Personal Loans 101

Family Features  |  2016-01-28

Choosing the Right Tools to Meet Your Financial Goals

(Family Features) If you happen to find yourself in a tight spot, borrowing money can help set you back on the right path. However, doing so without a full understanding of the facts can hinder your finances in the future.

“When faced with a financial emergency, most people don’t think through how borrowing money might affect them down the line,” said Susie Irvine, president and CEO, American Financial Services Association Education Foundation. “With so many options available, it’s relatively easy to get a loan, but the impact on your credit and what it actually costs you over time can vary a great deal.”

The two most common types of small-dollar borrowing are traditional installment loans and payday loans. Knowing the ins and outs of each type of loan and how they work can help you make the best decision for your financial situation.

Traditional installment loans are one of the oldest forms of finance transactions and provide credit to individuals and families who need access to credit to meet an immediate need, such as vehicle repairs, household appliances or medical expenses. Averaging around $1,500, traditional installment loans are “plain vanilla” loans with transparent, easy-to-understand repayment terms, due dates and payment amounts – which usually average $120 per month over a term of about 15 months. With regular, manageable payments of principal and interest, the borrower has a clear roadmap out of debt. Best of all, traditional installment lenders report payment activity to credit bureaus, improving a borrower’s credit score when payments are made on time.

Payday loans are repaid in a single balloon payment at the end of the loan period. This payment is usually due in less than 30 days and frequently the term is as short as 14 days. Payday lenders do not assess ability to repay, relying instead on a postdated check or similar access to a borrower’s bank account as assurance the loan will be repaid. If a borrower cannot afford to repay a payday loan in full when it comes due, they are left with no option but to refinance the entire balance of the initial loan. Although payday loans may appear to provide a quick and easy solution, this single, lump-sum payment can lead to significant problems for the borrower. Payday lenders have also been sanctioned in many states, and at the federal level, for abusive practices.

To learn more about affordable credit options that are available to help you better manage your money, visit installmentloanswork.com.

Is an Installment Loan Right for You?
When deciding whether to obtain a loan, consider the benefits and responsibilities. According to the American Financial Services Association Education Foundation, an installment loan:

  • Obligates future income. You’ll be required to set aside a certain amount of future income for loan payments.
  • Requires discipline. Borrowing wisely means not borrowing more than you can handle. Don’t let the thrill of buying obligate you to more than you can afford.
  • Makes it possible to meet unexpected expenses. The ability to borrow and make affordable payments can be helpful if an emergency arises that requires extra money.
  • Allows you to obtain products and services now and pay for them later. A loan can provide an opportunity to purchase bigger-ticket items and use them right away.

Loan Language
When you take out a loan, it’s important to understand the complete cost of repaying the amount you’ve borrowed. It’s a good idea to compare offers from multiple creditors and understanding these terms will help you calculate the real cost of borrowing to get the best deal. Here is a list of common loan terms from the American Financial Services Association Education Foundation:

  • Amount Financed: The total dollar amount of the credit that is provided to you.
  • Annual Percentage Rate or “APR”: A measure of the cost of credit expressed as a yearly rate.
  • Credit Insurance: Optional insurance that is designed to repay the debt if the borrower dies or becomes disabled.
  • Finance Charge: The dollar amount you pay to use credit.
  • Fixed Rate Financing: The interest rate and the payment remains the same over the life of the loan. Equal monthly payments of principal and interest are made until the debt is paid in full.
  • Length of Payment: The total number of months you have to pay the credit obligation.
  • Late Payment Fee: A fee that is charged when payment is made after its due date.
  • Monthly Payment Amount: The dollar amount due each month to repay the credit agreement

Keys to Credit Success
The American Financial Services Association Education Foundation offers this advice to help ensure that your interests are protected when you borrow money:

Budget your money. Provide your monthly spending plan when you meet with creditors. It will help them make a responsible decision about the amount of credit you can afford.

Don’t overextend. Be sure you can pay back the loan. Don’t bite off more than you can chew.

Get personal. If possible, borrow from someone you actually can see and talk to in person. Get comfortable with the lender, and let the lender get comfortable with you.

Shop. Compare costs. Shop for credit like you would shop for anything else.

Beware of “now or never” offers. If it’s a good deal, it will probably still be there after you’ve had time to think about it. Don’t be pressured into making a quick decision.

Ask questions. Don’t sign on the line until all your questions have been answered.

