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Ask Brianna: Why Do My Student Loan Payments Bug Me So Much?

“Ask Brianna” is a Q&A column from NerdWallet for 20-somethings or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college. Send your questions about postgrad life to askbrianna@nerdwallet.com.

This week’s question: “Every time I make a student loan payment, I feel sick to my stomach. I don’t feel that way when paying credit card bills. What gives?”

My job is to write about student loans. I think about them every day. I understand the value of my education. Yet I get that same knot in my stomach when I see my student loan bill hit my bank account.

This, it turns out, is the case for many people in our shoes. A December NerdWallet survey found that three-quarters of those who borrowed money to pay for school had regrets. The most common? Not applying for more scholarships, and choosing a school they couldn’t afford without taking out student loans.

How did we get here? Let’s start with the growing need to borrow. Between 1996-97 and 2016-17, the published in-state price of a public four-year college — including tuition, fees, and room and board — nearly doubled, the College Board says, even accounting for inflation. States have cut funding for public colleges and universities, according to the Center on Budget and Policy Priorities, forcing students and families to take on a larger share of the cost.

I’m not suggesting paying bills is one of life’s many joys. But there are real reasons many of us reserve a special brand of loathing for our student loans. Here’s how they differ from other debt.

We didn’t get something tangible in return

Student debt isn’t like a car loan, says Sandy Baum, a senior fellow at the Urban Institute. You don’t get a Prius that shuttles you to weekend hiking trips in exchange for your mammoth payment. But, Baum says, “just like you get in your car and drive it every day, you use your education every day.”

If the U.S. moved toward a policy of payroll withholding for student loans, as it does for taxes, Baum says, you probably wouldn’t miss the money as much.

“Not that anybody likes paying them,” she says, “but it’s a lot easier, because then you construct your budget without those dollars in it.”

We didn’t know what we were getting into

The financial aid system is so complex, students and families often struggle to untangle the snarl of funding options — let alone grasp their long-term financial consequences. For example, many borrowers don’t know about basic strategies that can ease their loan burden from the outset.

Katie Choma graduated with a bachelor’s degree and $161,000 in student debt. That debt burden translates to payments totaling about $1,500 a month. Choma’s balance is mostly in private student loans, which, unlike federal loans, generally don’t offer income-based repayment plans.

She wishes she and her parents had known to prioritize federal loans when she took on debt — and when she was choosing a school that she couldn’t have afforded without private loans.

We may not have gotten what we paid for

Thanks to her full-time job at a marketing company and a side business as a wedding planner, Choma is able to afford her bills on a 60-hour workweek. It wasn’t easy on a recent grad’s salary at first, she says. But at 26, she’s already seeing the earnings boost her bachelor’s degree affords her.

For some, though, there’s no degree to count on. Low-income borrowers, in particular, are at risk of dropping out, often due to the strain of paying for college without adequate financial aid, says Sara Goldrick-Rab, a professor of higher education policy and sociology at Temple University in Philadelphia.

Those borrowers who take on debt and don’t graduate have fewer employment opportunities and more limited earning potential, leaving less room in their budgets to make their loan payments. A 25- to 34-year-old with a bachelor’s degree earned $18,070 more in 2015 than someone with some college and no degree, according to the National Center for Education Statistics.

Goldrick-Rab says dropping the price of college would help more students graduate, which would also benefit the economy as a whole.

“I think we should price college as if it wasn’t so much a private good,” she says, “but it’s so much a public necessity.”

Brianna McGurran is a staff writer at NerdWallet. Email: bmcgurran@nerdwallet.com. Twitter: @briannamcscribe.

This column was written by NerdWallet and was originally published by The Associated Press.

 

 

What to Buy (and Skip) in March

The 31 days between February and April don’t hold any major shopping holidays, but that doesn’t mean they lack their own steals and deals.

Navigate through this month’s shopping with the help of our guide to what to buy (and skip) in March.

Buy: Golf clubs

Now’s your chance to stock up on a new set of clubs for less. Buy during spring to avoid the inevitable increase in golf club prices when demand rises during summer. But as Livestrong.com points out, you can expect the best deals on last season’s models, as opposed to this year’s options.

Even if golf isn’t your game, remember that this rule generally applies to other summer sports and summer sporting accessories. Buy offseason for better deals.

