The Complete Guide to Prioritizing Bills During a Financial Crunch

Young woman stares at bills worriedly with head in handsOur vibrant, animated country has been put on pause. Busy thoroughfares are now empty of pedestrians and previously crowded malls are eerily vacant, as millions of Americans shelter in place to slow the spread of the coronavirus. Forced leave of work has left many wondering if and when they’ll receive their next paycheck.
If you are one of the millions of Americans on furlough, you may be panicking about incoming bills and wondering where you’ll find the money to pay for them all. Let’s take a look at what financial experts are advising now so you can make a responsible, informed decision about your finances going forward.

Triage your bills
Financial expert Clark Howard urges cash-strapped Americans to look at their bills the way medical personnel view incoming patients during an emergency.

“In medicine it’s called triage,” Howard says. “It’s exactly what’s happening in the hospitals right now as they decide who to treat when or who not to treat. You have to look at your bills the same way. You’ve got to think about what you must have.”

Times of emergency call for unconventional prioritizing. Clark recommends putting your most basic needs, including food and shelter, before any other bills. It’s best to make sure you can feed your family before using your limited resources for loan payments or credit card bills. Similarly, your family needs a place to live; mortgage or rent payments should be next on your list.

Housing costs
It’s one thing to resolve to put your housing needs first and another to actually put that into practice when you’re working with a smaller or no paycheck this month. The good news is that some rules have changed in light of the financial fallout of the pandemic.
On March 18, President Donald Trump announced he’s instructing the Department of Housing and Urban Development (HUD) to immediately halt “all foreclosures and evictions” for 60 days. This means you’ll have a roof over your head for the next two months, no matter what.

Also, in early March, the Federal Housing Finance Agency offered payment forbearance to homeowners affected by COVID-19, allowing them to suspend mortgage payments for up to 12 months. These loans, provided by Freddie Mac and Fannie Mae, account for approximately 66 percent of all home loans in America. The payments will eventually need to be covered. Some lenders allow delayed payments to be tacked onto the end of the home loan’s term, while others collect the sum total of the missed payments when the period of forbearance ends.

Speak to your lender about your options before making a decision. A free pass on your mortgage during the economic shutdown can be a lifesaver for your finances and help free up some of your money for essentials.

If you’re a renter, be open with your landlord.
“Consumers who are the most proactive and say, ‘Here’s where I stand,’ will get a lot better response than those who do nothing,” says Lynnette Khalfani-Cox, CEO of AsktheMoneyCoach.com and author of “Zero Debt.”

Your landlord may be willing to work with you. That’s true whether it means paying partial rent this month and the remainder when you’re back at work, spreading this month’s payment throughout the year, or just paying April’s rent a few weeks late, after the relief funds and unemployment payments from the government begin.

Paying for transportation
When normal life resumes, many employees will need a way to get to work. Missing out on an auto loan payment can mean risking repossession of your vehicle. This should put car payments next on your list of financial priorities. If meeting that monthly payment is impossible right now, communicate with your lender and come up with a plan that is mutually agreeable to both parties.

Household bills
Utility and service bills should be paid on time each month, but for workers on furlough due to the coronavirus pandemic, these expenses may not even make it to their list of priorities.

First, don’t worry about shutoffs. Most states have outlawed utility shutoffs for now.
Second, many providers are willing to work with their clients. Visit the websites of your providers and check to see what kind of relief and financial considerations they’re offering their consumers at this time.

It’s important to note that lots of households receive water service directly from their city or county, and not through a private provider. Many local governments have suspended shutoffs, but be sure to verify if yours has done so before assuming it to be true.

Finally, as with every other bill, it’s best to reach out to your provider and be honest about what you can and cannot pay for at this time.

Unsecured debt
Unsecured debt includes credit cards, personal loans and any other loan that is not tied to a large asset, like a house or vehicle. Howard urges financially struggling Americans to place these loans at the bottom of their list of financial priorities during the pandemic. At the same time, he reminds borrowers that missing out on a monthly loan payment can have a long-term negative impact on a credit score.

