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College Students and Recent Grads, Life Events

Crowdfunding Your Student Loan Debt

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.

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Students throwing graduation hats

While the standard repayment plan for federal student loans puts borrowers on a 10-year timeline to pay off their debt, research shows a far more drawn out repayment reality – with the average bachelor’s degree holder needing 21 years to pay off his or her loans.

Meanwhile, actor/director Zach Braff, who raked in enough per episode of the hit series “Scrubs” to cover the entire cost of tuition at a four-year private college, raised two million dollars in a mere 48 hours for his passion project, “Wish I Was Here” using Kickstarter, a crowdfunding platform.

College grads struggling to pay their way out of debt, deferring their own passion projects just to keep up with payments, are now turning to similar platforms. With the rate of student loan delinquencies rising to 11.3 percent in the final quarter of 2014, the number of borrowers rising 92 percent in the last ten years, and the average student loan balance up 74 percent, relief, in whatever form it takes, is welcome.

While policy makers argue over the sustainability of the current model of higher education, graduates are taking matters into their own hands, implementing new strategies to avoid default and the negative consequences that follow.

Understanding Crowdfunding

Crowdfunding is the practice of financing a project or cause through contributions, often small, from a large number of people. Typically, funds are raised through online platforms, giving individuals the opportunity to reach a wide audience and connect with those beyond their immediate network. While crowdfunding initially gained popularity funding entrepreneurial and artistic endeavors, offshoots have come to specialize in backing everything from charitable causes to personal goals to education.

Crowdfunding platforms specific to student loan debt are still fairly new, but the practice of asking for outside assistance in reducing personal education costs is on the rise. GoFundMe, a crowdfunding site that allows individuals to fundraise for various personal causes, reports the number of campaigns specifically mentioning “tuition”, rising 4,547 percent from 2011 to 2014.

It should be noted however, that not all crowdfunding platforms operate using the same model. Just like choosing an investment platform or a bank account, it’s important to fully understand the fine print before signing up.

Popular Crowdfunding Platforms for Student Loan Debt

Piglt, founded in 2012, is a crowdfunding platform specifically for education-related causes, be they on the front end- raising money for schooling costs – or after the fact- tackling student loan debt. At the end of a campaign, money raised goes directly to the loan servicer or educational institution.

Fees: Piglt takes a cut of 5 percent for successful campaigns and 8 percent for those that fall short of funding goals (though individuals raising money for their debt still benefit from whatever is raised, even if they fall short).

Zerobound, founded in 2012, is a crowdfunding platform for student loan debt that operates on a barter-like system. Individuals volunteer their skills and education in exchange for payment assistance from organizations and sponsors to tackle their loan balances.

Fees: In addition to the 5 percent cut Zerobound takes on successful campaigns and the 8 percent they take on those that fall short, their payment processor, Stripe, takes an additional 0.29 percent processing fee and a 0.30 fee on all transactions.

GoFundMe, founded in 2010, is a general crowdfunding site, but immensely popular in funding personal education costs. The site reports that in 2014, it hosted almost 107,000 education-related campaigns grossing more than $13 million.

Fees: GoFundMe charges a fee of 7.9 percent and 0.30 per donation.

Successfully Crowdfunding Student Loan Debt

After choosing a platform and launching a campaign, grads should be prepared to follow up with marketing and outreach efforts to build interest and circulate their campaign page beyond their immediate circles of friends and family.

Only 44 percent of all campaigns created through Kickstarter, one of the top crowdfunding sites, get fully funded. To enjoy the benefit of a successful campaign, grads can implement the following strategies.

Develop a Platform

Create an online presence beyond your campaign page. A blog, videos or hashtag associated with your fundraising efforts can draw increased interest, engaging the community and increasing your chances of getting funded.

Set a Realistic Goal

It might seem counterintuitive, but if you’re goal seems too far out of reach, people may be less inclined to contribute. Having a strong support group of core donors ready to give in the first week of the campaign can illustrate early success, breeding subsequent success.

Follow Up

Consistency is key. Track progress of the campaign and share updates often. The more reason you give people to return to your page, the more chances you get to have them contribute while they’re there.

Create a Sense of Urgency

Too long a timeline will give people an excuse to hold off on contributing, which too often results in not contributing at all. Limit your campaign to four to six weeks.

Crowdfunding for Good

Whatever your opinions on crowdfunding, it is an attractive alternative to twenty years of interest bearing student loan payments. Not only does crowdfunding student loan debt give grads the opportunity to start their careers in a better place, it gives community members a chance to give back to the causes and individuals they believe in too.

Not everyone may be on board with crowdfunding just yet, but using generosity and community support to help grads escape student debt certainly seems more practical than other gifting traditions… like bridal registries.

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Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

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Stefanie O'Connell |

Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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College Students and Recent Grads, Life Events

The Danger in Outsourcing Your Finances

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.

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Businessman Holding Document At Desk

Miles Teller, the 28-year-old star of the 2014 hit movie “Whiplash”, has a net worth estimated around $2 million. With two major franchise films in the works for 2015, there doesn’t appear to be any imminent threat to the young star’s cash flow. And yet, in a recent interview with Vulture, Teller admits to not having paid off his NYU student loans. His reasoning- “My business manager says the interest is so low, there’s no sense in paying them off.”

