How Gen Z Is Impacting Credit Usage

How Gen Z Is Impacting Credit Usage

As a Millennial, I’ve heard my fair share of criticism and disapproving remarks on our financial outlook from members of older generations. But, it’s a very strange feeling when you start hearing similar things from people within your own age group. After taking a hard look at our current economy, here are some real facts about how Gen Z is impacting national debt and credit usage.

What Are the National Statistics on Credit Usage?

Across the board, the average credit card balance and credit limit of Americans have been steadily increasing in recent years. This can’t be attributed to a single factor and varies greatly from person to person and quarter to quarter. However, credit usage is an important indicator of financial health on both an individual and national level.

Right now, Americans are carrying more debt and have higher credit usage than usual. Current statistics show that our credit card debt skyrocketed at the end of 2022. Although the total debt was $910 billion at the end of Q3 2022, it reached $986 billion by the end of Q4. This breaks down to an average credit card balance of $5,910 per person, which is an increase of 13.2% from the previous year.

Many economists believe this spike is due to inflation and interest rate increases implemented by the Federal Reserve. But, credit limits have also increased across all age demographics. Members of Gen X saw an average increase of 6.8%, Millenials received an 11.4% increase, and Gen Z experienced the greatest increase of 14.5%. Having access to a larger line of credit can often equate to greater credit usage.

And, this is further supported by the fact that more people are also applying for new credit cards. Application rates have steadily increased over the last few years, reaching the highest rate yet with a 27.1% increase in October 2022. Conversely, rejection rates decreased by 2.4%. These numbers suggest that more young Americans are using credit cards for their expenses.

How Does Gen Z Fit Into this Picture?

Whenever a new generation enters adulthood, it changes many financial statistics and national demographics. And, it’s fairly common for older members to be critical of this change.

For the purposes of this article, we’re looking at Gen Z which refers to people born between 1997 and 2012. As this group becomes legal adults and active participants in our economy, they will have a wide-reaching economic impact. However, we can learn a lot by looking at statistics from the last 12 months.

At the end of Q3 2022, this group had an average credit limit of $11,290 and a credit utilization rate of 25%. This rate was actually 3% lower than the national average. And, they also carried significantly less debt with an average amount of $2,854. However, Gen Zers who live in New York, California, and Texas have higher average balances than other states.

When looking at the average credit score, it ranks within the “good” range. In 2020, their average credit score was 674 and has since increased to 679. But according to data from Experian, Gen Z’s average credit score still remains well below the national average credit score of 714. While this may be a sign of poor financial management, it is more likely a result of this group having less credit history, fewer debts than other age groups, or not even having a credit card.

Learning How Credit Usage Impacts Your Credit Score

From this context, it doesn’t seem like Gen Z credit usage will drastically change national averages. But, there are some statistics that give cause for concern.

With more people applying for credit cards, there will be more credit card debt. This could be extremely problematic for young adults who don’t understand how credit works. If you don’t know how credit usage affects your credit score, you may be putting your financial future at risk.

If you are on the cusp of adulthood or have kids who are, take some time to understand why lenders look at credit utilization rates and how it impacts your creditworthiness. Part of becoming an adult is learning how to manage your finances. Credit cards are a powerful tool that can help you build a strong credit history. But like any tool, it requires knowledge and responsibility to use it effectively.

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What Should Investors Expect If the U.S. Debt Ceiling Isn’t Raised?

What Should Investors Expect If the U.S. Debt Ceiling Isn't Raised?

Once again, the national debt is making headline news and putting the country in a high-stakes standoff in Congress. While the thought of the government defaulting on its debt is cause for concern, the confrontation seems to have become a partisan ritual. Although it hasn’t happened yet, failure to act could have far-reaching impacts on both the U.S. and global economies. But how would this affect individuals? And what should investors expect if the debt ceiling isn’t raised?

What’s Going on with the U.S. Debt Ceiling?