Here, too, consumers are advised to communicate with their lenders about their current financial realities. Credit card companies and lenders are often willing to extend payment deadlines, lower the APR on a line of credit or a loan, waive a late fee or occasionally allow consumers to skip a payment without penalty.

Your Turn:
How are you prioritizing your bills during the pandemic? Share your tips with us in the comments.

Learn More:
clark.com
nationalpost.com
consumerfinance.gov
katu.com
businessinsider.com

Overcoming Deptostrofy

MayFeatured2020_OvercomingDepttoTitle: Overcoming Deptostrofy: A Complete Guide to Debt and Loans Management for Free Life Forever and Ever
Author: David Stokes
Publisher: Self-published
Date published: June 24, 2019
Paperback: 73 pages
Average customer review: 5.0 out of 5 stars

Who is this book for?
Anyone carrying outstanding debt
Readers seeking to gain control of their debt
People looking for a way to honestly assess their financial situation

4 things you’ll learn from this book:

  1. How people get stuck carrying debt
  2. How to tell good debt from bad debts
  3. The benefits of money management
  4. How to recognize bad financial advice

5 questions this book will answer for you:

  1. Is there really a way out of deep debt?
  2. What are the different types of debt?
  3. What’s the first step I need to take to pull myself out of debt?
  4. What’s the best way to handle my outstanding loans?
  5. How can I ensure that a financial emergency does not send me back into debt?

What people are saying about this book:

  • “(It’s) really a complete guide to getting out of debt.”
  • “This book is a must-read for anyone who wants to know about loans management.”
  • “This book is so informative, and (it) has strategies I can use right away.”

Your Turn:
Do you believe it is always possible to pull yourself out of debt? Why, or why not? Share your thoughts with us in the comments

Learn More:
amazon.com
bookauthority.org

How Should I Spend My Stimulus Check?

Handwritten budget figures on notepadThe stimulus checks promised in the Coronavirus Aid, Relief and Economic Security (CARES) Act are starting to land in checking accounts and mailboxes around the country. The $1,200 granted to most middle class adults is a welcome relief during these financially trying times.

Many recipients may be wondering: What is the best way to use this money?
To help you determine the most financially responsible course of action to take with your stimulus check, Advantage One Credit Union has compiled a list of advice and tips from financial experts and advisers on how to use this money.

Cover your basic life expenses
First and foremost, make sure you can afford to cover your basic necessities. With millions of Americans out of work and lots of them still waiting for their unemployment insurance to kick in, many people are struggling to put food on their tables. Most financial experts agree that it’s best not to make any long-term plans for stimulus money until you can comfortably cover everyday expenses.

Charlie Bolognino, CFP and owner of Side-by-Side Financial Planning in Plymouth, Minn., says this step may necessitate creating a new budget that fits the times. With unique spending priorities in place, an absent or diminished income and many expenses, like subscriptions and entertainment costs, not being relevant any longer, it can be helpful to reconfigure an existing budget to better suit present needs. As always, basic necessities, such as food and critical bills, should be prioritized.

Build up your emergency fund
If you’ve already got your basic needs covered, start looking at long-term targets for your stimulus money.

“I would immediately place this money in my emergency fund account,” says Jovan Johnson, CEO of Piece of Wealth Planning in Atlanta.

Emergency funds should ideally be robust enough to cover 3-6 months’ worth of living expenses. If you already have an emergency fund, it may have been depleted during the pandemic and need some replenishing. If you don’t yet have an emergency fund, or your fund isn’t large enough to cover several months without a steady income, you may want to use some of the stimulus money to build it up so you have a cushion to fall back on during lean times that are likely to come in the months ahead.

Pay down high-interest debts
According to the Federal Reserve Bank, Americans owed a collective $930 billion in credit card debt during the fourth quarter of 2019. Using some of your stimulus check to pay off high-interest debt would be a great way to get a guaranteed return on the money, says Chris Chen, of Insight Financial Strategists in Newton, Mass.

This advice only applies to credit cards and other private, high-interest loans. The federal government put a 6-month freeze on most student loan debts, so they should not be as high a priority right now.