While investing in place of debt payoff may make sense when investment returns beat out interest payments, I wonder whether Teller has seen the statements verifying such returns. According to the U.S. Department of Education, a direct unsubsidized loan taken out between 2006-2013 runs at 6.8 percent interest. With the market performance of the last few years, a return greater than 6.8 percent is actually quite feasible, but is it sustainable and perhaps, more importantly- is Teller asking himself these questions?

The people we trust with our money, “business managers” or otherwise, may not necessarily have our best interests at heart. In the case of Teller, his manager may get a commission on investments, making them a more attractive option for him personally than debt pay off, regardless of the relative costs and returns for Teller.

Money managers, advisors, websites, banks, etc., all stand to benefit from the choices we make with our finances. While we’ll ultimately choose someone to store, grow and help manage our funds- never should we surrender complete control of our finances or agree to a strategy with blind trust.

How to Use and Choose a Financial Planner

Not only should you look for a financial planner whose expertise align with your unique needs and goals, you should also look into their background, know their standards of compliance and understand their fee structure.

Background Check. Verify the credentials of your advisor and check for a clean compliance background with the Financial Industry Regulatory Authority (FINRA) or the Securities and Exchange Commission (SEC).

Standard. Ask what standard of compliance your prospective financial professional adheres to- fiduciary or suitability? Advisors under the fiduciary standard are legally bound to do what’s best for you, putting you first in their planning and selection of strategy. Planners who use the suitability standard are required to provide “suitable” financial solutions, but not necessarily those that are best.

Fee Structure. Know which fee structure your planner is using. Commission-based advisors get paid when buying or selling a stock or other form of investment on behalf of a client. These advisors may have a bias as they profit from advising you to choose particular products. Fee-based planners only make money when you pay them for their counsel- they don’t get a cut from fund companies or insurers.

Ultimately, your financial advisor should be a tool in your money management arsenal- a source of information and sounding board for insight, not the sole, unchecked manager of all your assets.

How to Choose Financial Products 

Like financial advisors, not all financial products are created equally. Take the time to shop around before handing all your valuable personal information over to any financial services company. According to the FINRA Investor Education Foundation’s National Survey, nearly two-thirds of all credit card holders reported that they did not compare offers to find the best rates or conditions. This kind of comparison and examination of the fine print however is essential to finding the best financial products to fulfill your needs.

Where to Compare. Marketing material, even third party websites often have a bias when recommending products as they stand to benefit from you choosing one product or service over another. Use tools like those at MagnifyMoney that aggregate information- yields, terms, costs, etc.- on various financial products without bias.

How to Read Fine Print. Neutral review sites can help distill the most important fine print points into an easily digestible format. It also helps to know what fine print you should be looking for- fees, conditions, flexibility, risks, etc.

Beef Up Your Own Knowledge 

Finally, don’t forget to foster your own financial education. By understanding the basics of financial fundamentals- credit, debt, savings, and investments- you’ll know which questions are important to ask when making financial decisions.

If you find yourself making justifications or explanations of your financial strategy along the lines of , “My business manager (or advisor or banker) says….”, it’s probably a sign that you’ve outsourced too many of your financial interests.

At the end of the day, you and you alone have the most to gain or lose from your personal finances. While seeking the help of a professional may seem like the responsible thing to do, having a basic understanding of personal finance and wealth management principles can help you better choose the people and products with your best interests at heart and oversee their performance.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Stefanie O
Stefanie O'Connell |

Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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Balance Transfer, Pay Down My Debt, Reviews

Santander Bravo® Credit Card Balance Transfer Review

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.

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Enjoy a long introductory rate of zero percent APR on balance transfers for the first 18 billing cycles with the Santander Bravo® Credit Card. If you’re looking to buy some time to pay off your high interest debt, transferring the balance to the Santander Bravo® Credit Card can give you an extra year and a half to pay it off without accruing interest- all for a nominal 3 percent (or $10 minimum) fee.

In addition to the attractive introductory APR, the Santander Bravo® Credit Card also comes with rewards- offering 3 percent cash back on gas, groceries, and restaurants on up to $5,000 worth of qualified purchases each quarter. Unlike other rewards cards, you don’t have to keep track of rotating cash back categories to enjoy the high reward rate. With gas, grocery, and restaurant spending always earning 3 points for every $1 spent (up to the $5,000 cap), and all other purchases rewarded with 1 point per dollar spent, this card offers a convenient way to leverage your day to day spending while also paying down your existing debt.

Santander Bravo® Credit Card Pros

  • Get 0% intro APR for 18 months on balance transfers.
  • Enjoy a top rewards rate on gas, groceries, and restaurants with simple redemption and no expiration dates.
  • Bonus offer: Earn $100 cash back via statement credit after you spend $1,000 on new net retail purchases in your first 90 days of opening your account.
  • World MasterCard perks: travel benefits and concierge services.
  • Price protection and extended warranty coverage.

