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1 In 3 College Students Don't Know What Their Loan Payment Will Be

MoneyTipsToday, well over half of all college graduates incurs student loan debt in pursuing their degrees. Although seniors may learn a lot, they may not know their monthly payments. According to a new survey conducted by Barnes and Noble College Insights on behalf of College Ave Student Loans, 35% of college seniors are unsure as to what their monthly student loan payments will be. According to, the average student loan debt for 2016 college graduates was over $37,000. Such a debt holds you back in life unless you learn how to manage it wisely. Jocelyn Paonita, founder of The Scholarship System, notes that recent graduates "have to put their money to this large loan payment rather than being able to put it to other opportunities that can build their wealth in the long term...I think it's a huge challenge for students and graduates." While the College Insights survey found that many college students were not sure what their student loan payments would be, students were generally good at estimating debt information. Median estimates of student loan debt at graduation were between $30,000 and $40,000. Most seniors had done enough groundwork to know their expected salary, with 49% expecting their starting salary to be over $35,000 annually. If anything, this may be a slightly conservative estimate, with average (not median) starting salaries just under $50,000. It's important to start budgeting now to be able to effectively manage your student loan debt and avoid long-term effects on your wealth. The first step is to estimate your likely income properly, as well as your regular monthly expenses – such as student loan payments. Start with a conservative assumption on budgeting, and lay out a full budget for your first year after graduation. Use a conservative estimate for your starting salary, and unless you already have a job lined up, run some scenarios to find out how long you can handle being without a job after graduation. Check the terms of your student loan for options on grace periods, deferment/forgiveness programs, and alternate income-based repayment plans. Budgeting for both an average outcome and a worst-case scenario provides confidence that you can handle whatever your post-graduate life brings – and the motivation to avoid worst cases. When you do get out on your own, don't forget that budgeting help is still available. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, advises: "If you're not fully educated in your options...just take a step back...There's plenty of information out there online about all the products and programs that are offered and the variety of tools that you can use to either pay your loans off faster or minimize the amount of interest you're paying over the life of the loan." Don’t forget to check your credit score, which can help determine your ability to refinance. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. Find out quickly at what rate you can refinance your student loan. Several online student loan repayment calculators are available to help you estimate your monthly payment. For help calculating repayments under alternative student loan repayment plans, check the Student Loan Website sponsored by the U.S Department of Education. Do some research and don't be afraid to consult with financial experts for help if you are having difficulty with your own financial planning and budgeting. You may have learned a lot in college, but remember that life is a perpetual learning process. Photo © Posted at: Dos and Don'ts For Managing Student Loan DebtVideo: Cutting College Costs During Your Student YearsStart Paying Student Loans Before Graduating