Boost your savings
If your emergency fund is already full and you’ve made headway on your debt, it can be a good idea to use some of the stimulus money to add to your Advantage One Credit Union savings account. The money in your savings can be used to cover long-term financial goals, such as funding a dream vacation or covering the down payment on a new home.

Consider all your options before choosing how to spend your stimulus money. In all likelihood, this will be a one-time payment received during the pandemic. If you need further assistance, feel free to reach out to us at 734-676-7000 or news@myaocu.com. We’ll be happy to help you maintain financial stability during these uncertain times.

Your Turn:
How are you spending your stimulus check? Tell us about it in the comments.

Learn More:
marketwatch.com
bankrate.com

Give Your Finances Some Therapy With Amanda Clayman

Protrait of Amanda ClaymanMeet Amanda Clayman, a financial therapist and influencer who uses a therapeutic approach to help people get their finances on track.

Clayman is no stranger to financial struggles. She shares her journey on her blog, telling the story of the “$19,000 haircut” which served as her personal rock bottom and forced her to take her career in a new direction. Clayman makes it clear that it was not a lack of financial literacy or an upbringing steeped in bad money habits that led to her money troubles. Instead, it was the snowball effect of one bad choice leading to another, until she was struggling under a mountain of debt with no visible way out.

Today, Clayman is a popular financial influencer and a practicing clinician who specializes in money issues. In 2006, she partnered with The Actors Fund and founded a cognitive behavioral therapy-based financial wellness program. She says that money can be a tool for transformation, and this belief helps shape her approach for financial healing.

Clayman tells her followers that financial challenges are inevitable; they can only control their reactions. They need to be proactive at developing a healthy way to handle these setbacks so they can set firm, loving boundaries, make value-based decisions and align behavior with intentions when faced with a financial hardship. Ultimately, this will enable followers to view these challenges as a source of personal growth and empowerment.

You can read Amanda’s story on her blog and follow her on Twitter at @mandaclay to learn more about this transformative approach toward money management and financial wellness.

Your Turn:
Do you have a plan in place for financial setbacks? Tell us about it in the comments.

Learn More:
twitter.com
amandaclayman.com

Finessin’ Finances

This book at a glance: Finessin' Finances - the refreshingly entertaining guide ot personal finance.
Title: Finessin’ Finances
Author: Stefon Walters
Paperback: 152 pages
Publisher: Just Believe Company
Date published: Feb. 7, 2019
Average customer review: 5.0 out of 5 stars

Who is this book for?
People interested in learning about basic financial topics through clear, easy-to-understand language
Anyone who finds finances boring
Readers who love to laugh while learning valuable information

5 things you’ll learn from this book:

  • How to navigate the world of credit and credit cards
  • Basic investing for beginners
  • Best practices for managing your student loans
  • How to create and stick to a budget
  • Practical ways to plan for retirement

6 questions this book will answer for you:

  • What is my credit score and why does it matter?
  • How can I improve my credit rating?
  • Are credit cards good for my finances?
  • How can I create a budget that’s designed for my lifestyle?
  • Should I start investing?
  • Why do I need to worry about my retirement when it’s so many years away?

What people are saying about this book:

“Stefon Walters approaches the topic of personal finances from a humorous, informative, and fluent manner. He gives insightful and realistic ways to dominate your finances with self-control and knowledge.”

“A fun read with great explanations and sample templates.”

“I feel like the author is talking to me and not at me.”

“I love the witty terminology used in the book; it made it fun to read.”

Your Turn:
Do you find financial talk boring? Share your thoughts with us in the comments.

Learn More:
bookauthority.org
goodreads.com
thebalance.com

Financial Dos and Don’ts During the Coronavirus Outbreak

Young blond woman in glasses checks books and takes notesQ: Since the coronavirus has landed on American shores, each day seems to bring more devastating news about the state of our economy. What steps should I be taking to protect my personal finances during this time?