However, we don’t encourage you to be spending on your balance transfer card. It’s best to transfer the balance and then lock it away until you’ve paid down as much of the debt as possible.

Santander Bravo® Credit Card Cons

  • $49 annual fee (waived for the first year).
  • Balance transfer fee: 3 percent (minimum of $10).
  • Foreign transaction fee: 3 percent.
  • Caps on bonus cash back- 15,000 points per quarter.

What Do I Need To Qualify?

  • Excellent credit required.

Who Is It Best For?

The Santander Bravo® Credit Card is best for those with a strong credit history looking to buy some extra time to fulfill their consumer debt obligations. While the zero percent intro APR period lasts for a full 18 months, the annual fee of $49 is only waived for the first year. If you can’t get your debt paid off before the 12-month mark, sticking with the card through the $49 fee may not be worthwhile.

Take a look at your balance and make an assessment of your estimated debt pay off timeline, the potential savings, and the potential costs. The rewards of the Santander Bravo® Credit Card can provide some additional allure, but staying focused on the primary objective of reducing amounts owed can help ensure that value assessments remain objective and grounded in the ultimate goal of getting to zero balance.

[Use our debt repayment calculator.]

Looking Out for the Fine Print

  • Balance transfers at Santander must be completed within the first 90 days to benefit from the 18 month zero percent APR offer.
  • The balance transfer fee is 3 percent (or a minimum of $10).
  • After the introductory 0 percent APR period, purchases are subject to a variable APR based on creditworthiness.
  • There is a penalty APR
  • There is no grace period on balance transfers, so if you take the balance transfer offer and fail to pay the balance in full by the payment due date, you will have to pay interest on new purchases from the date of purchase.
  • Cash advance fee: 5 percent ($10 minimum).
  • Foreign transaction fee: 3 percent.
  • Annual fee: $49 (waived for the first year). You can continue to waive the annual fee after the first year by maintaining a Santander Select Checking account. Note that this checking account comes with its own set of fine print fees.

How It Compares to the Competition

While 18 months to benefit from the intro 0 percent APR is a long time to enjoy interest free debt payoff, the annual fee that kicks in at the 12 month mark and a balance transfer fee of 3 percent are reason alone to consider fee free alternatives to the Santander Bravo® Credit Card.

Chase Slate® has an excellent balance transfer offer. You can save with a $0 introductory balance transfer fee for transfers made within the first 60 days of account opening and get 0% introductory APR for 15 months on purchases and balance transfers, and $0 annual fee. Plus, receive your Monthly FICO® Score and Credit Dashboard for free.

Chase Slate<sup>®</sup>

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If you want to stay with Santander or prefer the flexibility of a longer interest free debt payoff period, consider the Santander Sphere® credit card. There is no annual fee charged to benefit from the Santander Sphere®’s 0% intro APR on balance transfers for a lengthy 24 billing cycles.

Sphere® Credit Card from Santander

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on Santander’s secure website

An introductory balance transfer offer paired with a decent rewards program is admittedly hard to come by, but when trying to buy time to get to zero balance, your focus should remain on that top priority. Don’t get stuck paying for the privilege of additional spending rewards when what you really need is to be from debt. With that objective in mind, the Santander Bravo® Credit Card may not be your best option.

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Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Stefanie O
Stefanie O'Connell |

Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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Balance Transfer, Pay Down My Debt, Reviews

Citi Diamond Preferred Balance Transfer Review

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.

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A balance transfer is an excellent way to begin digging out of high-interest credit card debt, as long as you can use it responsibly. These deals should only be utilized if you’re going to be aggressively paying off existing debt and not charging new purchases to the card.

The Offer

The Citi® Diamond Preferred® card intro balance transfer offer is 0% interest for 21 months. It comes with a balance transfer fee of 3 percent (or $ 5 minimum), whichever is greater.

Pros

  • No Annual Fee
  • 0% intro APR for 21 months: The long zero percent introductory APR period paired with no annual fee is by far the biggest selling point of the Citi® Diamond Preferred® card. Without the power of compounding interest working against you, getting your principal debt balance down becomes much more manageable.
  • The card also comes with Citi® Identity Theft Solutions, which offers protection from fraud with zero liability on any unauthorized purchases.

Cons

  • Balance Transfer Fee: But before you discount this offer due to the fee, do the math. Often times you’ll still end up saving hundreds or thousands even with a balance transfer fee.
  • Limited Rewards Program: The additional perks associated with the Citi® Diamond Preferred® card are limited. The primary purpose of the card however is to utilize the promotional intro rate to save on interest, not to cash in on extras.
  • Foreign Transaction Fee: Use your Citi® Diamond Preferred® card outside the US and you’ll get hit with a hefty three percent fee on every purchase.

What Do I Need to Qualify?

First, you need to be rolling your existing credit card debt from a non-Citi card. This option is not eligible for people who already have debt with a Citibank credit card.

In general, people with credit scores of 700 or higher stand the best chance of being approved for a credit card. There are other factors that go into the decision-making process, so a 700 score or higher doesn’t guarantee you a spot. However, you can check to see if you’re pre-qualified for Citi cards to minimize your chance of rejection. You can do this without affecting your credit score by going to this site.