It’s no secret that the U.S. government spends more than it collects in taxes. Therefore, it has to borrow money by issuing bonds in order to meet its financial obligations. However, the current debt ceiling caps the total allowable amount of outstanding debt to $31.4 trillion. And, the government reached this limit on January 19, 2023.

At this point, the Treasury has taken measures to make sure it will have sufficient funds through June. But if Congress fails to raise or suspend the debt limit, it won’t have enough to cover all its payments. An unprecedented event like this would cause rippling effects through the national and global economies, affecting all markets. The negative impacts of the U.S. government defaulting on its debt payments could trigger a deep recession amid the already tenuous economic conditions.

The extent of these effects would largely depend on how long the situation lasted. But one thing is certain; if Congress fails to reach an agreement, we will all feel the financial impact. Without the money to finance them, the government would have to slash its operations and programs – including national defense, Medicare, and Social Security. This would cause an economic freeze and leave many Americans out in the cold.

How Did We Get Here?

To understand what’s at stake, you also need to understand how we got here. Over the last two decades, Congress has signed off on legislation for trillions of dollars in additional spending which has tripled the national debt. And with the public debt now at 127% of the country’s GDP, it seems like that deficit is going to continue increasing. This alone is cause for concern. However, simply refusing to deal with the issue would lead to a government shutdown.

This is where the mandated debt ceiling becomes this issue. In the past, Congress has repeatedly had to either suspend or increase this limit to allow the government to continue operations. Since 1960, this has happened 78 times, under both Republican and Democratic presidents. It was usually done with little fuss, until 2011 when government infighting led to a downgrade in the United States’ credit rating.

Now in 2023, it seems like we are once again facing a high-stakes standoff that could have even more devasting economic effects. If the Treasury cannot maintain cash flow, it could lead to an economic freeze, millions of lost jobs, and a crippling spike in interest rates when conditions are already unstable. Tipping the scales even further could land us in the middle of a recession that will take years to recover from.

What Are the Odds of the U.S. Breaching the Debt Ceiling?

As it stands, government operations will continue until at least June 5, which is the earliest possible date the U.S. could default. Although there is always the threat that the debt limit will be binding, markets have assigned low odds that this will happen.

Looking at recent history, it’s likely that Congress will approve to suspend or raise the debt limit. The bill has already passed in the House, and will likely pass in the Senate as well. And even if it fails, the president can still raise the debt limit through an executive order.

While the national deficit is a powerful political factor, both sides of the aisle know the score and the potential risks of inaction. However, that doesn’t prevent them from political jockeying to gain the advantage.

What Can Investors Expect?

Although analysts expect both parties to come together to find a solution, the idea of a Congressional impasse is still a horrifying prospect. And it would have many significant implications for investors.

  • Stock Market Volatility

Defaulting would likely stoke short-term market volatility. But it’s hard to gauge just how much it would affect global markets since so much is dependent on participants. If business and consumer confidence are completely undermined, it would have catastrophic market effects.

  • Market Panic

When market conditions worsen, some investors panic and start selling off everything. If investors unload all their bonds at the same time, it could lead to a market panic and crash similar to what happened in 2008.

  • A Permanent Downgrade

If lawmakers can’t come to a resolution, defaulting would lead to a permanent downgrade from credit rating agencies. The loss of status would also raise the cost of borrowing, making future investments even more costly.

  • Higher Interest Rates

As bond market yields plummet and sell-offs continue, we’re likely to see rate volatility across the board. This would mean higher interest rates for everyone, further exacerbating the already high inflation rates.

  • Weakening of the US Dollar

If other countries perceive the U.S. as unreliable in paying its debts, it could reduce demand and weaken the U.S. dollar.

  • Increase in the Price of Gold

If we have a weaker U.S. dollar, it could lead to an increase in gold prices, at least for the short term.

  • Outperformance in the Defensive Sector

The increased risk of a recession could benefit more defensive equity sectors such as utilities, healthcare, and consumer staples.

The future will always be uncertain. But, there are moves you can make to mitigate your risks in the face of a recession. If you are concerned about your portfolio, it’s wise to seek expert advice. Your financial advisor can help put you in the best position to withstand potential volatility.

