Paying Down Debt vs. Investing vs. Saving

Best tactics to improve your bottom line

Paying down debtCut Card is a tricky process. Not only is it hard finding the money to do so, and it takes a while, but there are different strategies to employ based on your goals. Some people may contemplate saving throughout the year to get a solid nest egg before starting to pay down on that debt. Others opt to invest in hopes to make more money back in order to pay money off more quickly later. There are many considerations when it comes to deciding what to do with your money. Here are just a few of them.

Paying down debt
It’s never a bad idea to work on improving your credit score by paying down debt. Furthermore, there’s no right or wrong way to do so. There are multiple schools of thought regarding how to go about the process:

  • Pay down the loan with the highest interest rate first. Debt with high interest costs you more money over time, so you may want to take care of them primarily.
  • Pay down the loan with the smallest balance first. Clear up many smaller loans more quickly, giving you more money to apply to big loans later.
  • Combine the two approaches. “Average” the methods in a way where you use both approaches at different points in the year. For example, knock out a few of your small loans in a few months and then work on larger interest debt before going back to paying on small loans again.

Regardless of the plan you choose, just make sure to stick with it. However, it is okay to change your approach if your financial circumstances change. Also, don’t use any money saved on frivolous items; keep it in the budget for loan payments only or for the next two options.

Investing
Now, should you pay off those bills using one of the above methods, or should you use your finances instead to invest? This head-to-head debate is not cut and dry. There are many questions to ask regarding the amount of your debt, its interest rate, the possible return on investment and the legitimate likelihood of that return. Neal Frankle, a financial expert writing for Forbes, said that aside from the factual considerations, there are also the emotional aspects at play, such as how you’d feel if you paid off the debt, if you opted not to invest, or if you did and it didn’t work out?

“I have found that these emotional questions are just as important as the financial questions. What good is it to make an otherwise smart financial decision if at the end of the day you are left feeling miserable?” Frankle asked.

There are four inquiries Frankle conjured up to address both the financial and emotional issues:

  • What happens if you decide to pay off the debt and the other investment does well? The answer will likely depend on each unique situation. Would you be giving up the chance of a lifetime to pay down your debt, or are the upsides of the investment actually very limited?
  • What happens if you pay off the debt and the other investment does poorly? Good for you! Do a little dance because you made an amazing choice.
  • What happens if you don’t pay off the debt, make the investment and it turns out well? Be honest—what reasonable outcome can you expect? Will it be enough to cover the interest rate that you are paying on your debt? Will your money double? Be practical in your expectations.
  • What happens if you hold the debt, make the investment and it turns out badly?

What is the risk involved? Can you afford to lose the money at stake and still be stuck with the debt?

By taking a look at how you would feel and how your life would be impacted from two competing alternatives, you can likely make a better decision for your specific situation.

Saving
If investing isn’t for you, maybe you would rather save up some money in a rainy day fund. Actually, some personal finance experts say building a safety net of cash should come before any other money move, according to Casey Bond in U.S. News and World Report.

“The idea is you need to be prepared for financial emergencies — car repair, job loss, etc. — so that you don’t load up on more debt should an unexpected bill arise. Not to mention, it’s psychologically satisfying to see a positive savings account balance,” Bond said.

However, Bond added that feeling good just doesn’t pay the bills. Statistically, you are losing money by saving, as interest rates against debt are much higher than the interest you would be earning in a savings account. The solution, again, is to average the points of view. Strike a balance between saving and paying on debt that is feasible for you and your family.

Regardless of what you choose to do with your money, carefully considering all factors at play in the situation should always be the first step. Hasty decisions regarding your finances are never beneficial.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Financial Tips for College Graduates

Preparing for the real worldFinancialSkills_2 can be a daunting task for a college student and knowing where to begin might seem hopeless. One of the most important things to work on as you begin to contemplate your life after college is building solid financial skills. Having well-grounded financial skills will help you not only personally, but also professionally. Here are some tips to help you get on the right track.

According to Nancy Anderson of Forbes.com, nine out of 10 baby boomers provide their adult children with some kind of financial support. While every parent wants to help their children succeed in life, it’s also important that parents don’t compromise their retirement savings in the process. Teaching their children how to effectively manage their money can make a significant difference – and it’s never too late to start. Some of Anderson’s financial tips include:

Understand the value of the dollar
Especially for college students who are eating at all hours of the day or night, being mindful of their spending is important. Instead of having that pizza delivered from down the road or buying three coffee drinks from the library cafe, try thinking ahead before an all-nighter of studying; pack snacks that you already have on hand and bring a thermos of coffee. The small expenses can quickly add up to a big chunk out of your budget.