Don't Risk Your Credit Score In Retirement

MoneyTipsRetirement represents a new stage in your life. It's a time of change and opportunity. To make the most of your opportunities, you must make sure that one aspect of your life does not change – your good credit score. A recent survey by the credit bureau TransUnion found that over 30% of Baby Boomers are making mistakes that can affect their financial fitness during retirement. This finding implies that seniors may underestimate the value of credit after their careers are complete. According to TransUnion data, retirees and near-retirees still maintain significant debt. The average Baby Boomer has just under $100,000 in debt, and understandably, is focused on relieving that debt burden. If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips. The survey also found that just over one-third of respondents are reducing their dependence on credit cards during retirement. Eliminating debt is a positive sign, and doing so is necessary to improve a credit score – but if seniors are eliminating credit usage at the same time, they may be neutralizing their credit score gains. Cancelling infrequently used credit cards may seem like a good strategy, but your credit score may be adversely affected. Adam Carroll, Founder and Chief Education Officer of National Financial Educators, explains: "When you have a long-standing trade line, which is what a credit card is considered on your credit report, and you cancel that card for whatever reason, your score will actually go down as a result because one of the main impacts on your credit score is the length of credit history." A shorter credit history translates to higher risk in the eyes of lenders. Sean McQuay, Credit and Banking Expert at NerdWallet, agrees – but includes another reason to keep older cards, noting that closing a card account results in "decreasing your overall credit line, which basically signals that a bank trusts you less." In addition to decreasing your overall credit line, closing an infrequently used account raises your credit utilization – your total credit in use compared to your cumulative credit line. High credit utilization suggests a greater chance of falling behind on payments and/or defaulting on debts. To avoid these pitfalls, make periodic small purchases on all your open credit cards to keep them active and pay the balances in full at the end of each billing period. By keeping credit spending low, you can still address debts while getting the full benefits of your credit account. It's okay to concentrate most of your credit spending in one account to maximize rewards. Just use alternate accounts often enough to keep them from being closed for lack of activity. Periodic checking of your credit report can also prevent credit score damage. Whether they occur by mistake or as a result of fraud or identity theft, adverse additions to your credit report can drop your score significantly. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. Without a regular check on your credit report, a successful scammer can drain your resources through fake accounts and charges before you realize there's anything wrong. Protect your personal information in all online activities and financial transactions, and check your report periodically to make sure that your efforts are paying off. In the words of April Lewis-Parks, Director of Education and Public Relations at Consolidated Credit: "The best ways to avoid being a victim of identity theft is to always be aware of what you are doing." Keeping a good credit score in retirement requires the proper mindset, and that mindset is not prevalent among Baby Boomers. The TransUnion survey found that only 16% of survey respondents considered maintaining good credit as a top priority – but you don't have to follow the crowd. Make good credit a priority, and you can enjoy benefits such as reduced insurance rates, great rewards deals on credit cards, and access to loans with reasonable interest rates just in case you need one. The other 84% of your peers will marvel at how you do it. Photo © Posted at: Reasons Why Retirees Need To Know Their Credit Score 5 Things You Don't Know about Your Credit ScoreFinancial Stability Discounts 101

No Simple Solution To The Social Security Deficit

MoneyTipsNothing is as easy as it seems. If life were easy, we could solve the financing gaps in Social Security in five simple words – eliminate the cap, problem solved. Life isn't easy In the words of H.L. Mencken, for every complex problem, there is an answer that is clear, simple, and wrong. Nothing is that easy. Eliminating the cap does not solve the problem. It does not officially even kick the can anymore. According to the Congressional Budget Office and the Social Security Administration, this policy option addresses about 40 to 70 percent of the shortfall. What is the wage cap? Currently, payroll taxes of 12.4 percent apply to the first $127,200 of a worker's annual wages. When a worker earns his 127,201st to infinity dollar, there is no tax. Does limiting the range of payroll taxes make sense? No one can really say whether the concept is achieving its aim, because no one really knows why the limit was incorporated in the original legislation. Since its enactment, this aspect of the program evolved on autopilot into a mechanism to pay the bills. At this point, the maximum amount subject to payroll taxes rises faster than inflation. Social Security is intentionally progressive In the original design of the system, the crafters planned for those with means to pay more for benefits than less-affluent workers do. That feature hasn't changed to this day. On the last $1,000 of wages, everyone pays the same amount of taxes. Yet, the formula gives the lower-wage worker a monthly bump in benefits that is nearly six times larger than the increase given the person who is working for the full taxable amount. Unfortunately, the program has changed so much that these higher-paid workers not only pay more for benefits, but also likely lose money in the process. That was not the intention of the founders. FDR did not want the program to be confused with a public dole because he feared that would put the elderly at the mercy of the politicians. FDR did not want a "damn politician" (his words) like Senator Bernie Sanders or Governor Chris Christie to judge who does and who does not need benefits. At this point, the threshold serves to close out the program's incremental progressivity, a circuit breaker preventing the system from becoming overly dependent on subsidies from the rich. The problem is that no one can tell you where that circuit breaker needs to be. A programmatic dichotomy: welfare or insurance? The reason that we find little consensus on changing the amount of earnings subject to payroll taxes derives from the fundamental ambiguity in perceptions of the system, either as a form of welfare or a form of insurance. People who see the program as welfare assistance see no reason that those most able to pay for the bills should be excused from carrying the cost. On the other end of the spectrum, you find people who want the program to be insurance that is independent of the politics of the day. If Social Security is insurance, it is no more reasonable to ask the rich to pay ever-higher premiums than it is to ask them to pay more for bread, a car, or movie tickets. How would you like to go to the movie theater and be told that the price of the ticket would depend upon how much you make? Complicating the deficit picture Typically, we look at policy for Social Security as though it operates in a vacuum. The fact is that it doesn't. These changes would trigger secondary actions within the broader economy that would exacerbate the nation's deficit, and increase the overall level of debt owed by the country. While Social Security is not "counted" toward the nation's deficit, that truth does not mean that the program does not contribute to the gap in our nation's financing. Most economists believe that payroll taxes are offset by lower wages on a dollar-for-dollar basis. Lower wages reduce the income tax revenue collected. If we increase the payroll tax on wealthier workers, the corresponding reduction in wages will translate into large reductions in income tax collection. Economists call this process behavioral response. In terms of higher taxes on wages, employers respond by slowing wage growth and employees shift compensation to things like stock options or health benefits, which lie outside of the scope of payroll taxes. To illustrate the progression, the Social Security cap in 1984 covered about 90 percent of wages. Today it is around 84 percent. It is simple. Wages subject to a 12.4 percent tax will grow more slowly than wages without such a constraint. Conversation stopper The policy option today serves as a discussion plug, ending the exchange on how we can fix Social Security. A large audience sees the crisis forming, but believes that raising the taxes on someone else will end the problem. They join the conservation just long enough to say: eliminate the cap, problem solved. This answer doesn't solve the problem, and will draw Social Security further into the spotlight of budget negotiations. In total, it largely fixes our headache by giving our children a bigger one. Nothing is easy. Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle. Photo © Originally Posted at: Is The Social Security Shortfall?How Would You Fix Social Security?Can Social Security Really Go Bankrupt?