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5 Reasons Why Biden Opted for a Student Loan Freeze over Forgiveness

Why Biden Opted for a Student Loan Freeze over Forgiveness

During the 2020 election, student loan forgiveness was one of the key issues that President Biden built his campaign on. It’s also one of the promises many people burdened with student debt expected President Biden to push for after he won the election. However, a year later the Democratic party has made little progress towards this goal. Instead, they extended the moratorium on student loan repayment an additional 90 days. This is a far cry from what his supporters had hoped for. It’s merely a continuation of the relief measures initiated by the Trump administration when the pandemic began. Although it is disappointing to those drowning in debt, here are 5 reasons why Biden opted for a student loan freeze over forgiveness.

Biden’s Promise for Student Loan Forgiveness

Based on data collected over the last two years, Americans hold $1.57 trillion dollars in student loan debt. Meanwhile, the average person owes $38,792. As the economic pressures persisted, the federal government enacted the CARES Act. The objective was to offer financial relief by suspending payments, freezing interest, and stopping collection efforts on government-held student loans.

This extension affects nearly 41 million people, 27 million who have not been making monthly payments since the beginning of 2020. However, many Democratic leaders feel it isn’t enough. They are now pressuring him to deliver on his promise to seek $10,000 of debt forgiveness for those holding federal student loans. While his bill passed in the House, it still sits in the Republican-controlled Senate with little bipartisan support. But instead of pursuing this piece of legislation, Biden has once again approved the extension of the student loan freeze to prevent interest accrual.

When he approved the first extension under his administration back in August, he claimed it would only be delayed “one final time”. However, he has now extended the moratorium a second time, postponing the deadline until May 1. Furthermore, both President Biden and the Secretary of Education Miguel A. Cardona have told people to prepare to resume payments. This doesn’t bode well for those still holding on to the hope of student loan forgiveness.

5 Reasons Why Biden Opted for a Student Loan Freeze over Forgiveness

Although it doesn’t address his campaign promise, here are 5 reasons why President Biden opted for a student loan freeze over forgiveness.

1. It’s easier to extend the freeze than gain enough support to pass new legislation.

Student loan forgiveness is still a contentious issue. While everyone can agree the system is flawed, no one can agree on how to fix it. Some Democrats don’t think the bill for student loan forgiveness goes far enough. On the other hand, moderates and conservatives feel it is too expensive.

However, both sides of the aisle have already agreed to the moratorium for student loan repayment under the Trump administration. The truth is that it’s easier to get Congress to agree to another extension on something they’ve already passed rather than pursue the controversial bill.

2. It guarantees continued relief, even if it’s only temporary.

Another reason the Biden administration extended the student loan freeze over forgiveness is that it guarantees a temporary relief. Even if Biden is unable to fulfill his promise, it gives people a few months reprieve during economic uncertainty.

This action allows people to continue to keep their heads above water, even if the legislation is never brought to a vote in the Senate. Some may argue that a few more months won’t make much difference. Many more would disagree. It may allow people to gain a better financial footing. They can pay off other debts or focus on paying down the principal on their student loans before the moratorium expires.

3. His social spending plan is in danger.

In addition to the difficulties President Biden faces in passing the student loan forgiveness bill in the Senate, it also threatens support for his social spending plan. Some politicians who are willing to cross the aisle for other aspects of his proposed measures may withdraw their support if he pushes too hard for student loan forgiveness. So, an extension of the student loan freeze protects his plan. It’s an easy way to appease both parties without putting his other legislation in danger.

4. Biden is taking more targeted measures for student loan forgiveness.

Others believe that he opted for the student loan freeze over forgiveness since he plans to take a more targeted approach.  The theory is that Biden will enact debt relief through executive action since it wasn’t included in the initial stimulus plan. Furthermore, separate legislation would allow lawmakers to take broader actions towards student loan forgiveness.