Skip: Furniture and appliances

March isn’t known for blowout sales on home appliances or furniture, so we recommend holding off on these major purchases for a little longer.

Our best advice? Wait for Memorial Day sales to roll around in May. That’s when big box chains and department stores will do all they can to entice customers on these items. Last year, Maytag offered up to $750 back by mail-in rebate on select appliances, Sears slashed vacuum prices and GhostBed discounted mattresses.

If you’re willing to wait even longer, Labor Day deals in September will be hard to beat.

» MORE: What to buy every month of the year

Buy: St. Patrick’s Day essentials

March 17 is St. Patrick’s Day, and more than a few consumers will load shopping carts with all things green or covered in four-leaf clovers.

Several major retailers discount St. Patrick’s Day essentials in the days leading up to the holiday. We saw such sales last year at Amazon and J.C. Penney.

As with any holiday, remember that the longer you wait to shop, the better. Selection might be reduced, but so will prices. And expect even bigger clearance deals after the holiday is over.

Skip: Spring clothing

March 20 is the first day of spring, but you should wait before outfitting yourself with spring apparel. New inventory, including clothing, generally costs the most at the beginning of any given season.

Instead, shop smart by stocking your closet with plenty of cold-weather staples for fall and winter. Winter clearance sales are continuing at many stores, including REI, Cabela’s and Burlington.

Buy: Tax software

As Tax Day looms, use March as your chance to get a deal on tax software. We’ve already seen sales on tax prep products beginning at retailers like Dell and Staples. At Best Buy, you can get a free gift card when you purchase an eligible sale-priced H&R Block tax software. Tax Day is April 18 this year.

» MORE: Federal tax calculator

Bonus: Food

Good buys in March won’t be found only at department or electronics stores. They’ll be in the supermarket, too.

In 2017, the National Frozen & Refrigerated Foods Association will celebrate Frozen Food Month in March. Throughout the month, shoppers should look for printable coupons for their local grocery stores.

Mark your calendar for a few food-related days, including March 1 (National Peanut Butter Lover’s Day), March 19 (National Poultry Day) and March 20 (National Ravioli Day). Check social media for promotions related to your favorite food.

More: Hear what to buy (and skip) in March

In an interview with WDUN radio station in Gainesville, Georgia, NerdWallet discussed the products consumers can save money on in the month of March.

Courtney Jespersen is a staff writer at NerdWallet, a personal finance website. Email: courtney@nerdwallet.com. Twitter: @courtneynerd.

Updated Feb. 24, 2017.

 

How to Avoid a CD Early Withdrawal Penalty

A CD early withdrawal penalty could cost you a good chunk of cash, but if you understand the terms and how this savings tool works, you can avoid getting hurt.

The basics

Banks issue CDs for a set amount of money and a set amount of time. (Credit unions do, too, but they call them “share certificates.”) Some have minimum opening deposit requirements, but the best ones don’t. As with any savings account, you’ll also want to look for CDs with high interest rates.

Banks pay interest on your deposit on a regular basis — typically monthly — until the CD matures. That period of time is called the term length, and it usually ranges from six months to five years. You might be able to find some as short as four weeks or as long as 10 years, though. Generally speaking, the longer the term length, the higher the rate.

» MORE: NerdWallet’s best CD rates tool

About CD early withdrawal fees

The earlier you withdraw money from your CD, the less interest you’ll earn. And in most cases, you’ll also have to pay some sort of penalty. That could be a specified number of months’ worth of interest.

Say you have a two-year CD and you cash it after seven months. You might have to forfeit six months of interest for early withdrawal, leaving you with very little in the way of a return. You probably won’t be able to avoid this fee, even if you need to withdraw only a small amount, as many banks stipulate that no partial withdrawals are allowed.

There may be exceptions to this rule, but either way, you should understand your CD’s withdrawal conditions, just in case the need arises. These aren’t always the same across the board, so be sure to reach out to your credit union or bank before signing on any dotted lines.

» MORE: What is a CD?

Some options offer more flexibility

Avoiding CD early withdrawal fees starts long before you even have one. For starters, you shouldn’t open a CD unless you can afford to hold the money for the full term length.

