Kansas State University

search

Powercat Financial

Author: ekoochel

Repaying Student Loans

Posted on by ekoochel

Image result for student loan interest

For those of you with student loans, you may have noticed that your unsubsidized loans have already started to accrue interest while your subsidized loans have not.  This is because subsidized loans are need-based loans that don’t accrue interest during deferment. On the other hand, unsubsidized loans begin accruing interest when they are disbursed.  Even though you don’t have to start paying the interest that has started accruing on your unsubsidized loans until you have your grace period has passed, it helps in the long run if you do.

In this example, a student takes out a $5,000 unsubsidized loan with an interest rate of 3.76% during their freshman year of college.  After four years, the student graduates college and then takes advantage of the six month grace period before paying back any of the interest or principal on the loan.  During that time, the student accrued interest of $846 on the loan, increasing the loan balance to $5,846.  If the student uses the standard repayment plan, which is the loan balance divided up into 120 equal monthly payments over 10 years, then the student will have to pay a total of $7,036 in repaying the loan.

Now, let’s say that the student paid the interest that accrued during deferment of $846 before the grace period ended, keeping the balance of the loan at $5,000.  If the student uses the standard repayment plan, then the student will have to pay $6,018 to repay the loan, bringing the total amount spent on the loan to $6,864.  By paying the interest that accrued during deferment before the end of the grace period, the student will save $172 by the end of the repayment.

That student was able to save $172 by paying the interest that accrued on the unsubsidized loan during deferment because of avoiding capitalization.  Capitalization on student loans is when the loan servicer adds the interest that accrued during deferment to the principle balance of the student loans.  By doing this, when it comes time to repaying the student loan, the student will then have to pay interest on the principal and the interest accrued.  Therefore, the student will be paying interest on interest.

While it may seem like the student in our example didn’t end up saving much in the long run because it was only $172, the student only borrowed $5,000.  Our example student’s loan debt is extremely low compared to the average student.  According to Student Loan Hero, “the average Class of 2016 has $37,172 in student loan debt.”  This means that the average student has over seven times the amount in student loans than the student in our example.  As the amount of loan debt increases, the more important it is to avoid capitalization.

Timothy Stricker
Graduate Assistant
Powercat Financial Counseling

$tart the Semester off Right

Posted on by ekoochel

Image result for new semester

The fall semester is in full swing! As you begin navigating new class schedules and balance the demands between work, school, and fun it is important to make sure you are financially set for the semester. College is synonymous with students assuming a greater responsibility for managing their own money – many for the first time.  Here are some helpful tips to make sure you start the school year off right!

Take control

Take control of your finances from day one.  It is easy to neglect our finances, but it is imperative to begin good money habits now. College is great place to establish your own financial identity and take charge of your personal economy. The good money habits you start now will continue to apply past college.

Create a budget

A budget is key to financial success! Begin with identifying your monthly income sources (i.e. savings, wages, allowances, student refunds, or other resources). Then determine your monthly expenses (i.e. rent, utilities, school supplies, food, leisure activities, etc.) You can do this by going through your bank statements, collecting receipts, writing down purchases, or using https://www.mint.com/, a free site that sorts your debit/credit card transactions into categories. Although these expenses may fluctuate from month to month it is important to begin tracking them for proper planning.

Use, don’t abuse credit cards

College is a great time to start building credit.  However, it is important to understand the benefits and responsibilities of credit, and know the difference between credit building and overextending.  A credit card is a loan, not free money! You have to be able to repay the debt that is incurred. Ideally you want to pay any outstanding charges in full and on time. If you do not pay the entirety of the balance on time you will accrue interest charges and late fees, in addition to the principal. Compare interest rates, annual fees, and be sure to read the fine print regarding introductory incentives. Visit http://www.k-state.edu/pfc/credit/ to find more tools and resources for comparing potential credit cards.

Keep Track

Make it routine to check in with yourself. Set a reminder on your phone to review your budget and spending for the month. Our financial lives are always changing so be sure your budget is being reviewed regularly to reflect these changes. Keep records of your spending, and continue to keep making good money decisions!

Look for ways to save

Take advantage of student discounts from the local businesses. Be on the lookout for local advertisements around town and on campus. Check online for student deals on travel, food, clothing, books, entertainment, etc. Make a list before going to the grocery to avoid buying what you don’t need and clip coupons online.

For more information on these financial topics and more make an appointment with Powercat Financial Counseling. We offer free and confidential peer-to-peer consultations on campus.  Visit our website at www.ksu.edu/pfc to schedule an appointment!

Emily Koochel
Graduate Assistant
Powercat Financial Counseling

Peer Pressure and MONEY

Posted on by ekoochel

We have all been put into a situation financially where we did not have the money to spend but spent anyways! Being a college student does not help with this situation either. We live in a world where most feel the need to keep up with their peers and by doing that we sometimes end up spending money that we do not have. Unfortunately, there is not a magic formula to being able to say, “no” when the time comes to financial obligations.