Furthermore, there have already been a few reforms that wiped out $13 billion of student loan debt for more the 640,000 people. This includes legislation that has already forgiven $7 billion for those with “total and permanent disability” and relief to those defrauded by schools. However, many Americans are waiting for additional measures that are more inclusive.

5. He is afraid the relief will go to people at elite colleges.

Biden has evaded questions when pressed by the progressives in his party to enact sweeping student loan forgiveness. But when specifically asked why he opted to extend the moratorium again, he stated concern that relief would go to people attending elite universities and colleges. This seems like a weak response made up on the spot. Sadly, $10,000 of debt relief would hardly make a dent in the total tuition costs of ivy league institutions. It’s a flimsy excuse as he tries to buy more time and avoid criticism from both parties.

Will There Ever Be Student Loan Forgiveness?

No one has a crystal ball. It’s impossible to give a definitive answer if there will ever be complete forgiveness of student loans. While it would provide an economic stimulus, everything comes with a cost.

However, the Biden administration says it is conducting a legal review of the possibility of enacting student debt cancellation through executive action. The review is still underway. So, this extension could give Biden the time he needs to complete it. There may still be hope for those holding on to this campaign promise.

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What Should You Do with Your Unused Financial Aid Money?

What Should You Do with Your Unused Financial Aid Money?

When Do You Get Financial Aid?

There is no denying it. The cost of higher education can become astronomical. Therefore, many students receive financial aid to assist. Many schools award financial aid packages for students who qualify based on their financial needs once they apply for financial aid. The money applies towards tuition, room and board, and other associated fees. However, you may receive a check if you have any unused financial aid money.

Sometimes, the package overestimates your total costs leaving you with a credit in your account.  The school has a legal obligation to disburse whatever federal student aid is left over. So, they often send a check or direct deposit for the remaining amount. You will typically receive it after the add/drop period, which is usually about a month into the first semester.

Be wary though, because it isn’t free money. It is simply the amount available for you to borrow and will need to be repaid in the future, plus interest.

What Should You Do with Your Unused Financial Aid Money?

After the school has applied for all your approved funding, you may still have leftover money. So, what do you do with it? If you find yourself with a large amount of unused financial aid money, you have a few options.

1. Put it toward other educational expenses.

Not all your expenses will be included with your tuition and dorm fees. Many times you will find yourself buying additional equipment and supplies that you need for your classes. That’s why you receive financial aid. This money is intended to be used for student necessities such as textbooks, school supplies, computers, transportation, and child care. Although the school doesn’t automatically deduct these fees, most financial aid packages qualify them as educational expenses.

2. Use it for your living expenses.

Life as a struggling college student is hard. And, maintaining a full class schedule limits your job options, leaving little time for anything else. Therefore, you could use the leftover financial aid to cover your living expenses. Having the cash to cover rent, utilities, groceries, and medical bills can give you some breathing room and allow you to focus on your education.

3. Pay off other student loans.

If you had to accept subsidized student loans, then you are already accruing interest on the money you have borrowed. However, if you received additional unsubsidized funding, you could use the money to pay off loans with less favorable terms. Clearing these kinds of debts will save you hundreds, perhaps even thousands, in interest fees.

4. Transfer the funds into a dedicated personal account.

Another option is to transfer the unused funds into a personal bank account to use at a later date. That way, you have an emergency fund for any educational expenses or associated fees not covered by tuition.

Rather than sitting idle, putting the money into a high-yield saving account to earn interest while you decide whether to use it or pay it back. Or, whatever funds are left can be rolled over to the next semester. Not only does it keep your debt balance low, but also attempts to offset the high-interest rates on student loans.

5. Invest it.

With the same idea of putting your money to work for you, you may consider investing your unused financial aid money. Parking your funds in a 529 college savings account could earn you quite a bit of cash. Parents also like this option since the money can only be used for specified educational expenses.

6. Leave it in the school account.

If you don’t have an immediate need for it, you can view the money as an emergency fund. Even if you don’t withdraw it upfront, you can keep it as a safety net for any unforeseen expenses you may have later in the semester.