Though most CDs carry very basic terms, you’ll find a variety of options available at certain banks and credit unions. Some allow penalty-free withdrawals, although they typically come with lower rates than standard CDs do.

Consider CD laddering

If you want to lock in the higher rates of a five-year CD but don’t want to tie your money up for so long, CD laddering might be right for you. Instead of putting $5,000 in a five-year CD, you’d put $1,000 each into a one-, a two-, a three-, a four- and a five-year CD. Once the shortest certificate matures, you’ll have the opportunity to reinvest your earnings in a long-term CD or move the money back into your checking account.

CD laddering can provide a time cushion between maturity dates, and it gives you more immediate access to your savings in case of a sudden emergency. Plus, your CDs won’t be locked in for just one rate of return, a good thing if interest rates start to climb.

Next steps

Now that you know how CDs work — and how to avoid early withdrawal fees — find one that has the best rates.

Tony Armstrong is a staff writer at NerdWallet, a personal finance website. Email: tony@nerdwallet.com. Twitter: @tonystrongarm.

Updated Feb. 23, 2017.

How to Put More in Working-Class Pockets

The American working class lost a shocking amount of wealth in recent decades as wages stagnated. Despite campaign promises, making up that lost ground will be no easy feat.

Creating more well-paying jobs would help, but that could take years. Tax cuts could mean bigger paychecks for higher earners but won’t immediately help the many working people who don’t pay federal income taxes — people in the bottom 40% of incomes receive more back from the federal income tax system on average than they pay in, thanks to tax credits.

Expanding those credits, on the other hand, quickly could make a real difference in people’s lives and help return some of the income that’s been sacrificed to changing economies and technology.

Specifically, we could follow President Ronald Reagan’s lead and increase the Earned Income Tax Credit.

Support from both sides

A quick history: The credit, created in 1975 to help lower-income workers offset Social Security taxes, was greatly expanded under Reagan, who championed it as a way to reduce poverty while making work more attractive than welfare. Because the credit is refundable, low- and moderate-income working people can get money back from the government in the form of a refund even if their tax liability is zero.

The credit continues to have broad bipartisan support. Last year both President Barack Obama and House Speaker Paul D. Ryan, R-Wis., proposed expanding the credit for low-income workers without children.

“There’s agreement on both sides of the aisle that this [increasing the credit] is a reasonable thing to do,” says Roberton Williams, senior fellow at the Tax Policy Center.

Lawmakers understand that the credit, while helpful, has been no match for the income and wealth losses workers suffered as globalization and technology wipe out better-paying manufacturing jobs. The working class — defined as households earning between $23,300 and $40,500 in 2013 — lost more than half of its wealth between 1998 and 2013, according to Federal Reserve statistics. The whopping 52.7% drop in this group’s median net worth compares with a 19.1% drop for middle income households and a 20.7% decline overall.

Working-class debt levels rose 47.9% during this period while their financial assets — primarily money in bank and retirement accounts — shriveled by 56%. The wealth loss started long before the latest recession and continued afterward.

“Globalization has been a very good thing for our country economically but some people lose, and some people lose big, and it’s not their fault,” says Chuck Marr, director of federal tax policy for Center on Budget and Policy Priorities.

The cost of making work pay again

Helping workers restore this lost ground won’t be cheap, of course. Neil Irwin, senior economics correspondent for The New York Times, reports that it would cost about $1 trillion over the next decade. Irwin asked the Tax Policy Center and the Center on Budget and Policy Priorities to figure the cost of expanding the credit to replace all the income lost by the bottom 20% of earners since 1979.

Because the credit rises along with wages until reaching a plateau and phasing out, expanding it enough to restore the income of the bottom 20% would also replace about half the income lost by the next 20% of earners, Marr says. Marr offers examples of how it could work:

  • A single parent with one child and $16,000 in income currently pays $1,224 in payroll taxes (primarily for Social Security and Medicare) and zero federal income taxes. Under expansion, his earned income credit would increase by $3,103 to $6,476.
  • A married couple with two children and $32,000 in income currently pay $2,768 in income and payroll taxes. Their earned income credit would increase by $5,126 to $8,953.
  • For a family of four, the credit would not phase out until the household earned nearly $70,000.