Student Loan Refinance Can Save You Thousands

MoneyTipsAre you dealing with thousands of dollars in student loan debt? You are not alone. According to, the average graduate from the Class of 2016 owes $37,172 in educational debt. While student debt can be daunting, it's important to take the advice of Millennial Money Expert Stefanie O'Connell: "The best thing you can do about tackling your student loan debt is to be proactive." If you have a decent job lined up and a superior credit rating, you have an extra tool in your proactive repayment arsenal – refinancing. According to Adam Carroll, Founder and Chief Education Officer of National Financial Educators, "The student loan refinance business has absolutely boomed over the last five or six years." The reason for the boom, according to Carroll, is that student loan interest rates are relatively high – up to 9% in some cases. Refinancing becomes a reasonable option for those who can qualify for lower rates based on new income and a relatively clean credit history. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. According to SoFi, student loan borrowers can save an average of over $22,300. In one case, you can even earn frequent flier miles through refinancing your student loan. Loan refinance group SoFi has partnered with JetBlue to offer one TrueBlue rewards point for every $2 refinanced, up to 50,000 points. However, you must do your homework before refinancing. Carroll suggests, "If you have a significant number of loans and you're just looking to refinance, but you're not doing the math or you're not fully educated in your options... take a step back. There's plenty of information out there online about all the products and programs that are offered." First, it's important to understand your existing student loan terms and the protections that you have. If your student loans are private, it's simply a matter of comparing interest rates and loan terms with your current and expected income – doing the math, as Carroll says. However, Federal Student Loans come with repayment options and protections such as forgiveness, cancellation, and forbearance. Be sure that your income is secure enough that you will not need these options – because once you refinance through a private lender, those options are gone. Debts from medical school and law school are prime targets for refinancing, because both debt loads and post-graduation incomes are usually quite high. However, you can save considerable money regardless of the amount you owe or make, as long as your credit score warrants a lower rate with more favorable terms than your existing loan and those terms result in monthly payments that you can afford. Shop around for vendors and compare your options. At current rates, you may be able to qualify for variable-rate loans below 2.7% and fixed rate loans below 3.4% – but make sure that you include closing costs and fees in your comparison calculations. If you are interested in refinancing but don't have a sufficient credit score to make refinancing viable, make an action plan to bring your score up to a suitable level. Make sure that you are paying all bills on time. Use a budget to control your spending and avoid credit-score killers like high credit utilization and credit balances that are increasing faster than income. Seek counseling from a financial professional if you can't seem to make any progress. Refinancing a student loan is not for everyone – but don't dismiss it out of hand just because you don't make a six-figure salary. It all depends on your financial stability and whether you qualify for a better rate based on current conditions. At lower salary levels, it's even more important to save as much money as you possibly can. Find out quickly at what rate you can refinance your student loan. Photo © Posted at: Clinton's 6-Step Student Loan Plan1 In 3 College Students Don't Know What Their Loan Payment Will BeUnique Student Loan Lender Offers Millennials More Than Money