Keep a good credit score
As you contemplate moving into the real world, there are things you’ll want to do that your credit score will have an impact on such as renting an apartment, buying a new car, etc. Sign up for a credit card with a low spending limit and set ground rules for yourself when it comes to using it to avoid getting yourself into trouble. Parents can consider setting up a joint card while their kids are in college and work together to pay off the balance each month to get a good start on good credit.

Save, save, save
Putting money into a savings account that you don’t touch is one of the key factors to success; the standard rule is to have approximately six months of expenses saved to ward against the unexpected. Your financial institution may offer the ability to auto-draft money from your checking to your savings account so you’re automatically saving money with each paycheck. According to research by Bankrate.com, 76 percent of Americans live paycheck to paycheck; another study from CashNetUSA revealed that almost half of those surveyed had less than $800 saved for emergencies.

When it comes to learning more about managing your finances, you may come across terms that seem foreign and intimidating; however, taking some extra time to research these things now and understand how they can impact your financial future is important for your success.

“Young college graduates, who start saving now, can save far less money and be much wealthier than Americans who realize in their 40s and 50s that they have to get busy stashing money away,” according to Lynn O’Shaunessey of CBSNews.com. Here are some of O’Shaunessey’s tips:

Maximize your savings with compound interest
Even if you start your savings account with meager contributions each month, compound interest, like a snowball, can turn those contributions into something more significant as the years go on.

Open a Roth IRA
A Roth IRA is basically your retirement savings account; even though retirement may seem like decades away, you want to make sure that you’re comfortably prepared for it, so opening an IRA now will be sure to benefit you in the future.

Work on creating a stock portfolio
Investing in stocks can have a major impact on your finances and also teach you a lot about money as you become more experienced with the process. Start by investing in just one category while setting the goal to eventually spread your finances across large-cap and small-cap index funds, which will provide you with the best return for your investment.

Manisha Thakor of Forbes.com suggests that parents talk to their college-aged children about their own financial successes and blunders: “The more intergenerational dialogue we have about the basics of personal finance the better off this country will be.”


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Includes copyrighted material of IMakeNews, Inc. and its suppliers.

Six Student Loan Rights You Need to Know

It’s no surprise that in recent154271153_336x189 years, more and more students are graduating college with thousands in student debt. In fact, between 2007 and 2012, student loan amounts increased 75 percent, according to a TransUnion study. But what recent grads may not know is that there are many options that can help take the burden off and help you repay federal student loans. Consider the following decisions:

1. Loan forgiveness. If you work in certain public service organizations, such as law enforcement, early childhood education, public health, the military, etc., you may qualify for loan forgiveness of your remaining loans, given the fact that you’ve made 120 payments under the Public Service Loan Forgiveness (PSLF) Program.

Note: Only Direct Loans qualify; FFEL, Perkins Loans and any other student loan programs don’t qualify. Visit www.studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service for more information.

2. Consolidation. If you’re paying back several federal loans, you may have the option of combining them into one single monthly bill.

“Consolidation can make it easier to repay student loans by streamlining repayment and replacing multiple loans with a single loan,” said financial aid expert Mark Kantrowitz, publisher of Edvisors.com. It can also possibly lower your monthly payment, pending if the minimum monthly payment on your consolidation is lower than the payment for your combined loans.

One caveat: Consolidation may increase the length of repayment, which means more accrued interest. That’s why it’s important to compare your current repayment bill to what the amount would be if you consolidated, to make sure it makes sense for you. Ask yourself if it would increase or decrease your monthly payments, and also how long you’d be repaying your loan. If you do choose to consolidate, visit www.loanconsolidation.ed.gov.

3. Deferring your payments. If you’re in graduate school or the military, you have the right to defer your payments until you’re out. If you’re unemployed when your loans kick in, a hardship deferment can be given. Additionally, if you have a medical issue that forbids you from working, you may have the right to forbearance, which stops or shrinks your monthly payments for up to a year. (However, it’s important to note that interest still accrues during this time.)

4. Altering your payment schedule. While the standard amount of time to repay your loans is 10 years, that doesn’t necessarily mean you’re required to do so in that amount of time. You may have the right to an extended repayment plan, which can increase your repayment to up to 25 years. There are even some ways to tie your monthly payment to a percentage of your income — these are called “Income Based Repayment” and “Pay as You Earn.” And, vice versa, you’re allowed to repay your student loans early as well.