Who is it best for?

If you’re currently carrying debt on cards with high APRs or if your introductory zero percent rate is about to expire, the Citi® Diamond Preferred® card can provide a solution for extended interest free debt repayment.

Looking Out for the Fine Print 

  • 3 percent fee (or $5 minimum) on balance transfers, whichever is greater
  • Balance transfers must be completed within 4 months of account opening to benefit from intro APR promo
  • 29.99 percent variable penalty APR
  • Late/ Returned Payment Fee: Up to $35
  • Cash Advance Rate: Up to 26.24% (variable)
  • Cash Advance Fee: 5% ($10 minimum) whichever is greater

Cardholders should note that late, missed, or returned payments, even in the introductory promotional period, can result in a variable penalty APR of up to 29.99 percent effective immediately. In other words, one payment error can cost you to lose the promotional rate and stick you with a high APR indefinitely.

This penalty policy is not unique to the Citi® Diamond Preferred® card. Late and missed payments should be avoided regardless of which credit tool you utilize as the consequences are expensive and cost you the entire benefit of the introductory promotional APR you signed up for in the first place. On top of all of that, late and returned payments are subject to fees of up to $35. Pay on time and in full to avoid those high costs.

The grace period on the Citi® Diamond Preferred® card is 23 days – even after the intro APR expires; that means you have 23 days to pay down your balance to avoid accruing any interest. The only exceptions to the grace period are balances transfers performed after the first four months of account opening and cash advances, which begin accruing interest from the date of the transaction. The variable APR for cash advances is currently 26.24 percent.

In addition to higher APR, cash advances are subject to a fee of either $10 or 5 percent of the cash advance, whichever is greater. Balance transfer fees are $5 or 3 percent of each transfer, depending on which is greater; and foreign transaction fees come in at 3 percent of each purchase transaction (in US dollars).

Citi® Diamond Preferred® Card

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How it Compares to the Competition

While a 21-month intro period is appealing, a three percent balance transfer fee on a large amount of debt can present a significant cost. If you were to roll over $10,000, you’d pay a $300 fee. Keep in mind, if you left $10,000 on a card at a 15 percent and paid $300 a month, it would cost you $3,016 in interest alone and it would take 44 months to pay off.

Put $10,000 at a balance transfer card at 0 percent for 21 months with a 3 percent fee, and you’d only pay $614 in interest and fees. The debt would be paid off in 36 months.

[Use this calculator to compare your options.]

 

If you’re on the other end of the spectrum and would prefer a longer promo period, consider the Santander Sphere® card. While the balance transfer fee is a higher 4 percent, the zero percent APR lasts for a full two years.

Sphere® Credit Card from Santander

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Citi Diamond is Competitive, But Not the Best Offer

The Citi® Diamond Preferred® card presents a low cost solution for those looking to pay down debt in a 21-month time frame. The rewards are limited and fees on foreign transactions and cash advances are less than ideal, but for the primary purpose of the card, paying down debt without crushing interest, the Citi® Diamond Preferred® card offers a good deal with a long, leisurely time frame.

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Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Stefanie O
Stefanie O'Connell |

Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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Eliminating Fees, Reviews

Bank5 Connect High-Interest Checking Review

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.

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When I initially signed onto Bank5 Connect to check out account options, I was met with a pleasant surprise. In big bold font right next to “High-Interest Checking” was a nice number- 0.76 percent APY. I figured I must’ve been reading it wrong. An interest rate of 0.76 percent seemed like an impossibly good deal. Surely there had to be a catch.

CheckingBut Bank5 Connect’s High-Interest Checking holds up to its advertisement. The only requirement is to keep a $100 balance, but no stress if you fall below that amount – with no minimum balance requirements or sneaky fees, Bank5 Connect High-Interest Checking is a safe bet.

Like other online only banks Bank5 Connect doesn’t have to shoulder the expense of pricey real estate, live teller salaries, and other brick and mortar banking expenses – which means more savings and perks passed on to you, the user.

You can open a High-Interest Checking account through the Bank5 Connect website or by calling the customer service number, 1-855-522-2655. The minimum opening deposit requirement is just $10 and can be funded through an online transfer from an external checking account, direct deposit, mobile deposit, check, or credit card.

Pros

Though you need $10 to open account you will not be penalized if your balance falls below. Bank5 Connect’s High-Interest Checking is among the top fee-free accounts.

  • No monthly maintenance fee
  • No fees at domestic SUM Network ATMs
  • Reimbursement up to $15 for out of network ATM fees
  • No minimum balance requirements
  • No early closure fee
  • Free first order of checks
  • Free cashiers checks
  • Free incoming wires

The account also comes with a debit card with a sweet perk of its own- a debit rewards program. Earn 1 point for every $2 spent using Bank5’s UChoose debit card and redeem points for various items online- vacation packages, gift cards, electronics, etc. The daily purchase limit on the card is $1,000.

Finally, the Bank5 Connect High-Interest Checking account comes with all the staples of online banking convenience- online bill pay, e-statements, e-check deposit, mobile banking, and quick person-to-person payment options.

