will explain to you exactly how to make your Stash Plan a success. During this meeting, your advisers will first check in with you to ask if anything about your financial situation has changed since you sent in your workbook. For example, I decided within the month to move to a significantly cheaper apartment, so my monthly budget had to be adjusted. My planner made note of that and sent me an updated Stash Plan with the follow-up email at no additional charge.

After your touch base, your advisers should walk you through the details of your new financial plan, which they will have up on a shared screen for you to see. They’ll speak with you about how you should budget for your savings goals and when you’ll likely reach them.

Your Stash Plan meeting: how to execute your Stash Plan

My advisers emphasized making the most of automation for my savings goals and any recurring expenses. This takes some element of human error out of the picture. I’d used automation before and found it would bite me in the ass when I forgot which date I’d set a service to credit my checking accounts. To avoid my unfortunate recurring lapse of memory, I set my automated payments for the day right after payday, and if I couldn’t change the due date, I used the budgeting app Mint, which has a bill reminder feature.

They will also give you a few suggestions for managing your new financial plan. My advisers suggested I open up a 0% balance transfer card (they recommended I use Chase Slate or Citi Simplicity) to help pay down my credit faster. They also recommended an app called Debitize, that lets you use your credit card like a debit card. The app pays off charges to your credit card with money from your checking account so you can build credit without overspending.

They also advised me to channel any extra funds I had to paying down my credit card debt faster, as it’s the highest interest debt I have. After my credit card was paid down, I was to use the extra money to build up my emergency fund.

In addition, the advisers suggested I consider adding a disability insurance policy and some estate planning documents to my life. I was told to ask my employer’s human resources department about disability insurance. For estate planning documents, they included a recommendation to a Stash Expert in the follow-up email. Finally, they explained to me what my next steps would be should I choose to graduate to Stash Management.

Next Steps: Investing with Stash Management

Once you have your financial plan set up, you’ll make the decision to either stop there or continue to Stash Management. This review only covers Stash Wealth’s financial planning offerings, but we did dig a bit deeper to look into their investment management services.

After your plan is created, you can choose to graduate to Stash Management, a full wealth management service, which you’ll be charged for based on how much money Stash is investing for you.

It has two payment tiers:

  • $50 per month for those with less than $50,000 in assets managed by Stash
  • 1.2% of the assets Stash manages for you annually ($100,000 invested = $1,200 annually) if Stash is managing more than $50,000 worth of assets

With Management, you’ll get ongoing help with financial planning. That includes your taxes, purchases, budgeting, combining finances with a significant other, planning for a baby, buying your first home, or anything else. You’ll have access to monitor your accounts and investments through an online portal, but you likely won’t have to do anything.

Stash gives you a unique ID so you can log on to the company’s online platform. You’ll grant Stash’s team permission to implement their suggestions for you like automating your savings and investing your money in the stock market. When you have a question, you can call, email, text, or even use Facebook’s messenger 24/7 to communicate with Stash.

Stash isn’t a robo-adviser like Hedgeable, Wealthfront, or Betterment. A human being will actually invest your money and communicate with you as needed.

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Pros and Cons of Stash Wealth for Financial Planning

Pro: Quick responses

I was impressed with Stash’s response time. If I had any problems filling out the PDFs or any questions, I could expect an answer to my email on the same day or within 24 hours at the latest.

Pro: Some face time

Both meetings with your financial planner will take place over a video chat, which adds a personal layer to the totally digital process. You won’t awkwardly stare at your adviser the entire time since they’ll be showing you your results or plan for most of the conversation, but I thought it was nice to put a face (and a smile) to who was handling my sensitive information.

Con: No mobile app

Stash Wealth is only accessible to you on a desktop, which can present an issue if you want to check on your plan or investment on the go. However, you do have the option to download your plan as a PDF, which most smartphones will allow you to pull up without cellular data or Wi-Fi.

Con: No budgeting software

Your Stash plan will lay out what you need to do, but it’s up to you to implement and track your progress — unless you pay for Stash Management. You can use other platforms such as the free version of competitor LearnVest or budgeting services YNAB or Mint to manage your financial information, goals, and more, but it would be convenient to have a budgeting platform to show you your awesome new plan right away.

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 like Mint, or a credit monitoring service like Credit Karma, you won’t be able to see any information related to credit score or credit report information with Stash Wealth.

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 Stash Wealth.