28 Percent Of Non-Retired Adults Have No Retirement Savings Or Pension

MoneyTipsSocial Security was only designed to supplement retirement income, not to replace it – yet a recent report by the Federal Reserve indicates that over one-quarter of Americans will be relying on Social Security to get them through their retirement years. According to the Report on the Economic Well-Being of U.S. Households in 2016, 28% of non-retired adults reported having no retirement savings or pension of any kind. Half of the survey respondents have 401(k) programs, 31% have IRAs, 46% have outside savings such as bank accounts or CDs, 25% have traditional defined benefit pensions, and 25% have other retirement income sources such as real estate or business investments – so clearly a significant number of Americans have multiple retirement savings sources aside from Social Security. Still, 28% report having none of these sources. Who are the folks dependent on Social Security? As you might expect, lower income correlates well to a lack of a retirement program, as does youth. The survey sorted respondents into three annual income levels (less than $40,000, $40,000 - $100,000, and over $100,000) and found that only 44% of respondents with incomes below $40,000 had any type of retirement savings at all. This is not a surprising finding. The less money you make, the more difficult it is to have money left over after expenses – if you can avoid outright deficits. Still, the contrast is striking. For respondents making over $100,000 per year, 95.7% have some retirement savings, with the percentage only varying from 95.5% to 96.6% across all age groups. Ironically, high earners in the 18-29 age group have the highest participation rate. Perhaps acquiring a high salary at an early age indicates responsible fiscal behavior. In the $40,000 - $100,000 income range, 86.7% reported having some form of retirement funds, but there is a clearer difference among the ages. Only 78.3% of those aged 18-29 have retirement funds compared to 92.5% of those aged sixty and above. A similar age discrepancy shows up in the low-income category. Only 39% of low-income respondents age 18-29 have any kind of retirement funds, compared to 57.3% of those aged sixty and above. In essence, when considering the ability to save for retirement, age is a minor factor but income level is a major factor. While it may be a struggle for you as a low-income American to find money to put away for retirement (or as a young American tempted to apply your money to things other than retirement savings), it's extremely important that you do so. By starting late, younger workers miss out on the effects of compounding. Meanwhile, low-income workers have a greater need to supplement Social Security because benefits are based on income levels during working years. A lower salary equates to lower taxes paid in and lower benefits at retirement. If you have no retirement plan, it's never too late to start. Start by estimating your benefits upon retirement using the Social Security Administration's Retirement Estimator. Estimate how much income you will need at retirement – a good rule of thumb is around 80%-90% of your pre-retirement income. Calculate the difference between income and benefits. Then set up a budget to get a surplus to fill the gap in your retirement goals, and decide how best to apply that surplus (IRA, 401(k), or other vehicle). Don't be discouraged by a large retirement savings gap. You have started down the proper path, and by taking any pre-emptive action at all, you are in better shape than you were. Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle. Photo © Posted at: Than Half of Americans Making Less Than $40,000 Annually Have No Retirement SavingsHow Much Income Will You Need For Retirement?7 Top Retirement Roadblocks

Trump Voters Still Want that Wall… Even If We Pay For It!