Bank5 Connect also earned an “A” Transparency Score for creating a simple product with partial ATM reimbursement, disclosure of fees, no minimum requirements and real overdraft protection.

Cons

While you can avoid ATM charges by using your UChoose debit card at any ATM within the SUM Network, you are responsible for fees charged by ATMs outside that network should you exceed the $15 monthly fee reimbursement allowance. The bonus reimbursement ATM coverage is also limited to domestic ATMs. Travel internationally and you’ll be on the hook for all fees.

In addition to checking, Bank5 Connect offers a savings account that can be linked for free overdraft protection. If you find yourself in a position of non-sufficient funds however, you’ll be responsible for the $15 overdraft fee.

High interest and low fees make Bank5 Connect’s High-Interest checking account a top option. Thanks to those features, it is consistently ranked among the best accounts. But further research into the customer experience suggests reason for concern.

Despite an absence of physical branches, many online only banks have exceptionally high rated customer service. I had a hard time finding similarly complimentary reviews of Bank5 Connect, so I called in to customer service to check it out for myself.

While the wait time was minimal, my representative wasn’t particularly well informed. She had a hard time recounting some of the most basic account features I had been reading about online. Her responses to my questions were so dubious and unsure that I actually called back later with the hope of being connected to a more authoritative source. My second representative proved a better experience, but I can still see why Bank5 Connect might not be winning a people’s choice award winner any time soon.

Bank5 Connect High Yield Checking vs. Simple

Though the interest rate on Bank5 Connect’s High Yield Checking Account blows Simple’s out of the water (with Simple coming in at a weak 0.01 percent), Simple has the top-notch money management tools and excellent customer service representatives noticeably absent at Bank5 Connect. Where Simple provides a user-friendly experience, Bank5 Connect provides yield. Both options are first-rate on the debatably most important checking account features though- freedom from fees and transparency.

Bank5 Connect High Yield Checking vs. Ally Bank Checking

Ally Bank is another online only option boasting low fees. Interest rates on checking start at 0.10 percent, an improvement from those at Simple but a far cry from those at Bank5 Connect. For users with a balance greater than $15,000, the rate jumps to 0.60 percent, but that’s a pretty major requirement considering the small $100 balance required at Bank5 Connect.

Ally customer service is also well rated. Though Ally’s money management tools are not as comprehensive as Simple’s, for basic checking account needs, Ally is consistently a top contender in ratings and customer reviews.

Should You Use Bank5 Connect High Yield Checking?

A minimal fee structure paired with shockingly high interest makes Bank5 Connect High Yield Checking an option worth considering, but I would recommend taking customer service for a test run before singing up. Even when you bank online, you need to feel secure in where and with whom you leave your money.

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Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Stefanie O
Stefanie O'Connell |

Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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Life Events, Strategies to Save

How to Pay Quarterly Estimated Taxes as a Freelancer

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.

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Tax return check

Transitioning to self-employment and a full-time freelance workload has been liberating. No more rushed mornings or pushing through crowds on the AM commute. I leisurely roll out of bed, brew my coffee, and sit down at my desk- slowly waking up as I browse through the top stories of the day.

As much as I love the perks of working on my own terms, self-employment doesn’t come without its own set of headaches. Not only am I responsible for the projects I’ve been hired to complete, I’m also my own support system – marketing, HR, and accounting all rolled into one. That means keeping track of folders full of contracts, updating spreadsheets with invoices and payments, and of course, taking care of my own tax liability.

Employee vs. Independent Contractor

Employees have the luxury of having their taxes automatically withheld from their paychecks. As sad as it is to see $1,000 gross dwindle down to around $700 in take home pay, at least it’s done. As long as all of your income comes from W2 work, you’re pretty much free from having to stress over your taxes – beyond filing your return each year.

As an independent contractor or someone who is self-employed however, you don’t have the luxury of that same kind of hands-off, once a year approach. As great as it is to bill someone for a $1,000 and actually get the full $1,000, it’s kind of a tease. You’re still responsible for paying taxes on that income, but you’re the one who has to set it aside and make the requisite contributions. This is what’s called Estimated Taxes, and it is due each quarter.

Do You Owe Estimated Taxes?

Even if you get paid a consistent, regular income, if you are not an employee (and if you didn’t fill out a W-4, you’re probably not), you must take responsibility for your own tax payments. If you’re working under a 1099-MISC, if you get cash from one-time gigs like babysitting, if you side hustle online, if you get prize money from a game show, if you receive investment gains- pretty much any income that doesn’t already have taxes taken out becomes part of your quarterly estimated tax responsibility.

If you owe more than $1,000 and fail to file quarterly, the IRS can hit you with penalties and interest. Waiting to cover your annual tax liability in one lump sum can also present other challenges, like not having enough to cover your total amount owed. Know what your quarterly responsibilities are and stay on top of them to avoid a real IRS headache.

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Quarterly Tax Deadlines 

For income received January 1st through March 31st, estimated tax is due April 15th.

For income received April 1st through May 31st, estimated tax is due June 15th.

For income received June 1st through August 31st, estimated tax is due September 15th.