LearnVest

LearnVest Premium is a more-affordable alternative for those looking for personalized financial advice from an expert. If you sign up for LearnVest’s premium service, you’ll complete a process similar to Stash’s, where you’ll meet twice with an adviser who will create a plan for you and then have the option to pay for ongoing support. LearnVest costs $299 for the initial setup, then $19 a month for email access to a personal financial planner, in addition to the budgeting and goal setting features online dashboard features. With LearnVest, you won’t get investment advice.

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 the client resides.

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 Stash Wealth, 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 Stash Wealth Premier does. However, there is no price for this tier specified on the website.

The Final Verdict

Stash Wealth is a great deal if you’re a HENRY, but it’s definitely not a program for everyone. It forces you, as a young high earner, to swiftly exit any present hedonist mindset you may have and consider your future seriously.

For me, it demonstrates how important it is to take advantage of extra funds and invest them into your future while you’re young, handsome, wealthy, and only have yourself to think about. But if you’re not making enough to have an extra $1,000 stashed away for financial planning, there are less-expensive alternatives you can use on your way to HENRY status.

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Featured, News

Costco is Raising the Cost of Membership Fees — Here’s How Much More You’ll Pay

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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.

 

For the first time in six years, Costco will hike the cost of its annual membership fee for individuals and businesses. The increased prices will go into effect June 1, 2017, the wholesale retailer announced on Thursday.

The raise will affect about 35 million members.

Here’s how much more you’ll be paying for your Costco membership:

Primary Costco Members

“Primary” Costco members (both individuals and businesses) pay $5 more, bringing the cost of an annual membership to $60.

Executive Costco Members

Members at the “Executive” tier, who earn 2% cashback on their purchases for the year, among other perks, will see their annual membership fee rise by $10 to $120. Executive members also receive discounts on Costco Services such as check printing, identity theft services and roadside assistance.

Perhaps to dull the sting of the higher membership fee, Costco has decided to raise the cap on the amount of cashback executive members can earn each year — from a maximum of $750 to $1000.

How to save on Costco shopping

Costco membership fees might be going up soon, but Costco members can recoup some of the lost funds in savings by using certain credit cards.

Costo’s Anywhere Visa card is a good option for frequent shoppers. The card has no annual fee and earns better rewards than its predecessor, including 2% back on Costco purchases, 4% on gas, 3% on restaurants and 1% on everything else.

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New Study Shows Number of Americans with Past-Due Medical Debt Down 6%

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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.

Fewer Americans are struggling to pay back medical debt.

The rate of American adults aged 18 to 64 with past-due medical debt dropped from 29.6% to 23.8% between 2012 and 2015, according to new study released by researchers at the Urban Institute.

Not surprisingly, people who did not have insurance were more likely to say that they currently had unpaid bills from a health care or medical service provider (a rate of 30.5%). But with the rise of high-deductible health plans, even people who have insurance find themselves in medical debt — 22.8% of insured consumers had past-due medical debt, according to the study.

When researchers looked at past-due debt by region, the differences were particularly staggering. There was “enormous variation across states,” according to Senior Research Associates Kyle Caswell and Michael Karpman, who authored the study.

Eight of the 10 states with the highest rates of past-due medical debt were in the South, including Mississippi, Arkansas, West Virginia, South Carolina, Kentucky, Oklahoma, Alabama, and Georgia. The other two were midwestern states Indiana and Missouri.

The researchers could not point to a solid conclusion as to why Southerners were harder hit by medical expenses.

“Of course we would like to understand better why, but it does give us a starting point for asking questions as to why the population differs from state to state,” said Caswell.

Why are rates of past-due medical debt dropping? It would be easy to conclude that the drop is due to the implementation of the Affordable Care Act. People today are simply more likely to have insurance, as the rate of uninsured Americans has fallen from 16.6% to 10.5% since the implementation of ACA in 2013, according to the Kaiser Family Foundation.

But Caswell and Karpman said it would be a stretch to give all the credit to the expansion of health care under the Affordable Care Act. The steady drop in unemployment and a general improvement of the U.S. economy over the last few years could also play a role, making it more likely that people can afford to cover out-of-pocket medical expenses.

As the Urban Institute’s report found, simply carrying health insurance isn’t enough to protect consumers against unexpected medical bills. Their findings are bolstered by a recent report by the Kaiser Family Foundation, which found 70% of people with medical debt also have insurance, mostly through employer-provided plans.