MoneyTipsDuring his successful Presidential campaign, Donald Trump vowed to crack down on illegal immigration, promising, "I will build a great, great wall on our southern border, and I will make Mexico pay for that wall." Do we still want a wall built? A recent MoneyTips survey says no, but Trump voters say yes. In fact, they're willing to have America pay for it! When Donald Trump accepted the nomination for President at the Republican convention, he told the crowd, "Decades of record immigration have produced lower wages and higher unemployment for our citizens, especially for African-American and Latino workers." In an exclusive MoneyTips survey conducted in June, 466 Americans were asked whether they agreed or disagreed with the following statement: I believe President Trump's immigration policies are improving the American economy. Half of the people surveyed disagreed, with nearly 3 out of 4 of them (74.2%) disagreeing strongly. The results: Less than 1 out of 3 (30.3%) agreed with the statement, with less than 15% agreeing strongly, and less than 16% merely agreeing. Women especially do not feel Trump's immigration policies are helping the economy; 54.5% disagreed to some extent, with only 27% in agreement. For men, less than 45% (44.5%) disagreed, with more than 34% agreeing. Age also appeared to be a factor, as only 20% of people younger than 40 agreed at any level with the statement, and a whopping 58.8% disagreed. Among those older, 35.6% agreed, and 45.4% disagreed. Who did agree with the President? Trump voters. Nearly 35% agreed strongly, while more than 35% simply agreed. More than 70% of Trump supporters agreed overall, while less than 7% disagreed at all with the statement. In contrast, less than 5% of Hillary Clinton supporters agreed, and more than 87% disagreed. People who didn't vote for either top vote-getter, or didn't vote at all, also didn't agree. Says Dr. Michael Zey, Professor of Management at Montclair State University's Feliciano School of Business in New Jersey, "The majority of Americans surveyed reveal that they are not convinced his immigration policies will help the economy. Trump must take his case to the American people even as he attempts to dramatically transform America's immigration strategy." What's the most we should spend to build a wall between the US and Mexico? 59% of people surveyed did not want a wall built. A look at the results: Women wanted the wall less than men did, with 63.5% of the women and 53.6% of the men reporting that they opposed building it. Although the majority was against it in nearly every age group, older respondents tended to want the wall more than younger ones. More than 72% of adults under 29 were opposed, while that number drops to 51% for people aged 60 and up. Two-thirds of the people whose families make $50,000 or less annually were against the wall, as opposed to 54% of the people whose families make more. On the other hand, less than 20% of Trump voters said they didn't desire a wall, as opposed to more than 80% of the non-Trump voters. Compare that to Hillary Clinton supporters; nearly 88% were opposed. Among the people who want a wall, is there a limit to how many tax dollars we should spend? The answer appears to be no. Over half (52.4%) of those who want to build the wall say do it no matter the cost. Of the rest, 31.4% say spend up to $10 billion, 10.5% limit it to $15 billion, and 5.8% cap spending at $20 billion. Regarding the cost in April, Trump estimated, "I think $10 billion or less. And if I do a super-duper, higher, better, better security, everything else, maybe it goes a little bit more." He recently proposed a "solar wall" that could "create energy and pay for itself." Among people who desire the wall, the group that wants it the most no matter the cost contains families who earn more than $200,000 annually. 63.6% of those high-earners who want the wall wouldn't cap the costs. Among those surveyed whose families earn $50,000 annually or less, less than half (49.2%) don't care about costs. Older people also cared less about cost than younger people polled did. Only 43.4% of wall-proponents under 40 set no limit on costs, compared to 55.8% of those 40 and older. Trump supporters may want to build the wall, but many also want to budget for it. While more than 56% of wall-proponents wouldn't limit the costs, 31.1% would spend up to $10 billion, 9.1% up to $15 billion, and 3.8% would cap spending at $20 billion. Those findings are similar to the overall numbers. However, among the few Clinton voters who want the wall built, over half (52.6%) would only spend up to $10 billion, and only 31.6% would build it without considering cost. Summarizes sociologist Zey, author of many books including Ageless Nation, "Throughout the election campaign, Trump repeatedly argued that a restriction on both legal and illegal immigration would stem the influx of cheap labor and thereby strengthen Americans' job and wage prospects. He also linked illegal immigrants entering via the US-Mexico border to terrorism and crime. Americans not only voted Trump into office but also provided him a GOP House and Senate to produce legislation that addresses their concerns. Expect Trump to follow in the footsteps of previous presidents and make good on his campaign promises through legislation and executive orders." Read more exclusive Trump survey results and check your credit score and credit report for free within minutes with Credit Manager by MoneyTips. Photo © Originally Posted at:'s Headlines Trump and Taxes Part 2Poll: 57% Of Americans Think Trump Will Affect Their Retirement StrategyHow Will Trump Affect The Workplace