For income received September 1st through December 31st, estimated tax is due January 15th.

How Much Should You Pay?

Calculating your quarterly estimated taxes means figuring out your expected adjusted gross income, taxable income, deductions, and credits for the year. The more organized you are, the easier this will be. Keeping separate spreadsheets, even separate accounts and credit cards for all business and freelance income and expenses can simplify the process when it comes time to file.

Form 1040-ES. The Form 1040-ES, used to pay estimated taxes, can also help in calculating your quarterly estimated payments. The form includes a worksheet to give you a clear picture of how much you owe.

Use Historical Reference Points. If you’ve been running your own business for a while, you can also reference your tax returns from previous years to estimate projected income and deductions for the current year and your respective tax liability.

What Forms Do You Need?

Unfortunately, paying your quarterly estimated taxes isn’t as simple as a few clicks on Venmo or a swipe of your credit card. You’ll need to send in a Form 1040-ES, which includes quarterly payment vouchers to accompany your payment. In addition to estimated federal taxes, you’ll also need to pay your quarterly estimated state income taxes, getting the appropriate forms from your states’ tax office. 

Storing Your Temporary Savings

Once you get a handle on the basics- filing deadlines, forms needed, and organizational systems to help you streamline the process – the biggest challenge in self – employment taxes becomes separating and saving your quarterly payments.

It’s far too easy to dip into what should be your designated tax payment if you leave all your earnings sitting in a checking account. Set up a system of transferring a portion of each paycheck into a high yield, no fee savings account. That way the money is accessible when you need it come quarterly tax time, but not so accessible that you spend it all before fulfilling your tax liability.

Check out MagnifyMoney’s savings account comparison tool to find an account with solid returns and low/no fees, maximizing your money for every penny it’s worth before turning over whatever you owe to Uncle Sam.

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Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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Life Events, Mortgage, Pay Down My Debt

Why You Can’t Afford a 3% Down Payment Mortgage

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.

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Purchase agreement for house

The closer I get to thirty, the more I fantasize of the trappings associated with the stereotypical “American Dream”- the husband, the 2.6 children, and the house with the white picket fence. My late 20s wanderlust is still alive and well, but the idea of putting my roots down and calling my own place home is becoming increasingly attractive. I find myself perusing the New York Times real estate section or Zillow at least once a week, identifying the features of my dream home.

My financial reality however, dictates that my dream home will in fact remain a dream for quite some time – not just my dream home, any home. The cost of a down payment is prohibitively expensive- even modest living quarters go for around half a million in my neighborhoods of choice. With a twenty percent down payment, that’s an upfront investment of 100k- not to mention taxes, closing costs, etc. Even if I could afford the mortgage and monthly maintenance fees, the down payment remains a major barrier to home ownership.

Lenders Fannie May and Freddie Mac have recognized this barrier for low-income and first-time homebuyers and have put in place programs to open up lending by reducing the upfront investment required. The mortgage giants have announced that they will back mortgages with down payments as little as three percent of the home’s price. The programs are for fixed-rate loans for first-time homebuyers and those looking to refinance their primary residence- they come with several conditions.

  • Borrowers must buy Private Mortgage Insurance.
  • Borrowers must have a credit score of at least 620.
  • Borrowers must provide documentation of income, assets, and job status.
  • Borrowers must receive home ownership counseling.

Fannie Mae and Freddie Mac aren’t the first lenders to adopt this kind of program. The Federal Housing Administration also issues mortgages with down payments as low as 3.5 percent. At that rate, my hypothetical 500k home down payment goes from a prohibitive 100k to a totally reasonable 17.5k.

While all of this sounds like great news for buyers like myself who’d like to own but don’t have the cash for a large up front investment, there are reason to be wary.

  • Small down payments can leave borrowers at more risk of owing more on their mortgage than the property is worth should home values in the market decline. Sound familiar?
  • Borrowers will likely incur higher costs over the life of the loan from higher interest rates and mortgage insurance.

A 3% down payment mortgage (or any other low down payment mortgage) is more likely to default than one with a large down payment- that means more risk for lenders and translates into higher costs for borrowers. The Private Mortgage Insurance (PMI) that comes with these low down payment loans protects lenders when borrowers default on their mortgages- but it’s not the lenders who pay for it, it’s you, the borrower.

Mortgage insurance premiums typically range from $250 to $1,200 per year. The programs from Fannie Mae and Freddie Mac require you to continue paying that premium until you gain 20 percent equity in your home – with a three percent down payment, that could take years.

To put it into perspective, if a couple owning a $250,000 home were to take the $208 per month they were spending on PMI and invest it in a mutual fund that earned an 8 percent annual compounded rate of return, that money would grow to $37,707 in 10 years. Money that goes to PMI doesn’t grow or help build equity – once it’s gone it’s gone.

You can avoid paying PMI by not taking on low down payment loans. Yes, there’s a larger upfront investment required, but over the life of the loan, the total costs are far fewer with a large initial deposit. It’s not just PMI either. Putting down such a small amount usually means a paying a higher interest rate in general. Over the course of a 15- or 30-year mortgage, that can mean paying thousands of additional dollars.