How to Tackle Unpaid Medical Debt

In just moments, an unexpected medical emergency can put the average American family in thousands of dollars of medical debt. That can pose a burden, considering about of 47% Americans would struggle to scrape together $400 in case of an emergency according to the Federal Reserve’s 2016 Report on the Economic Well-Being of U.S. Households.

Families with medical debt say the debt undercut their ability to save and afford basic household needs, the Urban Institute’s study found. To cope, families may rely more on credit cards and other forms of debt to make ends meet.

According to the Consumer Financial Protection Bureau, outstanding medical debt makes up more than half of all collection notices on credit reports. Past-due medical debt can seriously harm your credit score. If bills go unpaid for long enough, consumers may wind up facing a lawsuit or even bankruptcy.

To help avoid these types of consequences, follow these tips to tackle medical debt you can’t afford to pay:

Ask for a detailed billing statement and check for errors

You may receive a billing statement from your insurer or medical provider, but it may not give the full picture of services you received. Request a detailed, line item statement and review it carefully for any errors. It’s possible you could have received treatment from an out-of-network doctor without your knowledge. Or, there may be duplicate charges or charges for care you didn’t receive. If you find errors, contact the provider directly and have them corrected and a new statement sent.

Negotiate with your medical provider directly

You might be able to negotiate down your medical debt or arrange a payment plan with the medical provider, whether it’s your doctor’s office, a hospital, or your insurer. Along the way, keep careful records of who you talk to and what was said. Here’s a step-by-step guide on how to negotiate a medical bill with a health insurance company.

Try a 0% APR credit card

If your bill isn’t overwhelmingly large, you could try paying the debt off with a credit card with an introductory 0% interest period. Since you won’t be charged interest, you’ll pay less over the period. Before you apply, make sure you’ll be able pay off the balance before the 0% interest introductory period expires.

Pay off medical debt with a personal loan

If you’ve been unable to negotiate or you are struggling to find a 0% APR credit card deal, a personal loan may be another option. Depending on your credit history, rates on personal loans range from 4.7% to 36%. We’ve pulled together a list of six great personal loan options here.

Negotiate a settlement with a collection agency

Past-due medical debt eventually gets charged off and sold to a collection agency. But that doesn’t mean your window to negotiate has totally closed. If you have access to enough cash, ask if you can settle the debt for a lesser amount and forgive the remaining balance. Just be aware that forgiven debts can be treated as taxable income in some cases.

Seek help from a medical billing advocate

If you’ve been unsuccessful in trying to negotiate down your medical debt, the debt has significantly damaged your credit, or you are on the brink of filing bankruptcy, consider reaching out to a medical billing advocate. Don’t confuse these advocates with debt settlement or repair firms, which should be treated with caution.

You can find a medical billing advocate through the National Association of Healthcare Advocacy Consultants or the Alliance of Claims Assistance Professionals. These services aren’t free, and whether or not it makes financial sense to hire a pro depends on how much money you stand to save by lowering your debts. Advocates typically charge about $80 to $150 annually, a flat fee or a percentage of your savings says Denise Sikora, Secretary of ACAP.

Look for a charitable foundation that can help

You may want to consider reaching out to a nonprofit for assistance. If you were diagnosed with a particular condition, look toward organizations such as the Lupus Foundation of America for individuals with lupus or the American Kidney Fund for those with kidney disease. You can also apply for grants from nonprofits that provide more general assistance such as the Patient Access Network and the HealthWell Foundation, which may be able to grant funds toward medication assistance or other medical costs. With these foundations, limits for assistance may depend on your diagnosis and other factors.

Consider bankruptcy as a last resort

If the debt is more than 50 percent of your annual income, bankruptcy might be a viable move to make. Let the hospital know you’re considering bankruptcy first, as they may then be open to negotiation. Be aware the filing bankruptcy can adversely impact your credit for years after the fact.

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Credit Cards, Featured, News

6 Questions to Ask Before You Use Jewelry Store Financing

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6 Questions to Ask Before You Use Jewelry Store Financing

This Valentine’s Day, U.S. consumers were projected to spend a collective $182 billion on fancy dinners, cards, flowers, and other gifts for their loved ones, according to the National Retail Federation. Jewelry retailers can expect to receive a sizable chunk of that spending. One in five Americans said they’d give jewelry as a gift to their significant other this Valentine’s Day, totaling an expected $4.3 billion spent nationwide.