Read the contract. Don’t sign a contract that you don’t understand or has any blanks. A signed contract with blanks can be completed as anyone wishes and it will be legally binding.

Keep your contract in a safe place. It’s important to keep all paperwork relating to your credit obligations. If questions come up later, you’ll have your agreement in writing.
Make your payments on time and in full. This is one of the best ways to build a good credit history.

Additional products are not required to get a consumer loan. Optional products that may be offered for purchase with your loan include motor club membership, term insurance or warranties.

Photo courtesy of Getty Images

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Source: AFSA

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Tips On Using a Balance Transfer to Become Debt-Free

Brandpoint  |  2016-01-19

(BPT) - If you're carrying a balance on your credit card, don't worry - most Americans are too. In fact, the average U.S. household carries just over $15,000 of credit card debt, which isn't a bad thing when managed properly. Let's look at the big picture.

You most likely have more than one credit card - your first card is from your college days, and the second one you picked up because it had travel rewards. After a few years of properly budgeting your finances and making payments on time, you've improved your credit score quite a bit. That first card you got in college with the high interest rate no longer makes sense to have as a tool in your wallet. Sounds like it's time to consolidate your balances.

Balance transfers allow you to take the balances on your existing cards and transfer them to another credit card, usually at a lower rate. This new lower rate helps to reduce your level of debt because more of your monthly payment will go toward paying off debt principal, rather than paying interest.

"A balance transfer at a low rate makes it easier to pay down your balance, improving your debt-to-credit ratio as your balance decreases," said Randy Hopper, vice president of credit cards at Navy Federal Credit Union.

Reducing your debt sounds great, but wouldn't it be awesome to be debt-free? To truly benefit from a balance transfer, follow these simple tips:

Know when a deal isn't actually a deal

Typically, credit card issuers charge a fee associated with a balance transfer. This could be a flat fee per number of transfers, or percentage of the total balance you're bringing over to the new card.

"Keep an eye out for balance transfers with no fees, zero percent interest during the introductory period and a low rate after the intro period expires," Hopper says. This is where you can really make a difference to your credit score, but make sure you select a card that will give you enough time to pay down your balance in full.

Be sure to read the fine print on the zero percent offers, too. It could be in your best interest to choose a 2.99 percent APR that doesn't have a balance transfer fee, over a zero percent offer with a three percent fee. In the long run, it could cost you more than you're saving.

Consolidate from high to low

If you've got several credit cards and have trouble managing payments, consolidate to one card. You can save money on interest by moving your higher balances into this new account with a lower interest rate. Check the APR on all your credit cards to know which ones would be best for a balance transfer.

"This is a great option for store cards that usually have high interest rates, where credit unions never charge more than 18 percent," Hopper says.

Once you've consolidated your credit card debt, avoid making purchases until your debt is paid down. Remember, your goal is to become debt free. Making any new purchases will start accruing interest immediately, which isn't ideal.

Always pay on time

Make your payments on time or you could be hit with a penalty APR. Not only do missed payments negatively affect your credit score, but you could risk losing the low introductory rate as well. Forgoing your intro period APR could mean missing your goal of becoming debt-free.

"If possible, set up automatic payments along with alerts on your mobile device to ensure payments are made on time," says Hopper. "Maintaining a healthy track record will boost your credit score."

You'll lose them if you don't use them

Finally, when your balance hits zero, keep the account open. Doing so indicates your track record of reliability. As a general rule, credit cards that are in good standing over a long period of time positively impact your credit score. The longer these accounts are open, the better it is for your profile.

If you're looking for a lower interest rate, a simplified payment process, or both, balance transfers are for you. Reducing your credit card debt is within reach. With a good payoff plan and the right card, you could become debt-free sooner than you think!

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5 Tips to Protect Your Identity and Celebrate Refund Season

Brandpoint  |  2016-01-19

(BPT) - The holidays may be over, but refund season is just beginning, and there’s a lot to celebrate. This tax season, while consumers are eagerly awaiting their refund, tax preparation companies, tax officials and the IRS are working together to combat one of the fastest growing threats for tax season 2016 - tax identity fraud.

Based on IRS data, nearly 3 million people have been victims of tax identity theft since 2010. Every year, criminals use increasingly advanced tactics - particularly geared toward taxpayers filing online - to steal taxpayers’ personal information, file fraudulent tax returns in their names and steal their refunds. After fraud occurs, it can take months and multiple steps by the victim to access a stolen refund and regain an identity with the IRS.