Even fractions of percentage point tacked onto an interest rate can raise overall costs significantly. For instance, a $200,000 30-year fixed-rate mortgage with an interest rate of 7 percent would cost you $1,330.60 per month – $279,017.80 in interest over the life of the loan. At 7.5 percent interest, the monthly payment on that same loan would be $1,398.43, coming to a total of $303,434.45 paid in interest over the life of the loan. That’s an extra $25,000 for half a percentage point. Putting more down gives you more leverage to negotiate a better interest rate with lenders- don’t discount the difference of a fraction of a percentage point.

Less money down doesn’t mean you’re getting a good deal. It might mean an easier time coming up with a down payment, but with PMI and higher interest, that temporary ease can cost you far more than it’s worth over the long haul, not to mention the increased risk of getting stuck with an underwater mortgage.

While I can certainly afford a 3% down payment mortgage today, I can’t afford the higher cost implications over the next thirty years. Instead I’ll continue paying my cost effective rent while I save up the twenty percent down payment for my “American Dream” home.

Our FREE debt guide can help you dig out of debt and put more money towards a home. 

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Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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Eliminating Fees

Best Bank Accounts for Foreign Travel & Expats

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Best Bank Accounts for Foreign Travel & Expats

My sister is studying abroad in New Zealand this semester, and yes, I am totally jealous. A few weeks before she left, our entire family was running around like chickens with their heads cut off trying to make sure everything was in place for her departure- passport, visa, international phone, and my responsibility- appropriate bank accounts and financial tools for her time away.

Not only do I write about money for a living, I’ve spent my fair share of time traveling and working around the world- most notably on a cruise ship around South America and prior to that, touring through Asia for seven months. If only I’d known then what I know now about accessing basic financial services internationally, I’d have saved myself a whole lot of cash on simple things like accessing my own money.

My sister is lucky enough to have the benefit of my experience (and mistakes) to avoid any unnecessary headaches that could potentially arise from minor financial details, allowing her to enjoy her international journey without stressing over mundane money realities.

Banking abroad can be simple and affordable if you know before you go and prepare properly with these steps.

Use the Right Bank

Some checking accounts and debit cards are better suited toward international travel than others. The best way to get your hands on local currency abroad is not through currency exchange companies- that while convenient, charge huge transaction fees and inflated exchange rates- but through ATMs.

While ATMs are known for giving the best exchange rates, they can also come with hefty fees if you don’t use the right bank. Chase for example, charges a $5 withdrawal fee at ATMs outside the U.S. That’s a high price to pay for accessing your own money.

Some alternatives allow you to avoid international ATM fees, regardless of which ATM you use.

The Global ATM Alliance also provides an affordable cash access alternative. The alliance is a group of major international banks that allows customers to use their debit card at another bank within the alliance with no international withdrawal fees. Members include:

  • Bank of America (USA)
  • Barclays (UK)
  • BNP Paribas (France)
  • BNL (Italy)
  • UkrSibbank (Ukraine)
  • TEB (Turkey)
  • Scotiabank (Canada, Peru, Chile, and the Caribbean)
  • Deutsche Bank (Germany and Spain)
  • Westpac (Australia and New Zealand)

Other fees- like an international transaction or currency exchange fees- might still apply though.

Research your options and put appropriate accounts in place before leaving. Again, you’ll want to notify your bank of all your travel dates and locales prior to departure.

Set Up Online Access

Before leaving, make sure you’ve set up online access to whatever accounts and bills you’ll need to maintain or access abroad. You don’t want to hassle over basic set up or linking appropriate accounts when you’re already on the road. Have systems in place so that payments can be made quickly, easily, and hassle-free. Designating a trusted parent or sibling equipped with your passwords to serve as a back up stateside financial monitor can give you additional piece of mind should secure internet access prove more difficult than originally anticipated during your travels.

Get the Right Credit Card

I know a lot of college students are being introduced to credit for the first time, and throwing traveling abroad into the mix can make things even more complicated. Credit cards are a great resource to have though- not only for day-to-day purchases, but also as valuable “in case of emergency” tools and added layers of fraud protection when making purchases.

While roughly 90 percent of credit cards charge foreign transaction fees there are some fee free alternatives. Not having to pay an additional two to four percent per purchase can save you quite a bit over the course of a semester. Notable fee free options include:

As soon as you’ve committed to dates for your semester abroad, start researching credit options. If, as a student, your credit profile is thin or your score is low, you may have trouble qualifying for cards that carry perks like free foreign transactions. I added my sister as an authorized user on my credit card so that she could enjoy the benefits of my good credit history during her time abroad. Don’t worry, I laid out the ground rules before she left and I can monitor all her purchases should spending start getting out of control.

Regardless of what card you choose, be sure to notify your credit card company of the locations and dates of your travel. You don’t want your card to be flagged and deactivated, leaving you financially stranded.

Exchange Emergency Currency Prior to Departure

Banks don’t always have the best exchange rates, but changing over some money at your local branch prior to your international departure can be helpful in case of an emergency situation or snafu upon arrival in your host country.