If you can’t afford to pay for a large jewelry purchase out of pocket, most jewelry retailers are more than happy to let you finance it with a store credit card. But beware: Diamonds might be “a girl’s best friend,” but a jewelry store retailer isn’t always looking out for your best interest. As you would with financing any large purchase, you should thoroughly evaluate your decision before you sign on.

Here are 6 questions to ask before you finance through a jewelry store.

What happens if I can’t pay off my balance before the promotional period ends?

Low-interest or 0% financing promotions for jewelers typically last from 6 to 18 months. You may be tempted to wait to make payments until some time goes by. But if you don’t start making payments right away, you may find yourself with a balance even after the promotional period ends. And that can spell trouble for your finances. Some financing offers include “deferred interest” clauses, which means if you even owe $1 after the 0% period ends, they will charge you interest from the beginning.

Take online fine jewelry seller Blue Nile, for example. Right now, the company has a promotion for 0% financing for 6 or 12 months, depending on how much you spend. Deep in the company’s terms, a deferred interest clause is buried, warning shoppers that “interest will be charged to your account from the purchase date if the purchase balance is not paid in full” by the end of the period or if you make a late payment.

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Other jewelers may offer a low promotional rate for a certain period but will raise the annual percentage rate (APR) if you aren’t able to pay the balance in full by then. For example, the Zales credit card starts off with a low 9.99% APR if you make a minimum purchase of $1,500 and pay it off within 36 months. But if you can’t pay it off by then, they will triple your rate, making it 29.40%.

Can I afford my monthly payments?

Do the math to find out what your monthly payments will be and how long you’ll need to pay back the loan. If it looks like it’s going to be a struggle to pay the loan back before your promotional period ends, you’re probably borrowing more than you can really afford and you’re asking for trouble — especially if there’s a deferred interest clause.

If you really want to do it to finance the purchase, make sure it’s something that you can pay off within the promotional period. To save money, try comparing prices at several different retailers, opting for a more modest precious gem instead of a diamond or using a grandparent’s ring instead.

What’s in the fine print?

Some jewelers may require a down payment in order to qualify for a 0% financing offer. For example, Kay Jewelers charges a 20% minimum down payment for their 12-month 0% interest financing plan. Zales offers 6 months of financing interest free if you open up a credit card for a minimum purchase of $150, but that period extends to 18 months for purchases of $3,000 or more.

You don’t want to be surprised by any fees either. Some retailers will charge a transaction fee simply for processing your payment. Zales doesn’t charge a transaction fee for people taking advantage of 6-month or 36-month financing, but it tacks on a $9.95 transaction fee for their 12-month and 18-month interest-free tiers.

Look closely for any maintenance fees like annual fees charged for each year you have the card open, or penalty fees for late or returned payments.

Are there any warranties or insurance policies?

You’re making a large purchase that you can’t afford out of pocket, so you’ll want to protect yourself in case the jewelry is lost or damaged. Many retailers, like Jared or Kay Jewelers, offer lifetime diamond and gem warranties that cover cleaning and repair, although you may have to meet certain requirements to maintain a warranty.

To maintain a Zales Lifetime Diamond Commitment or Jared’s Lifetime Diamond & Color Gemstone Guarantee, for example, you need to take the piece to a store for cleaning and inspection every six months. You’ll need to bring your inspection history with you when you go, and the warranty doesn’t cover making any repairs. You could void your warranty if you don’t keep up or if you don’t make the suggested repairs.

Some plans offer additional protection plans to cover theft. Zales offers a lifetime jewelry protection plan with theft replacement for the first two years. To use it, you’ll need to bring in a police report and proof of purchase, but the warranty is void if a family member steals your jewelry.

You could forgo the jeweler’s insurance for your own, however, and tack the piece onto your home or renter’s insurance plan as a ‘jewelry rider’ for a few dollars more each month.

What’s the return policy?

Not to be a killjoy, but what if you break up with your significant other before you get a chance to give them the gift? What if they don’t like it or — even crazier — the salesperson was just really good and after the purchase you decide you don’t like the jewelry you picked out? You’ll need to make a return, and you’ll want to make sure you get your money back.

Ask about the company’s return policy related to in-store financing. You’ll want to know what the period is to make a return or exchange, as they may differ, and when you’ll see the charge removed from your account. Keep in mind, many jewelers won’t let you return specially made or engraved jewelry; however, some, like Blue Nile, make an exception for rings.