7. Turn down the money.

After reviewing your financial situation, you may decide that you really don’t need the money. If this is the case, you should probably consider turning it down. Similarly, you could claim a portion and decline the remaining amount.

Remember, this isn’t free money. There are still strings attached and loans to repay. This option will keep your student loan debt to a minimum and help you avoid accruing debt before you graduate. However, there is no need to make an immediate decision either. You have 120 days to decide if you want to cancel the loan to avoid interest rates on the unused money.

What Are the Tax Implications for Unused Financial Aid Money?

When you claim the overage check for your financial aid package, there are some tax implications you will need to consider. Since the IRS qualifies this money as income, you must claim it on your tax return. Furthermore, it could affect your FAFSA information and financial aid for the following year.

Therefore, keep records and track all your incidentals such as transportation, off-campus housing, and other optional equipment which is not required for your courses. And, you will also want to track how much you have earned for your services if you work on campus. Although your school will issue a tax receipt which you will need to include in your tax return, it’s always a good idea to have your own financial records.

So What’s the Best Option for Unused Financial Aid Money?

If you find yourself with a large amount of unused financial aid money, you have a few options. You may be tempted to spend it, but it is still borrowed money. So, act responsibly and think of the long-term consequences of your choices. You shouldn’t feel guilty about spending the additional money on things you need, but don’t put yourself further in debt than necessary.

Before you go on a spending spree, carefully consider your financial situation. And, be certain that you understand the limits of any scholarships and grants you receive. Some have specific terms that do not allow you to put the money towards your living expenses. It could also affect your future eligibility. So, be sure to check the fine print of your scholarship or financial aid to see how you can disburse your money. Make sure you understand what happens and talk with a financial advisor to help make wise financial decisions.

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How To Politely Request Payment for Money Owed

How to Politely Request Payment for Money Owed

Money is an uncomfortable topic for many people, especially when it comes to asking for payment. However, you have no reason to feel guilty or uneasy, especially if terms were already discussed. Every business expects payment upon completion or delivery of services. Therefore, it is not rude to request payment since you are merely asking for what you deserve. But, there is something to be said about how to politely request payment for money owed.

Politely Requesting Payment for Money Owed

When it comes to politely requesting payment for money owed, written communication is often best. It allows you to gather your thoughts, carefully choose your words, and review it to be certain you clearly convey your message. However, it can be difficult to find the right words to express yourself at times, especially when emotions are running high.

That’s why a well-drafted template can help you get what is owed sooner. These scripts follow communication etiquette to help you maintain a high level of professionalism, even when clients don’t observe the rules themselves. Here are a few ways to politely request payment while still being direct and precise with your message.

Email Timeline to Politely Request Payment for Money Owed

People who work with several clients, such as contractors and freelancers, schedule reminders at regular intervals to request payment. Automated responses allow you to remain professional and demonstrate that your request is strictly business, not personal. It also establishes a clear timeline and record of each attempt you make to politely request payment for money owed.

One Week before the Deadline

This message is a courteous reminder to the client that payment is coming due. Not only does it provide advance notice, but it also gives them time to gather any documents or funds.  Your tone should be friendly but reiterate the terms that both parties agreed to. Keep it brief and include a copy of the official invoice as well. This shows that you diligently track your expenses while gently letting them know you expect payment.

Due Date

This email should still be friendly since payment is not overdue. However, it should also have a clear call to action. You want to be informative, but also concise with your message. It’s your official notice that you expect payment. So, attach another copy of the invoice, just in case the client had difficulty accessing it from previous emails.

One Week after the Deadline

Once the deadline has passed, your correspondence requires a firmer tone. However, you can still remain polite and give clients the benefit of the doubt. In most cases, late payments are usually just an oversight. People make mistakes, so frame your message as if you are doing the client a favor by trying to help them avoid penalties for late payment. Include the invoice once again in case documents were lost or deleted. You can be firm while still politely requesting payment for money owed.