Protect your identity - and your refund - with these five tax tips from H&R Block:

  1. File early and be cautious. Filing your taxes early will allow you to claim your refund before a criminal can. Before you file, protect your personal information by installing a security software with anti-virus and firewall protections.

  2. Keep your paper records safe. Shred records you are no longer using and keep your social security card and any sensitive documents under lock and key.

  3. Do not respond to individuals posing as a tax agency. The IRS does not demand immediate payment without sending a bill in the mail first. If you receive a phone call or an email with an external link, do not click on the link or share personal or financial information unless you personally know the person on the other end.

  4. Change your password. The 2015 tax season saw a significant increase of tax fraud in the do-it-yourself (DIY) space. When using at-home tax software, such as H&R Block’s DIY products, create a strong password with capitalization, numbers, and symbols or avoid the risk by visiting a tax preparer.

  5. Use tax identity protection services. Visit the IRS website to learn more about how to protect your identity. Additionally, H&R Block’s Tax Identity Shield provides clients with tools to reduce the risk of tax identity theft and resolution services, if a client becomes a victim of tax identity theft.

This tax season, take away the stress and put the “fun” back in “refund” by filing early. Plus, this year, you’ll have a chance to boost your refund - as an extra incentive, H&R Block is celebrating refund season by awarding $1,000 a day to 1,000 people. The first drawing for this limited time offer is Jan. 16. Visit hrblock.com/grand for rules and an alternate method of entry. Enter early to protect your refund and for more chances to win.

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Making the Most of College Financial Aid: 7 Tips You Should Know

Brandpoint  |  2016-01-12

(BPT) - What do parents of toddlers and parents of high school students have in common? Both worry about paying for college. With the constantly rising costs of higher education, financial aid becomes more important than ever for making the dream of a college education possible. So if you’re interested in receiving financial aid, where should you start?

“The Free Application for Federal Student Aid, or FAFSA, is your gateway to money for college from both the federal and state governments for most colleges and universities,” says Mark Kantrowitz, author of “Filing the FAFSA” and “Secrets to Winning a Scholarship.” “Filing the FAFSA correctly is crucial, as it has a direct effect on how much money you receive from various types of financial aid.”

College Ave Student Loans partnered with Kantrowitz to offer top tips for maximizing your need-based financial aid for college:

1. Save strategically

When it comes to covering the cost of college, financial aid should be at the forefront of your mind, whether you’re ready to file the FAFSA right now or not. It’s best to save money for college in a parent’s name, rather than the student’s, as the FAFSA assesses money in the parent’s name at a much lower rate. Every $10,000 in student assets reduces aid eligibility by $2,000, while every $10,000 in parent assets only reduces eligibility by up to $564.

2. File early

The earlier you file the FAFSA, the better. Right now, you should file the FAFSA as soon as possible on or after Jan. 1, but starting in 2017, you can start as early as Oct. 1. Ten states award aid on a first come, first served basis, and 12 have hard deadlines in February and March. Specific schools can also have specific deadlines, and students who file early may qualify for more aid. So, as a rule of thumb, file the FAFSA in January to maximize your eligibility.

3. Minimize income in the base year

Using income and tax information from a previous year, or base year, the FAFSA calculates the financial strength of your family. Because the formula is heavily weighted on income, it’s a good idea to reduce your income in the base year. If you can, avoid realizing capital gains. If you must sell stocks, bonds or other investments, try to offset capital gains with losses. Taking retirement plan distributions during the base year will also count as income.

4. Reduce reportable assets

Minimize your money in the bank by using it to pay credit card and loan debts. This not only makes good financial planning sense, but may help you qualify for more aid.

5. Maximize the number of children in college at the same time

Something as simple as having more than one child in college can dramatically increase your changes of receiving more financial aid. While you can’t change the ages of your children, you can use this impact on aid eligibility as a deciding factor when determining whether to allow your child to skip a grade.

6. Seek generous and low-cost colleges

There are many generous colleges, including some in the Ivy League, which implement “no loans” financial aid policies. This means they replace loans with grants in the student’s need-based financial aid package. Additionally, in-state public colleges are likely to be your least expensive option, especially after subtracting gift aid, grants and scholarships.