5. Deducting loan interest. You’ll be sent a Form 1098-E from your lender that will list the amount of interest you paid on your student loans in the last year. You can deduct student loan interest up to $2,500, depending on several factors. To calculate how much you can deduct, visit www.irs.gov/publications/p970/ch04.html.

6. Contacting your lender or loan servicer. It may sound obvious, but calling up your student loan point of contact is something many borrowers don’t take advantage of. You can contact them at any time you’d like with any questions you have. They can also help you figure out the type of student repayment plan of action that’s right for you.

“I think a plan is really important,” Douglas Wells, a partner at Albion Financial Group, said. “It doesn’t have to be complicated, but it does have to have an overview of how you’re going to get out of debt, how you’re going to save up the money that you need to pay off this debt and then also to save above and beyond that.”

Find your lender or loan servicer at www.nslds.ed.gov or call 1-800-4-FED-AID. Better yet, stop by today and see how we can help you.


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Benefits of MyBranch Online Banking

Being eCount members, we’re pretty certain that you’re comfortable doing things online. If you haven’t done so already, you should head over to our site and get your account set up on MyBranch. MyBranch is our free online banking portal. From there, you’ll be able to see what’s going on in your account 24/7. Get started with MyBranch here.

The other benefit that getting set up on MyBranch offers is that you can start using the rest of our online tools, such as our mobile app, ePay, Popmoney® and $napshot. All of these tools will give you more access to, and control over, your account, which can be really important when you’re on the go.

Mobile App
Our mobile app will give you access to your account over any app-enabled smartphone. Check balances, transfer funds, use ePay to pay bills or Popmoney to pay other people, even deposit paper checks, all through your mobile phone. Visit www.aofcu.com on your mobile device.

ePay
ePay is a great tool if you have at least a few bills that you pay regularly every month. ePay lets you pay a bill electronically, even if your recipient doesn’t accept electronic payments. Most vendors like cable companies, retail stores or utilities are already set up to accept electronic payments, and those payments go through as quickly as the very next business day. For others that don’t have an electronic payment processor, such as a small doctor’s office, for instance, an actual paper check is cut and mailed for you, free of charge when you use ePay. These won’t get there the next day, as they do have to be mailed, but you don’t pay for the check, the stamp or the envelope.

Another big plus to ePay is that it allows you to pay all of your bills from one site. No more logging into 15 different websites to pay your various bills, set them up once in ePay and you’ll never have to visit each individual site just to pay a bill. From now on, you’ll simply log into ePay, and there you’ll see all of the billers you have set up, as well as pending payments and payment histories for each one. Want to know how much the last cellphone bill was and when you paid it? ePay has that info at your fingertips, 24/7. You can even schedule payments in advance once or on a recurring basis. All from one safe, secure, easy to use site.

Probably the best part of ePay is that all of your payments are guaranteed. ePay guarantees that the recipient will receive payment by the guaranteed date, assuming you have the funds in your account, of course. If ePay doesn’t get the payment there by the guaranteed date, ePay covers the cost so there are never any late fees for you. Knowing when the payment will come out of your account and knowing that it will get there on time, every time is a nice bit of security. So stop spending money on stamps, envelopes and paper checks and start using ePay.

One final thing to be aware of regarding ePay is that it is free, but only if you use it. I know, that sounds odd, so let me explain. The credit union incurs an expense to provide the service to our members, and we’re fine doing that so long as the service is used. So, as long as you make at least one payment every 30 days using ePay, we continue to provide it to you free of charge. If you don’t use it, however, there is a $2 charge per month to have the service. Just make sure to use ePay if you sign up for it. We think it’s a really great service, but we don’t want you incurring any fees unnecessarily. You may also cancel ePay at any time, simply call us and cancel the service. Find out more about ePay here.

Popmoney®
Popmoney is a complementary service to ePay. Where ePay lets you pay bills, Popmoney lets you pay other people, request funds from others and even receive funds, all over your app-enabled smartphone. Ever been short on cash to pay back a co-worker for lunch? Popmoney solves that issue. Simply send the money straight from your account to theirs using Popmoney. You can read more about Popmoney in this article or on our website

$napshot
Finally, with MyBranch access, you get full access to our free, personal money manager, $napshot. The single nicest feature of $napshot is that it lets you bring in accounts from your other financial institutions so that you can keep track of all of them in one place. What ePay does for your bills, Snapshot does for your accounts.