Two Weeks after the Deadline

By this point, it is clear there is a breakdown in the chain of communication. Either they have not seen your emails, or they are intentionally ignoring them. If the client has not responded, ask for confirmation that they have received previous notices. Requesting a reply greatly improves the chances they will respond. The message should be direct and emphasize that payment is overdue, but still allows some deniability. Since it is the second reminder, the tone should become more serious as your look for a solution.

One Month after the Deadline

After a month of waiting for payment, you will need to take a tougher approach. This final notice must be more direct and clearly show that you will not tolerate non-payment. You can also include that failure to pay could have other repercussions, like late fees or pausing future work.

Even if you are growing impatient, stay polite and professional. However, they need to know that you will not forget about payment or let it go. Be certain to avoid threats and accusations though, because they make defensive and less cooperative. Maintaining politeness gives you a better chance of collecting payment.

Verbal Contact for Money Owed

If you have made several attempts to collect payment via email, it is time to directly contact the client. In general, most issues can be resolved with a short conversation. Furthermore, it is more difficult to avoid the topic when you call or speak to them in person. It means they can no longer hide in anonymity and must give an immediate response.

For those who feel anxious about confronting a client about payment, prepare a short script to politely bring up the topic. Speak clearly and straight to the point, but don’t let your emotions overpower what you say. You also want to give them a chance to explain and make things right. You may discover that they never received your emails, invoices, or were too embarrassed to tell you they couldn’t pay. Either way, you are more likely to get an answer and work out a payment plan if that is the issue. Lastly, be sure to follow up with email summarizing your conversation for your records.

Requesting Payment for Money Owed after a Refusal

If a client refuses or ignores your requests, it is time for more drastic measures. However, you need to keep your cool at all times. Don’t resort to threats or give into anger. Instead, try becoming annoyingly persistent. If you make it impossible to ignore you with daily reminders, they will soon realize you are not going to give up on collecting payment. Your persistence will often pay off in the end.

Unfortunately, there comes a point when you exhaust all polite means to request payment and must cut ties. If you still want to receive payment, you may need to turn it over to a collection agency. This is usually reserved for more serious situations involving large sums of money. If you go this route, they will also ask for any documentation you have, including the written agreement and all requests for payment. Be advised they will take a percentage, but receiving even a portion of the money owed is better than nothing.

In most cases, late payment is usually due to poor time management. It is not usually malicious or intentional. Some people are just terrible at keeping schedules and need reminders. However, polite correspondence speaks volumes to your professionalism and builds a better reputation in both your personal and professional life.

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The Risks Of Investing While In Debt

Terrible Investing Advice You Should Ignore

Investing while in debt is a touchy subject for obvious reasons. Some believe that investing while in debt is an effective financial decision while others believe it is counterproductive. Money owed increases with time due to compound interest. With no guarantee of returns, investors who have debt put themselves at risk of bankruptcy. Many may, however, find that waiting to invest presents costs in terms of unrealized profits that could have been made from investments. Continue reading

Comparing Loans for Your Needs

At any given moment, we will need a loan to help us meet our financial goals. Whether it is for personal use, for a major, big-ticket purchase, or get by to the next paycheck, it’s important that we find the right loan that will make purchasing easy and help improve our credit. Here is a list of various types of loans, how they function, and how it could be used to help you meet your needs.

Line of Credit Loan

A line of credit loan is similar to a credit card. You apply at a bank and they extend a line of credit to you in the form of a loan. You can access that line of credit at any given moment to use as you see fit. Requirements for a line of credit will vary a little bit based upon the bank, but most require that you are 18, have a good credit score, and meet specific income requirements. Some banks require that you have a checking or savings account with them. This type of loan is available to anyone who meets the requirements but is especially popular for the small business person who may need to access the credit for business purposes.

Same Day Loans

If you have bad credit and yet find yourself in dire need of help, the same day loan is what will most likely be available to you. They often don’t perform a background check and can process the loan the same day, usually within a few minutes to a couple of hours. They require that you are 18 years old and possess a checking account that can transfer payments back to them on an agreed schedule. This is often used by people who find themselves in need of paying a bill or covering their rent due to financial hardship. However, these types of loans are wrought with incredibly high-interest rates and equally high fees. You may borrow $600 initially but then pay $300/month over the next 6 months. These loans are not recommended if you can find any other way to cover your bill.