Today's Headlines: Credit Scores Drop For Mortgage Refinances

MoneyTips Opening Up the Housing Market According to a recent report by The Urban Institute, mortgage credit is coming into reach for a growing number of Americans. The median credit score associated with home mortgages backed by primary mortgage purchasers Fannie Mae and Freddie Mac dropped from 742 to 725 between June 2016 and April 2017, resulting in the lowest median value since the housing crisis. At the same time, Fannie and Freddie are altering one of the primary criteria for potential mortgage borrowers. Both agencies are increasing the acceptable limit on debt-to-income ratio (DTI), the percentage of your gross income devoted to paying off your monthly debts, from 45% to 50%. In essence, lenders are willing to cut you more slack on your debt load when evaluating your ability to repay a mortgage. On the surface, this is good news for the housing market. A lower median credit score and greater debt tolerance opens up the housing market to more potential homebuyers, helping to spur market growth. However, each factor has secondary considerations that may blunt the positive effects. Supply and Demand The Urban Institute's more detailed analysis found that mortgage refinancing was the primary driver in falling median credit scores. The median credit score for refinancing actually rose from June 2016 to October 2016, and then fell 27 points to reach 725 in April 2017. Median credit scores for home purchases also hit 725 in April 2017, but only fell four points from October to reach that mark. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. The data shows a similar cycle between October 2014 and July 2015, where the median score for refinancing increased and broke away from the median credit score for home purchases, only to fall back to the same level. Why would these cycles occur? It may relate to differences in supply and demand. For home purchases, supply and demand are dictated by the number of available homes in the price range of potential homebuyers, the number of buyers competing for those homes, and the general financial conditions of those homebuyers. With refinancing, the number of available homes or buyers is not a factor – you only care about your home and its current value. Refinancing requires a low enough interest rate for you to see a financial benefit. Rates have been relatively low for some time, and many who qualified for refinancing have already done so – leaving lenders scrambling for more business in this segment. Rising home prices and interest rates that are still relatively low make refinancing a reasonable opportunity, but to get the desired loan volume, lenders must find ways to extend loan qualifications in a responsible way. Lenders and the agencies are not adjusting rules out of empathy – they are proceeding because it's a sound business decision from their perspective. Recalculating Acceptable Risk While lenders may be willing to extend the DTI limit to attract more customers, they're not willing to simply open the floodgates as in the pre-crisis days. There is still genuine business incentive – and regulatory pressure – for lenders to accurately gauge borrowers' ability to pay. Fannie Mae made this clear, noting that over a decade of research has shown that borrowers that fall into the 45% to 50% DTI range are a relatively good risk and not likely to default. Many have mitigating factors such as significant down payment funds or financial reserves. In order to maintain the same risk ratio, it's possible that borrowers with a higher DTI ratio — but an otherwise stellar credit history — could receive a mortgage loan over a borrower with a DTI ratio below 45% but with other extenuating factors, such as a history of periodically missing payments. The DTI shift is increasing the pool of potential applicants, but not necessarily the number of approved borrowers. These changes may help you to qualify for a mortgage, especially a refinancing loan, but in the end you still have to qualify based on your collective financial metrics. The Takeaway Lower credit score thresholds and greater acceptable debt levels may make it easier for you to buy or refinance a home, but you need to consider all factors carefully before taking on a new mortgage. Just because you have the ability to act doesn't mean you should. For refinancing, start by setting your objective. Are you simply trying to lower your monthly payments? Pay off your loan earlier and save on total interest cost? Remove private mortgage insurance? Once your objectives are clear, it's relatively easy to use online refinance calculators to determine if your desired benefits are greater than the refinancing costs. You must be equally cautious when buying a home. Don't be tempted to buy a larger, more expensive home than you need – especially when you are now able to qualify because your current debt load is considered to be less of an obstacle. The bank may have decided that you will be able to repay the debt, but can you realistically agree? Map out your future budget assuming occasional large, unexpected expenses to verify that you are likely to avoid dangerous debt levels. If you find that these new conditions are in your favor, congratulations! Feel free to take advantage of your new opportunity. Just don't let it take advantage of you. MoneyTips is happy to help you get free mortgage and refinance quotes from top lenders. Photo © Originally Posted at: Of First-Time Homebuyers Kept Out Of MarketVideo: How Your Credit Score Affects Your Mortgage RateToday’s Headlines: Housing: Supply Down, Prices Up

Roth 401(K) Better Than Traditional 401(K)