Set up spending budgets, and saving goals easily. Track investments or accounts at other credit unions or banks. $napshot lets you keep track of all of it, quickly and easily. $napshot uses a cool tag-based system, so you can label your expenses in ways that make sense to you. And the best part is, $napshot is 100% free of charge. Check out $napshot here.

Is an Electric Vehicle Right For You?

The short answer is that it entirely depends on your lifestyle and priorities. With cost savings and performance, and environmental benefits, electric vehicles offer an exciting alternative to gasoline-powered and hybrid vehicles. Still, consumers should consider certain factors before making a purchase, as driving habits, living situation and the ability to pay upfront costs all affect whether an electric car is a convenient or budget-friendly purchase.

Driving Habits
Electric vehicles (EV) are best for drivers with commutes of about 75 miles while longer drives can be planned for with different approaches.

“You might be surprised to find that you could easily use an EV for a daily commute, putting aside your gas-hungry SUV or truck for weekends and vacation drives,” according to Edmunds.com. “You also might find that you could easily rent a pickup or SUV for the few occasions each year when you really need towing capacity or increased cargo and passenger room.”

Access to Charging Stations
Homeowners with a garage will probably find EV ownership a little easier, since they can easily install charging stations in those garages — 240-volt EV charging stations are best (readily available and easy to install), and 110-volt stations also work, although they charge at a slower rate while apartment dwellers and homeowners without garages might have a more difficult time.

Still, public charging stations are becoming more common in many states and can be found on websites such as this site, a service of the U.S. Department of Energy.

Recharging concerns are also reduced with Partial Hybrid Electric Vehicles (PHEV), which switches to a gasoline engine when necessary; however, the more one uses a PHEV’s gasoline engine, the more attractive a pure hybrid becomes. The PHEV Chevrolet Volt for example, gets an EPA-estimated 37 mpg when powered by gasoline, far less than the 50 mpg estimated for the all-hybrid Toyota Prius.

Upfront Price vs. Cost Savings
Electric vehicle detractors say that money saved at the pump during the lifetime of the car is offset by its upfront cost. On the surface, this is true. The 2013 Nissan Leaf, for example, starts at $35,200, well above the cost of the 2013 Toyota Prius (MSRP $24,200). However, federal incentives (and some state incentives) prove to be a great equalizer.

“California buyers of a Leaf or a $29,125 Mitsubishi i EV can knock down the ultimate purchase cost by $10,000 with state and federal incentives,” explains Edmunds.com. “But to finance a purchase, the buyer still would have to qualify for a loan based on the original purchase price. Lenders don’t take future tax credits and state rebates into account.”

As for the energy savings, how long it takes for the upfront cost of an EV to be surpassed by savings at the pump depends on fuel and electricity prices.

“With the national average prices for gasoline at more than $3.75 a gallon and electricity at 11 cents a kilowatt-hour, the fuel cost for driving 15,000 miles in a Leaf is roughly 30 percent of what fuel would cost for a 30-mpg car or truck,” notes Edmunds.com. “It would take six years at these prices to erase an $8,000 price difference between the Leaf and an internal-combustion equivalent. But if you raise the cost of fuel to $5.00 a gallon for gasoline and 14.7 cents per kilowatt for electricity (an increase of about 33 percent for each), the EV earns back that $8,000 from fuel savings alone in just over 4.5 years.”

Environmental Reasons
To many people, the facts and figures regarding costs and driving range are secondary to environmental concerns, and here, there is little debate about the benefits of an EV. As the U.S. Department of Energy states, EVs “emit no tailpipe pollutants, although the powerplant producing the electricity may emit them. Electricity from nuclear-, hydro-, solar- or wind-powered plants causes no air pollutants.”

Moreover, says the DOE, driving an EV reduces dependence on foreign oil, since electricity is a domestic energy source.

Driving Dynamics
Need another reason to go electric? Drivers say that EVs can be more powerful and more fun while eliminating another type of pollution altogether—noise pollution.

“An electric car has fewer parts overall, and fewer moving parts,” explains TheStreet.com. “It gives you 100 percent of the torque right away. It doesn’t require a transmission, and it doesn’t make any meaningful noise. Pressing the accelerator simply has a very different feeling.”

Clearly, for the right person or family, an EV is the right choice. There are significant environmental and driving benefits, assuming one’s driving habits, access to charging stations and budget for upfront costs make purchasing an electric vehicle possible.


Used with Permission. Published by IMN Bank Adviser
Includes copyrighted material of IMakeNews, Inc. and its suppliers.