If you’re returning an online purchase, ask about any extra fees you may need to pay, such as shipping or insurance for the jewelry.

Do I get any perks?

If you frequent a particular jeweler, you may be interested in what perks you’ll get from opening a store credit card. For example, Zales cardholders benefit from exclusive coupons, reminders for jewelry inspection and cleaning, and an automatic $50 off birthday purchases $200 and higher.

Sometimes, these perks may not be worth the hassle of signing up for a high-interest credit card or financing deal. Compare the dollar value of the perks to the amount you’ll pay in interest and fees down the road.

Alternatives to Jewelry Store Financing

Friends and family

Reach out to your network of close friends and family to see if you can get a more flexible, interest-free loan. To demonstrate responsibility, you may want to create a contract with payment terms and set a date for when you’ll pay the loan back in full. Warning: Only do this if you’re certain you can pay off the loan quickly to avoid harming your relationship with the lender.

Credit cards

Jewelry store cards generally charge high interest rates, so you might find a more competitive offer with a traditional bank or major credit card issuer.

If you can qualify for a credit card with a longer promotional 0% interest offer, or one with a lower interest rate after the promotional period ends, you may be better off putting the jewelry purchase on it. Depending on the card you choose, you might even be able to earn points or cash back rewards for your purchase.

A bonus tip: If you decide to open a store card but aren’t 100% sure you’ll be able to pay off the balance before the promotional period ends, you could make payments until the period is over, then transfer the remaining balance over to a balance transfer card to avoid paying interest.

Personal loan

If you don’t want to open up a credit card, a personal loan can be an alternative way to finance the purchase, although you won’t benefit from an interest-free promotional period.

Rates on personal loans range from as low as 4% with good credit to as high as 36%. On the other hand, with personal loans you’ll have a fixed interest rate and a fixed repayment term, so you’ll know exactly how much you’ll pay each month and when you’ll pay off the purchase.

You can apply for a personal loan through your bank, or leverage technology and try peer-to-peer lending through sites like Upstart, Lending Club, or SoFi.

The Final Word

Financing a large jewelry purchase may be convenient, but it may not be your most cost-efficient option, especially if you’re not sure you’ll be able to pay off the card before the 0% interest promotional period runs out.

If you’re planning to pop the question soon, remember: the engagement ring and all of the traditions surrounding it are a relatively new construct of modern-day romance. You don’t have to prove your love and commitment to your spouse with a huge, expensive ring.

 

 

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Featured, Life Events, News

Now You Can Pay for Uber and Lyft Rides With Your Commuter Benefits

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Now You Can Pay for Uber and Lyft Rides With Your Commuter Benefits

Ride-share users, your employee commuter benefits package just got a little better. Earlier this year, Lyft became the latest ride-sharing app to give riders the chance to pay using employee commuter benefits.

That means riders can now use pre-tax dollars to pay for Lyft rides the same way commuter benefits can be used to cover transit costs or parking expenses. Lyft isn’t the first ride-sharing app to add commuter benefits — Uber beat them to it back in August — but Lyft’s addition of commuter benefits signals a trend that could save big-city commuters time and money on the way to work each day.

Right now, it’s not possible for workers to use commuter benefits to pay for regular cabs — including regular Uber or Lyft rides. But Uber and Lyft found a clever way around this. Benefits can be used when riders select Lyft Line or uberPOOL, the apps’ carpooling options.

If you’re curious about this benefit and whether or not it’s worth linking your Uber or Lyft account to your commuter benefit account, we’ve got you covered.

What are commuter benefits?

Commuter benefits are an employer-provided benefits program that lets you set aside pre-tax dollars in an account to be used for your commute costs. Employees can use these benefits to pay for public transportation — trains, subways, buses, even parking passes — used on their daily commute with pre-tax dollars. The amount of money you set aside to pay for your commute doesn’t count as income, so you’re not taxed on it.

Which benefits programs are included?

Each ride-hailing service has partnered with select benefits programs, although there is some overlap. For example, if your company’s benefits package is with Zenefits or TransitChek, you can use them with Lyft, but not with Uber. On the other hand, if you are with EdenRed or Ameriflex, you can only pay with your benefits on the Uber app. The lucky commuters with benefits under WageWorks, Benefit Resource and Navia can use their benefits on either rideshare app.