MoneyTipsIs a Roth 401(k) preferable to a traditional 401(k)? Generally, that depends on tax rates and whether you prefer to pay taxes as you contribute in your working years or as you withdraw funds in retirement. Roth 401(k) plans are created with after-tax funds, while traditional 401(k) plans are funded through pre-tax dollars. By choosing a Roth 401(k) and paying your taxes upfront, the savings in your account grow tax-free, and once you have held the account for at least five years and are past age 59-½, your withdrawals are also tax-free. Withdrawals from traditional 401(k) plans are taxed as ordinary income upon retirement. Harvard Business School researchers found that Roth 401(k) accounts produce greater purchasing power in retirement than traditional 401(k) programs because of basic human nature – people's tendency to use rules of thumb when determining their retirement contributions. Contributions are often made in terms of percentages or dollar targets, and a flat savings rate makes a huge difference when considering pre-tax vs. post-tax dollars. Let's assume that you are maxing out your 401(k) at the current limit of $18,000 annually (and that you haven't reached age fifty yet to allow a $6,000 catch-up contribution). With a Roth 401(k), that $18,000 contribution will still be worth $18,000 at retirement. With a traditional 401(k), that $18,000 contribution is only worth $18,000 minus whatever tax rate applies at retirement. To think about it another way: If you are contributing $18,000 to a Roth 401(k), you are indirectly contributing more than $18,000 toward your retirement because you are also paying the taxes on those funds in that same year. This advantage could be partially neutralized by future tax rates. If you are in a high tax bracket now, your tax bracket in retirement is likely to be significantly lower – thus the taxes you pay now by contributing to a Roth 401(k) are greater than the taxes you will pay upon withdrawal. Lead study author John Beshears gives the following example in an interview with the Wall Street Journal: Assume an annual $5,000 contribution to a 401(k) for forty years until retirement, with a 5% return. The balance will be $600,000 at retirement. At a 20% tax rate – not unreasonable upon retirement – the spending power is reduced to $480,000. With a Roth 401(k), the spending power of that nest egg is still $600,000. While the Harvard study finds that Roth 401(k)s tend to result in greater purchasing power, that doesn't mean that you should dismiss a traditional 401(k). If you are maxing out your 401(k), a Roth is clearly a better choice – but otherwise, you can simply adjust the contribution amount to a traditional 401(k) upward to account for anticipated taxes at retirement, and gain the further tax advantage of lowering your taxable income during your working years. Depending on your employer's plan, you may be able to hedge your bets. Some employer plans allow you to have a traditional 401(k) and a Roth 401(k) simultaneously – but your total contributions are still capped at the annual limit. You may be able to alternate annual contributions between the two accounts, or possibly divert an annual percentage to each account. The cost/benefit calculations are not straightforward and require some assumptions on growth, inflation, and tax rates. We advise running scenarios on your preferred retirement scenarios using online calculators – or, better still, seek the advice of a financial professional who can address your retirement goals and lay out your best options in an understandable way. Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle. Photo © Posted at: 6 Things to Do for Your Retirement at Age 50The Biggest Retirement Mistake is Complacency5 Common Mistakes in Retirement Investments