A: The coronavirus outbreak has already generated severe consequences for the national and global economies — and experts say we’re only seeing the beginning of the pandemic’s financial fallout. The virus ended one of the longest bull markets in history, as the stock market plunged by a full 25 percent in one volatile month. In fact, it saw its worst day since 1987. More than that, businesses have been adversely affected by the outbreak in many ways: production lines have been put on hold as the delivery chain is disrupted indefinitely; the global-wide halt on travel has caused tremendous losses for the tourism and airline industries; sports and entertainment industries have taken huge hits; and countless other business lines have been negatively impacted by a dearth of supplies, decreased spending and a shortage of personnel due to quarantines or school closures.

With all this uncertainty, it’s easy to fall into a panic and wonder if there are some concrete steps you should be taking to save your personal finances from impending ruin. Here are some practical dos and don’ts to help you maintain financial stability and peace of mind during this time.

Don’t: Panic by selling all your investments
Both seasoned investors with robust portfolios and those simply worried about their retirement accounts can find it nerve-racking to see their investments drop in value by as much as 10 percent a day. It may seem like a smart idea to sell out just to spare investments from further loss, but financial experts say otherwise. According to The Motley Fool, most sectors of the economy will recover quickly as soon as the outbreak clears. For example, consumers may not be purchasing shoes or cruise tickets now, but they will likely do so when it is safe to shop and travel again. While the global and national economy may not bounce back for a while, experts are hopeful that individual business sectors will recover quickly.

Do: Trim your spending
The thriving economy the country has enjoyed for a while has prompted a gradual lifestyle inflation for many people. As the economy heads toward a probable recession, this can be a good time to get that inflation in check. Work bonuses, raises and promotions are not handed out as freely during a recession as they were in recent years. Some people may even find themselves without a job as companies are forced to lay off workers in an effort to stay solvent. Trimming discretionary spending now can be good practice for making it through the month on a smaller income. It’s also a good idea to squirrel away some of that money for a rainy day.

Don’t: Put your money before your health.
Financial wellness is important, but physical health should always take priority. If you’re feeling unwell, and especially if you’re exhibiting any of the symptoms of the coronavirus — such as fever, coughing and shortness of breath — call in sick to work. Do the same if you’ve been exposed to someone who has tested positive for COVID-19 in the past 14 days. Don’t let financial considerations come before your health and the health of those you come into contact with each day.

As part of a package of executive orders to help mitigate the financial fallout of the coronavirus, President Donald Trump has announced that all employees are entitled to two weeks of full paid leave if they are unable to work because of the coronavirus. This includes contracting the actual virus, self-quarantining for fear of having been exposed to the virus and caring for a family member who has contracted the virus, or for children who are home due to school closures. Be sure to take advantage of this offer by making your health paramount.

Similarly, doctor visits can cost a pretty penny, but when necessary, should always outweigh financial concerns. A co-pay or insurance deductible is a small price to pay for your health.

Do: Consider a refinance
The silver lining of an economic environment like this is falling interest rates. As of March 17, the average interest rate on a 30-year fixed-rate mortgage is 3.3%, down from approximately 4.5% of a year ago. Refinancing an existing mortgage at this lower rate can potentially save homeowners several hundreds of dollars a month. That extra breathing room in a budget can be a real boon in case of salary cuts or even a layoff during a recession.

Be sure to work out the numbers carefully before considering this move since a refinance isn’t cost-free. [You can speak to an MSRP at Advantage One Credit Union to learn about your options.]

The coronavirus has already impacted the economy tremendously, and will likely continue to do so for a while. Keep your own finances safe by remaining calm, putting your health first and taking some of the practical steps mentioned above.

Your Turn:
What steps have you taken toward protecting your finances during this time? Tell us about it in the comments.

Learn More:
fool.com
cnn.com
fortune.com

How will my Insurance Premiums be Affected by a Car Crash?

two men involved in a minor car accident exchange insurance informationQ: I’ve recently been involved in a car crash and I’m wondering what to expect as far as my insurance rates. How big of an increase can I expect to see in my monthly premiums?

A: In most cases, car insurance providers will add a surcharge to your monthly premiums following a car accident involving one of the drivers on the plan; however, the exact increase you’ll see, and whether you will see one at all, varies by the driver, insurance carrier and state.

Here are the answers to all your questions regarding vehicle accidents and insurance rates.