Pay Day Loans

Pay day loans are designed to help you bridge your finances in between paychecks. They are easy to obtain by simply being 18 and providing proof of income. These are often sought after by folks living paycheck to paycheck. However, like the same day loan, they are riddled with fees and high interest rates. More than likely, you will spend your entire next paycheck paying off your loan and then finding yourself still in dire need of money. It can be a vicious cycle that you do not want to find yourself in and we recommend you avoid these loans at all costs.

Personal Loans

A personal loan is often obtained through the bank or credit union and provide you the ability to make a fairly large purchase, such as new computer equipment or to pay for car repairs. Others choose to use a personal loan to pay off outstanding debt so they can avoid higher interest rates. You must be 18 and verify your income, additionally proving that you have the income to pay off the loan. Many banks or credit unions require that you have a bank account with them, but not all do. Credit unions often offer discounts to your pay schedule if you have an account and agree to transfer the payments out of the account on the due date.

Before applying for any loan, inquire about interest rates! The better your credit, the better deals you can find. If you have credit that isn’t that great or even downright bad, ask if the creditor will be reporting your payments to the credit bureaus. If they are not, avoid taking the loan. You want to make timely payments and have it reported to improve your credit!

How to Pay Off Student Debt

Nearly three out of every four students graduating from a four-year college or university will have some sort of debt.  Despite the fact that college is supposed to be some of the best years of your life, paying off your student debt after you have graduated can seem like a mountain too big to climb for many.

How to Pay Off Student Debt

According to a recent Forbes article, the average student graduating from college has over $37,000 in student loan debt.  This number is expected to continue increasing due to the constant hikes in college tuition throughout the United States.  Whether you have graduated or are about to graduate from college with debt, there are ways to help you manage the financial burden.

Example 1 on How to Pay Off Student Debt:

Susie went to a four-year state school.  Fortunately, she had academic scholarships to help pay for schooling, and she also lived at home during the four years.  She graduated with $10,000 in student debt.  Susie was able to get a job right after school in the town where she went to school and where her family lived.  She continued to live at home and made a budget.  Susie focused on keeping her expenses low and used every bit of extra money she had left over in her budget to pay towards her loans.  Most importantly though was that she included a category in her budget for paying off her student loans each month.  She devoted $500 per month towards her student loans.  Because of her frugal living and her devotion to get out of debt, she was able to pay off the entire balance of her loans in less than two years!

Example 2 on How to Pay Off Student Debt:

After graduating high school, Chris decided to attend a private university to continue his studies.  The tuition at his university was expensive, but with the help of aid and an alumni scholarship he was able to limit the costs.  Regardless, Chris graduated with $45,000 of student debt after it was all over.  Chris accepted a job with a non-profit after graduation.  Even though he wouldn’t be making much money, he felt a calling to do something he passionately cared about.  Because of his situation, a high amount of student debt and a low salary, he enrolled in an Income Based Repayment Program.  This allowed Chris to avoid the high monthly payments his loans would typically have required him to pay and instead allowed him to pay a small percent of his income every month.  Even with this program, Chris still had to create a budget, but the repayment of his student loans was not as high of a priority as it was for Susie.  Nonetheless, Chris was able to still live comfortably, doing what he loved, while also meeting his student loan obligations.

The examples above illustrate a couple of real-life situations that people face when paying off student debt.  To some, paying off the debt is a very high priority.  To others, not so much.  Only you can decide how quickly you would like to pay off student loans.  The commonality that both Susie and Chris shared in both examples was that they created a budget.  Susie created a budget that allowed her to aggressively pay off her debt.  Chris created a budget that allowed him to live within his means but also meet his payment every month.  Regardless of which category you fall in, creating a budget is a great foundation to tackling any debt, especially student loans.