Save Money By Making Internet Shopping Harder

MoneyTipsFor years, shopaholics had to battle against the ease and convenience of late-night TV ads. Their classic pitches led thousands of people to buy items that they did not need, all available with a simple phone call. The advent of 24-hour shopping channels like QVC and the Home Shopping Network made it even easier to spend yourself into bankruptcy. Then, the Internet arrived. Internet shopping allows you to search for any item you can think of and purchase it online with a simple click of the button and entry of a credit card — or just the simple click if your payment information is already on record. Even browsing the Internet with no intention to buy can turn into a shopping spree if you run across items that you "simply cannot do without." What's a shopaholic to do? The first order of business is to admit that you have a problem with impulse shopping on the Internet. After that, it is a matter of setting up minor roadblocks to make Internet shopping more difficult without taking drastic measures like closing your credit card accounts. Consider these measures that will slow down the process and give you time to reconsider whether or not you really need that customized bowling ball or package of thirty smartphone covers. Do not Store Information – Most sites encourage you to store your basic information so that they can expedite the checkout process — especially your shipping and credit card information. Your browser is probably set to autofill the information into most forms. Disable the autofill capability of your browser and decline to store credit cards and other information online. It will take you several minutes to enter that information, which may be enough time to talk yourself out of the purchase. Budget your Small Purchases – Apps for mobile devices are so cheap that it is easy to make impulse buys without thinking how quickly small purchases add up. That is also true for music purchases through iTunes, or other similarly inexpensive downloadable items. Set yourself a budget by using a prepaid gift/credit card and use it to budget small app and download purchases. Load it at the beginning of the month with your budgeted amount and track the balance during the month. You may run out in the first month, but with time, you will learn to track your spending and get in the habit of controlling your purchases throughout the month. Pause Before Checkout – Websites give you the opportunity to review your basket before purchase to make sure that all the details are correct. Take a set amount of time (perhaps five to 10 minutes) to leave the items in your checkout basket and simply walk away from the computer. If you still want the items when you return to the computer, go ahead — but at least you will have had some time to think about it. Block Sites – If nothing else works, try blocking sites at various times during the day when you are most vulnerable to impulse purchases. Programs like StayFocusd or Leechblock can allow you to block websites temporarily and save you from draining out your bank account. We hope that these tips can help you from maxing out your credit cards with Internet impulse buys. If not, you may want to shop exclusively at stores with liberal return policies. At least, then there’s a chance you’ll have come to your senses by the time the now-unwanted purchase arrives. If you want more credit, check out MoneyTips' list of credit card offers. Photo © Originally Posted at: Online Store Return PoliciesWackiest "Of The Month" ClubsToday’s Headlines: Online Shopping Surpasses In-Store

Survey Shows People Using Credit Cards For Home Renovations

MoneyTipsAre you planning to renovate your home in 2017? There's a better than 50/50 chance that you are, if a recent poll by LightStream is accurate. The January 2017 LightStream Home Improvement survey found that 59% of homeowners plan to spend money on renovations during this year, with 42% of the planned renovations costing $5,000 or more. Surprisingly, while 60% of those planning renovations intend to fund their project out of savings, 29% plan to pay for their home improvements with a credit card. That's far more than the 9% expecting to use a Home Equity Line of Credit (HELOC) or the 7% who prefer to take out a home improvement loan. Use of credit cards to pay for home renovations appears to be on the rise. The 29% cited in the 2017 survey represents an increase of four percentage points over the 2016 survey. Is it wise to put such a large expense on your credit card? That depends on your financial situation and your renovation plans. Paying for home renovation costs with your credit card can earn significant credit card rewards, but those rewards can be quickly negated by interest charges if you have to carry a balance. Review your renovation budget to see how long it will take to absorb the costs, and whether the costs can be spread out evenly enough that you can avoid carrying a balance throughout the entire project. Compared to a HELOC or a home improvement loan, credit cards are likely to have considerably higher interest rates. If your renovation budget is likely to surpass your cash flow, it makes more sense to review loan options and rethink the use of plastic. There's no guarantee that loan terms will be better, especially if you have a poor credit score or enough collective debt that you only receive high-interest rate offers, but at least you have options to consider. (You should probably also consider whether you can afford to renovate at this time.) Do you need to move forward quickly with your renovation? If so, credit cards may become a more attractive (and instantaneous) option – but loan approval process times vary by vendor, and you may be able to find loans with attractive terms that only delay your plans by a few days. In essence, if you cannot afford to pay off your renovation costs out of your savings, you should compare your credit card terms with loan options. How do HELOCs or home loans that you can qualify for compare to your credit card interest rate? Use online resources to compare the interest charges over the life of a loan with the estimated interest charges on credit card balances. Don't forget to consider the effect on your credit score under either scenario. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. If you can afford renovation costs up-front, it probably makes sense for you to use your credit card instead. Pay off all charges at the end of the month, and reap all the possible rewards. You may temporarily close in on your credit limit and lower your credit score, but your credit score should fall back into shape once your spending returns to normal levels. Perhaps you can apply your credit card rewards toward a final accent piece that makes your renovation complete – or take a well-deserved vacation instead. You can always enjoy your new home renovations when you return. If you want more credit, check out MoneyTips' list of credit card offers. Photo © Originally Posted at: Improvement Spending On The Rise5 Home Improvement Projects under a GrandMortgages for Buying and Improving a Home
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