What should I do after an accident?
If you’ve been in a car accident, you may be wondering whether you should involve your insurance provider and the authorities at all. If only minor vehicle damage was sustained in the accident at costs that are below or just above your deductible, it may be smarter to pay for the repairs on your own and not to involve your insurance provider. Before you decide to take this route, though, check your policy to see if there is a caveat requiring you to report all accidents.

When you need to file an insurance claim, you’ll also have to file a police report. Be sure to do so as soon as possible after a vehicle accident. You can find the information needed for filing an insurance claim on the insurance documents that you should have in your vehicle at all times. Exchange the following information with the other driver while still at the scene of the accident:

  • Name of driver
  • Name of car owner
  • Names of any passengers in the car at the time of the accident
  • The vehicle make, model and license plate number
  • The driver’s insurance company name, policy number and contact number for claims filing
  • If the police are at the scene of the accident, ask for an official police report right then as well. If you are incapacitated because of the accident, you may need to do some follow-up work when you are back on your feet to get this information. You should be able to access it through your local police department.

How much of an increase in my monthly premiums can I expect to see after an accident?
The exact increase (if any) you will see in your monthly premiums depends largely on what kind of accident you were involved in and whether you were at fault. Other factors that come into play when determining this number include your particular policy and the state where you live. Another crucial point that insurance providers consider is whether this is your first at-fault accident while on the plan. Some providers will allow one minor accident to slide without any lasting impact, while a second crash can raise your rates up to a whopping 80 percent.

A joint study between Insurance Quotes and Quadrant Information Services, which looked at data in all 50 states, found that drivers who made a single insurance claim worth $2,000 or more saw their premiums increase on average by 44.1%, or $371 a month.

Is there any way I can guarantee that my insurance provider will look away from the accident?

If you’ve been with the same insurance provider for a while, you may qualify for accident forgiveness, or a program many insurance providers offer in which they waive the usual post-accident surcharge for qualified drivers. In general, only drivers who’ve been insured by the carrier for a lengthy period of time and who have excellent driving records will be eligible for this free program. Some carriers allow other drivers to join the program for an additional monthly fee. If you are not enrolled in accident forgiveness and you think you may be eligible, speak to a representative of your insurance company to see if you can enter the program.

What if the accident isn’t my fault?
If you’ve been involved in an accident that was clearly not your fault, your rates may or may not increase, depending on your carrier, state and whether this is your first no-fault accident. If you’ve been involved in several no-fault accidents, you may see a significant increase in your premiums. Your insurance provider can also refuse to renew your policy at the end of its life.

Will the car accident affect my credit score?
Your accident and the consequent higher insurance premiums will not affect your credit rating; however, a lower credit score can result in higher monthly premiums, and the reverse is true as well.

Is there any way I can lower my rates after a surcharge?
Implement some or all of these tips to lower your rates:

  • Improve your credit score. Increasing your credit score by paying your bills on time, keeping your credit utilization low and working on paying down your debts can help you earn a lower insurance rate.
  • Increase your deductible. If your insurance premiums have become unaffordable, you may want to increase your deductible. It will mean paying more out of pocket if you are involved in another accident, but you’ll be able to lower your monthly premiums to a more affordable rate.
  • See if you qualify for any discounts. Lots of car insurance companies offer rate discounts for customers who qualify for a specific criteria, such as a multi-policy discount for bundling different kinds of insurance policies, or a good student discount for students who maintain a high academic average in school.
  • Shop around for another policy. If you can’t find a way to lower your premiums, you can look into rates being offered by other carriers. With a bit of research, you might find a provider offering a much better rate for the same amount of coverage.

Your Turn:
Have you recently been involved in a car accident? Tell us how your insurance premiums were affected in the comments.

Learn More:
bankrate.com
carinsurance.com
thesimpledollar.com
moneyunder30.com

5 Ways to Trim Your Fixed Expenses

Monthly expense sheet with glasses and claculator on deskWhen trying to trim a monthly budget, most people don’t consider their fixed expenses. These recurring costs, which include mortgage payments, insurance premiums and subscription payments, are easy to budget and plan for since they generally remain constant throughout the year. While people tend to think there’s no way to lower fixed expenses, with a bit of effort and research, most of these costs can be reduced.