7. Organize your documents and information

Filing the FAFSA is all about the details. Pay attention and stay organized to get the job done right, starting by filing the FAFSA for the correct year and staying on top of deadlines. Make sure to use the right Social Security Number, date or birth, marital status and correct financial information. Follow the instructions and fill out the forms as carefully as possible to get the most accurate results.

Once you receive your financial aid award letter and assess your savings, you’ll have time to consider taking out a loan. If you need it, find a simple option that works for you, such as College Ave Student Loans.

Navigating the world of financial aid can be tricky, so follow these tips to maximize your eligibility and make college a reality. For more information and resources, visit collegeavestudentloans.com.

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(BPT) - Families who have children heading off to college are likely navigating an array of options when it comes to actually paying for higher education. A new white paper by Prudential Financial titled Paying For College: A Practical Guide for Families, seeks to dispel some of the misconceptions surrounding loans, grants, scholarships, and available tax benefits. If the bad news about financing a college education is that it can be complex and time-consuming, the good news is that families willing to educate themselves on the process (and familiarize themselves with the potential pitfalls) can develop a strategy that does not break the bank for students or the parents.

“It can be a daunting process, but well worth the effort, especially if it means avoiding large amounts of debt or not dipping into retirement savings ” said Caroline Feeney, President, Prudential Advisors. “If it seems too intimidating, don’t be afraid to seek guidance because there is a good chance you’ll be able to put the right payment strategy in place that works for your family.”

Creating a Plan that Fits Your Family

While earning a college degree is certainly a worthwhile pursuit, the skyrocketing costs of college tuition can leave many students laden with burdensome levels of debt. Parents can also struggle, often sacrificing retirement savings to help their children.

According to Feeney, “We urge families to tap in to school resources, guidance and financial aid counselors, as well as the experience of a financial professional who can help them make critical decisions with respect to leveraging existing financial resources in a way that helps protect longer-term financial security.”

The report provides a roadmap for financing a college education. It provides basic, foundational information about qualifying for undergraduate financial aid, taking out public and private education loans, and taking advantage of potential tax deductions and credits. It also offers targeted advice for single, as well as divorced parents.

Seeking Aid: Knowledge is Power

One of the primary goals when researching college payment options is identifying all of the sources that do not result in long-term debt. For families who lack the resources to save in advance or to fund that education on a pay-as-you-go basis, seeking all types of financial aid is essential. Some considerations include:

  • Becoming familiar with the application deadline and requirements for the Free Application for Federal Student Aid (FAFSA) https://fafsa.ed.gov/.

  • Learning the pros and cons of aid sources available, including grants, scholarships, work-study programs, tax credits, and tax deductions.

  • Researching the variables that affect a student’s access to financial aid, including choice of school, how much and in what form the family has saved for college, and how adept the family is at working through the process of applying for help.

Once they do their homework, families may be surprised to learn about more effective ways to qualify for grants and scholarships, and if student loans must be taken out, how to navigate the new repayment options that have become available.

Divorced and single parents also have special provisions available to them that are worth looking into.

“Every family has unique circumstances to consider. Investing time with a financial professional who can help guide them through resource planning can help alleviate some of the stress associated with understanding the process and making sure that the family’s finances are well handled,” said Feeney.

To learn more, visit www.prudential.com/payingforcollege.

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These 3 Steps Will Help You Get Out of Debt This Year

Brandpoint  |  2016-01-05

(BPT) - Providing for a family. Getting an education. Striving for the American dream. Sarah Thomas of Bono, AR, was like so many others, trying to better her life. She got a master’s in nursing in order to give herself and her son a bright future, but soon after found herself overwhelmed by loans.

“I pursued an education and ended up with a ton of credit card debt,” says Thomas. “The American dream gone wrong.”

She’s not alone. The average U.S. household with debt carries $15,355 in credit card debt and $129,579 in total debt, according to nerdwallet.com. And the Federal Reserve's interest rate hike this month means that you will be paying even more interest on your debt; that 0.25 percent rate increase equates to $2 billion in extra fees for Americans next year. For people like Thomas, the weight of paying off high-interest loans can be overwhelming.

Thomas was able to consolidate her high-interest debt and take control of her finances. If you want to take control of your financial future and eliminate debt, these simple yet highly-effective strategies can make a big difference.

Step 1: Build a solid budget
Use an online budgeting tool like Mint.com to organize your spending. Even if you aren’t able to stick to the budget you set every month, it’s important to know where your dollars are going so you can take action accordingly.