A trillion dollars is a lot. But President Donald Trump’s proposed tax cuts, which would primarily benefit corporations and wealthier people, would reduce federal revenue by $4.4 trillion to $5.9 trillion over 10 years, according to Tax Foundation estimates.

Expanding the credit would be one way to assure that working people, and not just the well-off, have a path toward creating more wealth.

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

This article was written by NerdWallet and was originally published by The Associated Press.

Tap, Shop, Walk. Could Amazon Go Change the Way We Buy?

At a grocery store in Seattle, shoppers grab their food, and instead of waiting in the checkout line, they just leave. No, they’re not shoplifting. They’re at Amazon Go.

The first-ever Amazon Go store is an 1,800-square-foot supermarket without cash registers or check stands. Business Insider called it the “grocery store of the future.”

Shoppers must come armed with an Amazon account, a supported smartphone and the free Amazon Go app as they take advantage of what Amazon has dubbed “Just Walk Out Technology.” Shoppers tap their phones on a turnstile on the way in. The technology detects when products are taken off or put back onto the shelf and tracks the selected items in a virtual cart. After shopping, customers head out the front door with their chosen products. Amazon bills their account and sends a receipt.

Amazon Go is limited to employees of the online giant during its testing stage, but the company says it plans to open the store to the public “in early 2017.” Potential shoppers can sign up to be notified when the store opens.

An Amazon spokesperson declined to comment on future locations or offer further details about Amazon Go. For now, industry observers and hopeful shoppers watch and wait as the experiment unfolds.

Ready, set, Amazon Go?

In a survey of 1,000 Americans by Shorr Packaging Corp., 84% of respondents said they see Amazon Go as a type of grocery shopping experience that they would enjoy more than traditional grocery shopping.

“It seems like people are open to the disruption in the grocery industry,” says Kyle Olson, senior content manager at Digital Third Coast, a company that collaborated with Shorr on the survey.

But not everyone is ready to ditch traditional checkouts. Twenty percent of respondents said they feel they would be losing out on something by shopping at an Amazon Go store versus a traditional grocery store; drawbacks cited in the survey included the lack of ability to use coupons, lack of product selection and lack of social interaction.

Baby boomers were less likely than other generations to embrace the no-checkout technology; over 30% said they would be somewhat likely or not likely to shop at an Amazon Go store if they lived near one.

Millennial respondents were five times more likely than baby boomers to be “extremely likely” to shop at an Amazon Go store if one opened up nearby, according to the survey. “Millennials in general are used to online shopping environments and having our credit card information saved so we can purchase something quickly, or using our phones at checkout if we are at a brick-and-mortar location,” Olson says. “We’re fairly technologically ready in that sense.”

The challenges ahead

Not all industry observers expect Amazon Go’s retail experiment to be an overnight success.

Bob Phibbs, CEO of New York retail consultancy firm The Retail Doctor, suspects Amazon will try to license the technology behind the retail experience. But he’s skeptical that it’ll work immediately on a large scale, saying it’s a “far cry” from a boutique test to a supermarket that’s completely automated.

And accuracy will be essential, James Tenser, principal of content marketing advisory firm VSN Strategies, said in an email. “Ninety-nine percent is not good enough for a retailer anticipating tens of thousands of transactions.”

While the technology works on a small scale, there’s a lot to figure out before the no-checkout, no-line approach catches on at every grocery store, says Mark E. Bergen, chair in marketing at the University of Minnesota’s Carlson School of Management.

“I think all of us are ready for shorter lines, more efficiency and using technology to our benefit,” Bergen says. But shoppers may not embrace all the practical realities of this type of retail experience.

No checkout? You’ll have to bag your own groceries. No cash register? That could make it difficult to stock items that aren’t easily trackable. And no cash payments? Shopping will occur via an app where Amazon can gather a lot of data about you and your eating habits.

Right now, Amazon Go is a single store. There’s much to be perfected before complete automation is possible (and profitable) on a larger scale.

“Everyone in retail has already been paying attention, will look to see how this works and see if there are elements of what they do that they can automate,” Bergen says. “Then it’ll all be around competing on experience and price.”

Courtney Jespersen is a staff writer at NerdWallet, a personal finance website. Email: courtney@nerdwallet.com. Twitter: @courtneynerd.