Here are five ways to trim your fixed expenses.

1. Consider a refinance
Mortgage payments take the biggest bite out of most monthly budgets. Fortunately, you can lower those payments by refinancing your mortgage to a lower interest rate. The refinance will cost you, but you can roll the closing costs and other fees into your refinance loan. Plus, the money you save each month should more than offset these costs. A refinance is an especially smart move to make in a falling-rates environment or if your credit has improved a lot since you originally opened your mortgage.

2. Lower your property taxes
Taxes may be inevitable, but they aren’t set in stone. You may be able to lower your property taxes by challenging your town’s assessment of your home. Each town will have its own guidelines to follow for this process, but ultimately you will agree to have your home reappraised in hopes of proving its value is less than the town’s assessment. This move can drastically lower your property tax bill; however, if you have made improvements to your home, it may be appraised at a higher value, which could raise your taxes.

3. Change your auto insurance policy
The Geico gecko and Progressive’s Flo, who love disrupting your favorite TV shows, actually have a point: You may be overpaying for your auto insurance policy.

If you’ve had the same policy for several years, speak to a company representative about lowering your monthly premiums. By highlighting your loyalty and having an excellent driving record, you may be able to get a lower quote. You can also consider increasing your deductible to net a lower monthly premium.

If your insurance company is not willing to work with you, it might be time to shop around for a provider that will. A few minutes on the phone can provide you with a significant monthly savings for a similar level of coverage. Once you have a lower quote in hand, you can choose to go back to your original provider and tell them you’re seriously considering a switch; they may change their mind about their previous lowest offer.

4. Consolidate your debts
If you’re carrying a number of outstanding debts, your minimum monthly payments can be a serious drain on your budget. Plus, thanks to the high interest rates you’re likely saddled with, you might be feeling like that debt is going nowhere.

Lucky for you, there is a way out. If you have multiple credit cards open, each with an outstanding balance, you might want to consider a balance transfer. This entails opening a new, no-interest credit card, and transferring all of your debts to this account. The no-interest period generally lasts up to 18 months. Going forward, you will only have one debt payment to make each month. Plus, the no-interest feature means you can make a serious dent in paying down that debt without half of your payment going toward interest.

Another way to consolidate debt is to take out a personal loan at Advantage One Credit Union. Our personal loans will allow you to pay off all of your credit card debt at once. You’ll only need to make a single, affordable monthly payment until your loan is paid off.

5. Cut out subscriptions you don’t need
Another fixed expense most people mindlessly pay each month are subscriptions. Take some time to review your monthly subscriptions and weed out those you don’t really need. Below, we’ve listed some of the most commonly underused monthly payments:

  • Gym membership
    Are you really getting your money’s worth out of your gym membership? It may be cheaper to just pay for the classes you attend instead of a full membership. Or, if you have a favorite workout machine at the gym, consider purchasing it to use at home for a one-time cost that lets you to drop your gym membership.
  • Cable
    Why are you still paying for cable when you can stream your shows for less through services like Netflix and Hulu? If you don’t want to cut out cable entirely, consider downgrading to a cheaper plan that drops some of the premium channels you don’t watch much.
  • Apps
    How many apps are you signed up for? You may not even remember signing up for an upgraded version of an app you rarely use. A quick perusal of your monthly checking account statement or credit card bill can help you determine how much these subscriptions are costing you. Drop the apps you’re not using for more wiggle room in your monthly budget.

Your fixed monthly expenses are actually not as “fixed” as you may have thought. By taking a careful look at some of these costs, you can free up more of your monthly income for the things that really matter.

Your Turn:
How have you lowered your fixed monthly expenses? Share your best tips with us in the comments.

Learn More:
debtroundup.com
experian.com
thesimpledollar.com

Should I Refinance to a 15-year Mortgage?