Step 2: Consider cost-cutting measures
Can you switch to a cheaper phone plan? Could you cut cable? What about buying generic brands? These are important questions you can ask as you audit your expenses and take appropriate measures to trim unnecessary spending.

Step 3: Research debt consolidation options
Marketplace lending, also called peer-to-peer lending, is an alternative to traditional loans through which borrowers get access to low, fixed rates (insulated from further rate increases by the Fed) with no hidden fees or prepayment penalties. The industry is growing rapidly, with one of the leading platforms, Prosper, surpassing $5 billion in loans this year.

For many, a debt consolidation loan helps simplify things. Instead of having multiple bills with varying high interest rates, you can take out a loan to pay off all your debt, and then simply repay the one loan at a lower fixed interest rate. For many people, having one payment versus many makes it much easier to feel like they are in control of their finances.

An added benefit is that rates are often lower than with a credit card. According to a WiseBread.com article, it’s important to begin the peer-to-peer lending process by getting a rate quote. Then you can do the math to determine how much money you can save consolidating your debt and paying it off at an accelerated pace.

Thomas decided to consolidate her debt through Prosper. She went to www.prosper.com and selected the loan’s amount and purpose. “It’s been the easiest, most streamlined process that I have ever had,” says Thomas. “I am so thankful that we now have an attainable way to pay off debt. That way we can be proud of our hard work rather than forever burdened by it.”

To learn more, check out Prosper’s blog at http://blog.prosper.com.

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This Year, Resolve to Make the Most of Your Employee Benefits

Brandpoint  |  2016-01-05

(BPT) - Many Americans start the New Year by resolving to improve their lives by exercising more, losing weight or making other changes. Based on research findings, one in five should resolve to put their financial house in order.

Research by MassMutual shows that many Americans struggle with their personal finances, especially when it comes to making the most of their employee benefits:

  • 22 percent of Americans admit they don’t understand their personal finances;
  • 22 percent don’t know which employee benefits such as healthcare coverage, life or disability insurance or retirement savings should be a priority;
  • 42 percent say they don’t know if they are on track to retire comfortably; and
  • 64 percent don’t know the details of their life insurance.

“Many people muddle through personal financial decisions and simply hope for the best,” said Elaine Sarsynski, executive vice president, MassMutual Retirement Services and Worksite Insurance. “Unfortunately, all too often people make the wrong choices and risk leaving themselves unprepared for life’s financial realities. Making the right choices can lead to greater peace of mind.”

Financial planning is a discipline built on a hierarchy of needs. Psychologist Abraham Maslow first introduced the hierarchy in the form of a pyramid to explain human behavior, starting with basic needs such as food and shelter at the bottom or foundation. Other needs build from there, in order of priority, including safety, social connections, self-esteem and, at the top of the pyramid, growth.

According to Maslow’s theory, basic needs must be satisfied before higher needs can be addressed. Food, water and shelter take priority over other needs such as whether or not your car has heated seats or a sun roof.

The hierarchy of needs work well when establishing financial priorities and making financial decisions, according to Sarsynski. The layers of the pyramid can be matched to financial planning choices and even benefits selections:

  • Be Safe: The foundation of the pyramid is safety. Most people and their families need financial protection from dying prematurely, suffering a long-term or even a short-term disability, or becoming seriously ill. That means most people should prioritize signing up for healthcare coverage, life and disability insurance.

  • Build Savings: Once financial protection is in place, many of us should address shorter-term goals such as accumulating personal savings, building up cash for emergencies, and eliminating short-term debts such as credit card balances and car loans. Purchasing critical illness coverage can help protect savings, potentially avoid future debts, or provide a financial cushion in the event you or someone in your family suffers a serious illness or injury.

  • Plan for Retirement: Next, most of us need to plan for the future, which means building wealth and reducing debt over the long term. Saving for retirement through an employer’s 401(k) or other retirement savings program is a good long-term priority. Other long-term goals should be saving for college if you have children and eliminating mortgage debt.

  • Pursue Dreams: Those who accomplish those goals and who are fortunate enough to have additional financial resources can then consider their financial dreams that fall into the esteem and growth categories. Travel, pursuing expensive hobbies, purchasing a vacation home and other goals should be pursued only after other needs are met.

“We all have important financial needs, wants and dreams. The key is to understand the difference and to take care of your most basic protection needs first,” Sarsynski said. “Your employer’s benefit package should be a place to start.”

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