5 Ways to Boost Your Chances of a Mortgage Preapproval

Let’s be real: Rejection hurts. It’s particularly hard if you’re denied for a mortgage preapproval, which is one of the biggest hurdles in the home-buying process.

Mike and Brittany Delgado know the feeling all too well.

In 2013, the couple tried to get a mortgage preapproval and were denied. Why? Mike’s credit report showed no history or FICO score.

“This was a surprise to us,” says Brittany Delgado, adding that her husband had paid off old debts, but the couple had never taken steps to re-establish his credit.

“Our lender outlined exactly what we needed to do and told us to start small — finance some furniture or a laptop — and make payments on time to build the credit back up. She warned us it would take a while.”

The Delgados’ experience is reflected in the results of NerdWallet’s Home Buyer Reality Report 2017.

“According to our research, borrowers who don’t understand the mortgage process or don’t know enough about their own credit history tend to hit obstacles or be rejected when applying for mortgages,” says Tim Manni, mortgage expert at NerdWallet.

“Educate yourself early about how to address the major issues that will prevent you from qualifying for the right loan or the best mortgage rates.”

To avoid getting denied on a mortgage preapproval, here are five steps to take before you fill out an application:

  1. Know where you stand. Review your credit report and check your FICO score to uncover any issues and determine if you need to build your score first. Calculate how much monthly debt you are carrying and how much you owe overall.
  2. Move quickly to fix mistakes. Contact the credit reporting agencies immediately if you see any incorrect or false information on your reports. Mortgage companies generally want loans to close on time, so they’ll pay credit agencies to update your credit report quickly with a rapid rescoring service, says Joey Abdullah, a mortgage planner with Fairway Independent Mortgage Corp. in Arvada, Colorado.
  3. Tackle debt head-on. Pay all of your bills on time and, if possible, in full every month. Learn which debts to pay down first to better your score quickly. For example, addressing delinquent collection accounts first usually has a more immediate impact on your credit score than paying down credit cards, says Steven Bogan, regional managing director of Glendenning Mortgage Corp. in Toms River, New Jersey. After you pay off delinquent accounts, make sure you have some good credit to show. If you don’t have an open credit card or loan, establish a new line of credit to build a positive payment history for your mortgage preapproval.
  4. Show consistent income over time. Your mortgage lender will want two years’ worth of tax returns and bank statements to show consistent income deposits. This can trip up a lot of borrowers, Abdullah says. First of all, if you earn most of your income from hourly wages, commissions or bonuses, or if you’re self-employed, you’ll need to provide two years of income documentation to your lender, Abdullah says. Expect to show your bank statements, pay stubs, tax returns and other financial paperwork. “Mortgage companies don’t go off your reality, and we don’t look at gross income but rather usable income [from tax returns],” Abdullah says.
  5. Rein in spending, create a budget and stick to it. It’s crucial to control your monthly spending and avoid large purchases (like a car) to lower your debt-to-income ratio and qualify for better interest rates. Don’t forget about those inevitable maintenance and repair costs that come with homeownership; having a budget, as well as an emergency fund, is important for the long haul.
Bottom line if you fail a mortgage preapproval

Even if you are denied a mortgage, don’t lose heart, says Brittany Delgado. It took her husband two years to build up his credit. First, he financed a laptop and paid it off over 12 months. Then, he opened a credit card with a small limit, which was increased after several months of on-time payments.

Those efforts paid off. The couple was easily preapproved in 2015 for a USDA loan for a newly built home outside of Austin, Texas, where they now live with their two young sons.

“We had always dreamed of being homeowners, and we didn’t want to pay rent forever,” Delgado said. “It’s why we uprooted our family to come to Texas from California, leaving our family and everything behind. Always keep the big picture in mind.”

Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: dkearns@nerdwallet.com. Twitter: @debbie_kearns.

It’s Time To Award Your Small Business Employees

It’s awards season! In a few days, we’ll be tuning in to watch the Oscars – The Academy Awards – which is a special occasion that acknowledges the finest achievements in the film industry from the...

So You Have a Brilliant Idea. What’s Next.

So you have a brilliant business idea that will be very successful. Now what?

Bad news: You don’t actually own that idea. You you can’t sell it. It has no value as just an idea.

Good...

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