Middle-aged man and woman work at a laptop to figure out their mortgage paymentsWith mortgage rates holding and a booming economy, lots of homeowners are rushing to refinance their mortgages to lock in low rates. One increasingly popular option is to refinance a conventional 30-year mortgage into a 15-year loan.

Borrowers may be wondering if this is a financially sound move to make for their own home loan.

We’ve researched this option and worked out the numbers so you can make a responsible, informed choice about your own mortgage.

When refinancing can be a good idea
The primary attraction to a shorter mortgage term is paying off your home loan sooner, typically at a lower interest rate. This can help you increase your home equity faster and can mean paying thousands of dollars less in interest over the life of the loan. Therefore, refinancing to a shorter-term loan makes the most sense when interest rates are falling.
It’s also a particularly good idea for homeowners who can easily afford to increase their existing monthly mortgage payments. In addition, homeowners whose home values have increased since they financed their original mortgage will be more likely to qualify for a 15-year loan, since they will have a lower loan-to-value ratio —how their home’s current value compares with their current loan balance.

How much money can I save?
There is no quick answer to this question, as there are several variables at play in each refinance. To provide a basic idea of what a shorter-term home loan can mean for your finances, let’s take a look at how the numbers would work out in a 15-year refinance on a conventional home loan.

As mentioned, a 15-year loan generally carries a lower interest rate than a 30-year loan. If national interest rates are falling when you refinance, and/or your credit has improved since you bought your home, your interest rate can be even lower. According to Bankrate’s most recent survey of the nation’s largest mortgage lenders, on Dec. 6, 2019, the benchmark 30-year fixed mortgage rate was 3.74 percent and the average 15-year fixed mortgage rate was 3.16 percent.

Let’s assume you refinance your fixed $300,000 mortgage with an interest rate of 4.5 percent to a 15-year loan at an interest rate of 3.5 percent.

If you kept your existing mortgage unchanged for 30 years, you’d be making 360 payments over the life of the loan at $1,520.06 a month, not including taxes, insurance and other fees.

Toward the beginning of the loan, an overwhelming majority of your monthly payment will go toward interest, with less than $400 going toward your principal. By the time you pay off your loan, this ratio will reverse itself and the majority of your payments will go toward the principal of the loan. Most importantly, over the life of your loan, you will have paid $247,220.13 in interest.

Now let’s explore what these payments would look like if you refinanced this loan to a 15-year fixed-rate loan at a 3.5 percent interest rate.

Over 15 years, you would make 180 payments of $2,144.65. Over the life of the loan, you’d be paying $86,036.57 in interest payments, bringing significant savings of $161,183.56. You’d also be chipping away at your principal at a far quicker pace, with $1,269.65 of your very first payment going toward the principal of the loan.

If these numbers are exciting you about getting your refinance process started, take a step back and slow down. First, these numbers may or may not translate directly to your own situation. In the above example, savings are calculated over 30 years, but you may be nearing the halfway point of your 30-year mortgage. A refinance can still be a good idea if it can get you a lower rate for the remainder of your loan, but your interest savings will be significantly less than those described above. Second, your interest rate may not be a full point lower after a refinance, as it is in our example. This, too, will afford you less savings.

There are other crucial factors to consider before jumping into a 15-year refinance. Read on for a review of some of the more important variables to think about when making this decision.

What will a refinance cost?
Refinancing your mortgage is not cost-free. Expect to pay a minimum of 2.5 percent of your new loan in closing costs and other fees.

Here are some of the possible fees you can expect during the refinance process:

  • A fee for pulling your credit
  • A fee for processing your paperwork
  • Lawyer fees
  • An inspection fee
  • Discount points, each of which are equal to one percent of your home loan, which will give you a lower mortgage rate
  • An appraisal fee
  • A surveyor fee
  • Title search fee
  • Title insurance

Before you get started on the refinance process, it’s a good idea to tally up these expenses and see how much it would cost you to refinance.

You might be offered the option of refinance at no cost. This means your closing costs will be rolled into your new mortgage payments. This can make financial sense if it means saving money in the long term, but it’s a good idea to work out the numbers before you continue with the process.

Finally, your existing mortgage may have prepayment penalties, which can cut into the amount you’ll save by refinancing. Find out about these fees before you set the refinance process in motion.