When I traveled to Germany last year, I went directly to the airport ATM to withdraw some Euros. The ATM wasn’t accepting my debit card so I had to use my credit card to take out a cash advance. It cost me $35 in fees just to get enough cash out for a cab ride to another ATM outside the airport. Save yourself from last minute financial stress and fees by having local currency already on your person when you land.

Dealing with a different form of currency, ever changing exchange rates, and long lists of potential fees can be a bit overwhelming at first. Do your research well in advance of your departure to make sure your money is easily accessible in the country of your study while minimizing any fees from the banks and credit card companies. If you can set up all the appropriate accounts before your trip, you can enjoy the life of the Kiwis or the history of Europe or the culture of South America without stressing over banal money needs- like how you’re going to pay for your newly assigned textbook or that skydive you’ve been talking about with your new international friends.

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Stefanie O
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Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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Strategies to Save

Millennials Are Already Asking: Can I Ever Retire?

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Senior Couple Talking To Financial Advisor At Home

My parents are baby boomers. Like many in their generation, their financial confidence and retirement savings were shaken by the 2008 recession – leaving them now in their mid-sixties asking, “Can I ever retire?”

It seems funny that I, 35 years younger and just starting out in my career should be asking myself the same question. But years of scraping by on an actor’s salary with barely enough to cover basic living expenses, let alone fund long term savings, has made me question the sustainability of my financial life, both short and long-term.

A Worried Generation

It turns out I’m not alone in my financial insecurities. The entire millennial generation seems to be facing a retirement “crisis”, even from forty years away. The issue isn’t necessarily one of poor planning, so much as it is bad timing.

I graduated college in May of 2008. At the time, I celebrated the possibilities and potential of life post-grad in the prosperous “real world”. By the end of that year however, the outlook couldn’t have been more bleak.

While the 2050s, my target retirement years, were a far cry away from 2008, the effect of the recession and the subsequent years of slow economic growth and lagging job market recovery had a lasting impact.

The Ramifications of the Employment Struggle

According to researchers, college students who graduate into a weak labor market can see their job opportunities and earnings affected for 10 to 15 years. Yale University’s Joseph Altonji found that graduating into a high unemployment economy translates to a roughly 1.8 percent earnings loss per year over the span of a decade. And graduates in fields that pay less than average can see income losses of 50 percent larger than average- that’s if they’re lucky enough to have a job in the first place. As of December 2014, the unemployment rate for 18- to 34- year olds was 7.9 percent as compared with 5.6 percent for the economy as a whole.

Couple all this millennial un- and under-employment with record student debt levels and it starts to become clear how 20 and 30-somethings may be facing retirement challenges far greater than boomers and Gen X-ers.

How Debt Impacts Retirement

The Project on Student Debt found that the average debt load carried by 2013 graduates of four-year nonprofit colleges was $28,400. It’s understandable why millennials feel they have too much debt to save for retirement. With millennials spending the entirety of their 20s, if not longer, paying off student loans, they miss out on the most important decade of retirement savings.

This investment in higher education hasn’t necessarily provided a better return on investment either. According to a 2013 study by the Center for College Affordability and Productivity, nearly half of workers with college degrees were working in jobs that didn’t even require a college education. That means millennials are carrying around record debt loads while working low paying jobs, many without access to employer-sponsored retirement plans.

I know many of my fellow 2008 graduates are now going on 30 without ever having had access to a 401(k). Employer sponsored pensions are already becoming a thing of the past and the future of social security is far from certain. Without reliable access to stable, long-term careers, retirement planning is becoming an entirely self-driven endeavor for many millennials – a daunting task for those without any formal financial education, which according to a February 2014 poll by TD bank, is 69 percent.

While financial illiteracy might not be unique to millennials, this new reality of independent retirement planning is. Millennials are required to make more financial decisions on their own and they are not prepared to handle them.

How to Handle Your Own Retirement Fund

The good news is relevant financial information and resources are more accessible to individuals than ever. While many millennials may have missed out on early years of retirement savings because of low paying jobs and student loan debt, as 20- and early 30-somethings, time is still on their side.

According to a Wells Fargo survey, 80 percent of millennials said the Great Recession taught them the importance of saving and being prepared for economic problems down the road. The 15th Annual Transamerica Retirement Survey found that 74 percent of millennials are starting to save for retirement at an unprecedented median age of 22, 5 years sooner than gen Xers and 13 years sooner than baby boomers.

Even I, in my uncertain career path and limited earnings have taken responsibility for my future by putting my own retirement accounts into place. I was 24 when I read my first money book, “Investing for Dummies.” By the end of the year I had opened a ROTH IRA and committed to contributing a percentage of each paycheck to my future, regardless of how my income fluctuated. When you make retirement as non-negotiable as food and housing, you no longer rely on an employer or government benefits or a possible future raise to take care of you or serve as a catalyst to save.

That personal responsibility coupled with another 30 to 40 years of time on my side will hopefully result in a resounding “yes” when it comes time to ask myself if I can afford to retire.

 

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Stefanie O
Stefanie O'Connell |

Stefanie O'Connell is a writer at MagnifyMoney. You can email Stefanie at stefani@magnifymoney.com

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