What is the Starting Credit Score?

credit score

Having a credit score can have many benefits.  Wait, having a good or great credit score can have many benefits.  As we go through life, credit becomes an essential tool for an individual to progress through society.  You can use credit to purchase everyday items, a car or a house.  Without credit, some of the essential purchases we rely on to carry us through our lives every day would be unavailable, such as a car for transportation to and from work.  Having a credit score and a good one at that can allow you to get the best deal on large purchases and also helps create a financially responsible person.  But just how does one get a starting credit score, and where do you begin?  I will lay out some of the easiest ways to start down the path of a good credit score.

Step 1 to getting a starting credit score:

The first thing you need to do to get a starting credit score is simply to get credit.  The easiest way to do this that I recommend is by opening up a $0 annual fee credit card.  Your monthly limit won’t be all that much, most likely less than $1000.  Commit to making a couple of easy purchases on it every month and paying it off at its due date.  For example, a couple of tanks of gas or a visit to the grocery store is all it takes to start building your credit.  It is vital to pay off the full amount after a month’s time before the card’s due date

Step 2 to getting a starting credit score:

The second step to building a starting credit score is to continue purchases with your credit card and meet the monthly payment date, along with exploring an additional option of building your score.  If you rent an apartment, sometimes the apartment complex allows you to report your on-time payments to credit agencies.  Additionally, if you have student loans you are paying back, this also will show up on one’s credit report.  Time is a big factor in your credit score.  It usually takes at least six months for you to build your first credit score.  Image result for credit score rangeIf you make on-time payments in full, you can expect a score anywhere in the range of 675 to 740.

Step 3 to getting a starting credit score:

By step 3, you should already have shown a positive pattern to creditors through making payments in a timely manner.  The most important part of this step is just to be patient.  Building a good or great credit score takes time.  Two of the bigger factors that impact your credit score are the length of time you have had credit and the number of accounts you have that required credit.  Chances are as you start building your credit both of these factors won’t be too much in your favor.

In summary, there are many benefits to building a good credit score, but it all boils down to a few simple factors.  Firstly, you need to begin building credit through a $0 annual fee credit card, student loan repayment, etc.  Secondly, you MUST make your full payments and make them ON TIME.  Finally, you need to be patient.  It takes time to build a great credit score, but if you budget correctly and make sure not to spend above your income level then a great score will eventually come.

Budgeting With Credit Card Debt

I recently spoke with an individual who was excited to begin his budget.  He downloaded the spreadsheet available on my site and asked me to look over it.  Everything looked good except for one thing I noted.  This individual had a category as follows:

Credit Card Payment (minimum)

This shocked me for a number of reasons.  First and foremost, the minimum part that was included.  Secondly, paying off your credit cards is not an expense.  For example, if you go to the grocery store and spend $50.00 on groceries but apply the charge to your credit card, then your budget should reflect a $50.00 purchase on groceries.  The credit card is simply a means to pay for it.  Finally, I recognized that this individual had credit card debt, and he assumed paying off in minimum installments would eliminate it.  Yes, theoretically, as long as no further debt was incurred, but it would take a while.

This ultimately led me to the following conclusion.  This individual had a significant amount of money remaining in their budget every month.  I advised him that if I was in his situation I would do the following:

  1. Make sure I am able to cover all of my necessary expenses in the budget.  This would include rent, gas, food, student loans, etc.
  2. See where some expenses can be cut.  Bringing his lunch to work versus going out to eat might be the smartest financial decision until he gets his credit card debt under control.
  3. Use any extra money at the end of the month to pay off the remaining balance on the credit card.  Credit cards are notorious for having extremely high-interest rates.  The quicker you tackle this type of debt, the more you save.
  4. Set a goal for paying off the credit card debt.  We agreed by the end of the calendar year.  Once the debt is paid off we could redo the budget and include categories for savings, retirement, and other financial goals.

Credit card debt can be a nasty thing, but a budgeting approach to handling it can make your financial life much better.  Use a budget to pay off your debt if you have any, then you will be able to create additional space to begin planning for your financial future more aggressively.


Budget Smart, Invest Wise