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How do I sign up for commuter benefits?

Workers have to sign up for commuter benefits in order to receive them. You will be asked to select how much money you want to set aside from your paycheck each month to cover your transportation costs.

Once you’re enrolled, you may receive a benefits card (it can be used like a regular debit or credit card) to make transportation purchases. Otherwise, you can purchase transportation expenses using your regular credit or debit card and then submit a claim to be reimbursed through your benefit provider.

Reach out to your employer’s human resources department to find out how to take advantage of your commuter benefits program.

How much can I really save?

Depending on your current tax bracket, you could have up to 40% more to spend on your commute. For example, if you’re in the 35% tax bracket and contribute $200 each month to your commuter benefits account, you’re getting an extra $70 to spend on your commute each month. That’s an extra $840 per year.

But here’s the catch: Commuter benefits contributions are capped at $255 per month. So if you are already relying on your benefits to finance your monthly subway pass or parking garage expenses, you may not have much left over to use on Lyft or Uber rides.

What are Lyft Line and uberPOOL?

To use commuter benefits to pay for Lyft or Uber rides, you have to select the apps’ carpooling options — either Lyft Line or uberPOOL. Carpool vehicles seat six or more passengers. Both Uber and Lyft use algorithms to place riders going toward the same area together. Because you’re carpooling, however, you may or may not have a shorter commute, depending on traffic in your city and how many other riders get picked up or dropped off during your trip.

How to use commuter benefits on Lyft

First, you need to add your commuter benefits card to your profile.

  1. When you open the Lyft app, tap “Payment” in the left-hand side menu to see your payment options.

  2. Select “Add credit card,” enter your commuter benefits card information, and save. The card will have a “Commuter” distinction.

  3. Next, set the card as your default payment method. There are two ways to do this:
    1. Select the card as your default payment method for your personal profile under the “payment defaults” section in the “Payment” menu.

    2. When you open the app, set your location and destination. You’ll then see the last four digits of the card is being used to pay for the trip. Tap the numbers to change your payment method to your commuter benefits card. You should see a rectangular icon with a diamond in its center when using your benefits card.

    3. Select “Lyft Line & Ride.”
      You can only use your benefits to pay for carpools under Lyft Line. Select the pooling option to be matched with a car with six or more seats, and you’ll be all set.

How to use commuter benefits on Uber

Add your commuter benefits card to your profile by going to the left-hand menu and adding your commuter benefits card under “Payment.” You can also add the card after setting your location and destination under uberPOOL, shown below.

Tap on your card information to set or add your commuter card as a payment option.

Your benefits can only be used to pay for carpools under uberPOOL. Select the pooling option to be matched with a car with six or more seats, and you’ll be good to go.

Pros

Using pre-tax dollars saves you up to 40%

The most obvious perk of using your commuter benefit is that you’re using pre-tax dollars, so your dollar goes up to 40% further. If you’re already paying out of pocket for your commute, this could be a huge benefit.

Cut back on driving

If you drive to work, a 2014 Trulia analysis found you likely spend about 30 minutes in the car each way. If it’s more affordable for you to use a ride-sharing app, you can use that time to read or catch up on work or a nap while you ride.

Reduce your carbon footprint

Legally, commuter benefits can only be used with efforts to reduce your commuter footprint, so ride-sharing counts only when you’re placed in a car that seats six or more passengers. If you drive to work, this cuts down your footprint and takes the hassle out of organizing a carpool.

Cons

Lyft Line or uberPOOL only

You may want to put your pre-tax dollars elsewhere if you’re not into making new friends each morning. You’ll be placed in a vehicle that seats six or more people when you use your benefits card, and other riders may have various personality types.

Limit on contribution

Your contribution is limited to $255 a month, which may or may not be a month’s worth of commuting, depending on how much your commute costs. For example, a LendingTree analysis found the average monthly cost of commuting with Uber’s non-pool service UberX in New York City is more than $700. Still, $255 pre-tax will help cut down on your monthly spending for the trip to work.

Only available in select major cities

The apps’ commuter benefits options are only available in select major cities so far. Here’s a breakdown of where you can use yours.

Lyft: New York City, Boston, Seattle, and Miami

Uber: New York City, Boston, Chicago, Washington, D.C., San Francisco, Philadelphia, Las Vegas, Denver, Atlanta, Miami, Los Angeles, San Diego, Seattle, and New Jersey (state).

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