When refinancing to a 15-year mortgage is not a good idea
If you’re convinced that a 15-year refinance is right for you, make sure to consider this crucial factor before going ahead with the refinance: Your monthly mortgage payments will increase significantly after a 15-year refinance. In the example above, the mortgage payments increased by $624.59 a month. Your own payments may see a similar change, and any increase will impact your finances.

If you’re financially responsible, you won’t consider this move unless you are confident you can afford to meet this increased mortgage payment. However, you may not realize that tying up your spare cash in your home’s equity can be a risky move. It can make more financial sense to first build an emergency fund with 3-6 months’ worth of living expenses, and to increase your retirement contributions. If you’re carrying any high-interest debt, you’ll want to pay that down, too, before moving ahead with a refinance.
Increasing your monthly mortgage payments can mean leaving you with a tighter monthly budget and very little breathing room. Make sure you are fully prepared to swallow these costs before you go ahead with a refinance.

Are you ready to make the move to a shorter-term loan? Speak to a representative at Advantage One Credit Union today to learn about our fantastic home loan options.

Your Turn:
Have you refinanced to a 15-year mortgage? Tell us about it in the comments.

Learn More:
.bankrate.com
money.com
mybanktracker.com
themortgagereports

How to Make Your Career Choice Fit Your Budget

Young woman sadly regards a document on her desk.As you prepare for graduation and begin scouting different employment opportunities, be sure to look at the larger picture before you accept a position.

Hopefully, you’ve chosen a career path that will bring you joy and gratification. Equally important, though, is a job that can support your lifestyle choices. While the positions you consider for your first post-college job will likely offer the opportunity for growth, you’ll still need to pay your bills—and make your student loan payments—as soon as you graduate. A job that brings you satisfaction and a pleasant working environment will not last long if the salary it offers causes you to sink into debt.

How do you determine what kind of salary will be large enough to support your desired lifestyle?

To get this information, you’ll need to create a mock monthly budget for your post-college self.

Using a spreadsheet or paper and pen, create two columns, one for expenses and one for actual dollar amounts. In the expense column, list your typical monthly expenses, including housing costs, transportation costs, health insurance, groceries, entertainment costs, clothing costs, dining out, savings, etc. In the dollar column, list the amount of money you expect to pay every month for each expense.

Your budget should look something like this:

ExpenseMonthly Cost
Housing$1,200
Transportation$300
Health Insurance$250
Groceries$350
Student Loan Payments$350

It will take some research and some hard, honest thinking to come up with these numbers. For housing costs, take a moment to think about where you see yourself settling down after college. You don’t have to know the exact neighborhood you’ll live in, but it’s good to know the city that will work best for you in terms of lifestyle, career path, and family plans. You can narrow this down to a few choices so long as you keep it reasonable. Once you’ve chosen your desired location, research the median rental prices in the area on real estate sites like Zillow and Redfin.

Next, work on transportation costs. If you already own a car, you’ll have an idea of what it costs you each month. Otherwise, spend some time thinking about what kind of car you want to drive. You can find listings on Carfax.com. Include costs like auto insurance, gas, and upkeep, in this category.

Or, if you plan on living somewhere with reliable public transportation, you might choose this route instead. Make a calculation of how much you’ll spend on bus and/or train rides, along with the occasional cab or ride-share ride.

Complete your budget using your best estimates for each category. Once you’ve filled out each expense amount, add up your total and multiply it by 12 to give you the amount of money you’ll need each year for supporting the lifestyle of your choice. (This number will increase with inflation, but since current salaries will likely increase along with the inflation rate, this exercise can still give you an idea of the annual salary you’ll need.)

Now that you have these numbers, you’re ready to go ahead with your job search. When considering possible positions, you don’t have to choose the one that pays the highest salary if there are other things about the job you don’t love. However, it’s best to pursue positions that can actually support you.

Your Turn:
Are you choosing your first job for the salary or for other factors? Share your take with us in the comments.

Learn More:
knsfinancial.com
money.usnews.com
money.usnews.com
brazen.com