We sometimes go out of our way to avoid tricky situations, especially when it involves money. However, there are some steps that you can take to assist in being able to stick to your budget and not spending money that you do not have. Having honest communication about your finances with your friends and loved ones, budgeting for events, limiting yourself, and not keeping score.

Communicating your goals to your friends and family.

You should be honest with your friends and family when it comes to your goals financially. If they understand what you are trying to accomplish they will have a better understanding of why you turn outings down and why saving or getting out of debt is so important to you.

Budgeting for events.

Almost every goal that you set for yourself in life may have money involved. It is important to set your goals early and decide how you are going to achieve those goals. Budgeting does not have to be only for big lifelong goals, it can be for mini trips or having a fun night out with your friends.

Limit yourself to the amount of activities you do.

In today’s society we often feel pressured to be involved and to not say, “no.” Saying no to going out to dinner, drinks or buying new items all the time can be difficult but it is important to learn how to limit yourself.

Keeping score.

Keeping score with your loved ones, friends and family can be dangerous. When it comes to money you should never compare yourself to what others have or make. Each individual is going to be in a different place at a different time. It is important to not try to keep up with the Joneses.

I leave you with this remember that peer pressure can be difficult but if you make your goals and priorities your number one focus it will affect you less. Last but not least if you ask to not be peer pressured financially or you ask for their help with sticking to your budget from your friends remember, to do the same for them.

By: Camila Haselwood

References:

Friends with Money: How to Handle Peer Pressure

Retirement Plans

Posted on by ekoochel

The end of the school year is only weeks away. Many students are getting ready to graduate and jump into a career.  Upon starting a career there is a lot of information you need to be knowledgeable on such as work culture, vacation policies, and salary! Another important aspect of your future career that may get overlooked your company’s employer sponsored retirement plans.  An employer sponsored retirement plan is when both an employer and an employee make contributions into a retirement specific account each month. The contributions are invested on behalf of an employee, who may begin to make withdrawals after retirement. Traditional employer sponsored retirement plans fall into two categories, defined benefit plans and defined contribution plans.

Now that we’ve defined what an employer sponsored retirement plan is and the categories they fall into, let’s jump into the most commonly seen plans.

401(k) Plan

The traditional 401(k) Plan is the most common employee sponsored retirement plan today.  It is a defined contribution plan that is mostly funded by the employee, but often times offers at least a partial employer match.  Features of the 401(k) plan include total control of funds for the employee to invest in until retirement and tax deductible contributions the year they were contributed. This means the all earnings in the 401(k) plan will accumulate on a tax deferred basis until distributions are taken out at retirement. At this point distributions will be taxed as ordinary income.   Annual contributions for 2016 are limited to $18,000, with a catch-up provision of an additional $6,000 for those who are at 50 and above. Early withdrawals (before age 59 ½ ) will face a 10% penalty, and will be taxed as ordinary income.

Defined Benefit Pension Plans

A defined benefit pension, also called a traditional retirement plan provide a fixed monthly payment at retirement for an employee.  In a defined benefit pension plan employees are not responsible for making any contributions because the employer will supply all funds.  Because of this, employers will make all investment decisions and have complete control over the funds contributed until the employee reaches the plans retirement age.

403(b) Plan

The 403(b) works almost identically to the 401(k) Plan but it is specifically intended for non-profit organizations.  So teachers and health care professionals listen up!  The plans are funded mostly by employees, and those contributions are tax deductible when made. Employers usually match these contributions up to a certain percentage.  Contributions percentages are very similar to a 401(k) plan and investment earnings accumulate on a tax deferred basis.

The retirement plans we highlighted are just a few of the most commonly seen plans offered.  Other plans include the Savings Incentive Match Plan for Employees Plan, Simplified Employee Pension Plan and the 457 Plan.

If you would like more information on the plans we discussed or have any other questions regarding retirement plans and contract negation, Powercat Financial Counseling is here to help! Schedule an appointment at http://www.k-state.edu/pfc/ to see one of our knowledgeable Peer Financial Counselors.

Brett Zapletal

Peer Counselor I

Know What Goes Into Your Credit Score

Posted on by ekoochel

If you are one that pays your bills on time, you deserve some sort of reward. That is exactly what your credit score is for. Basically, your score can tell lenders, credit card companies, landlords, and even employers how much of a credit risk you are to them.

So check out what your score means, what goes into making your score, and some tips on how to improve it!

What does my number mean?

The most used credit score is called your FICO score, which will normally range from 300-850.

750 or Higher: Having a score higher than 750 will put you in the top 20% of all U.S. consumers. This will lead to the lowest interest rate available when applying for loans.

700-749: If you have a score that falls in this category, you are still sitting at above average. Here, you should feel pretty confident when applying for a loan but should know that your score can still be improved.

640-699: With a score in this category, you will find yourself at the national average. This should tell you that you have plenty of room to grow and that you should look for new ways to establish credit.

580-639: Having a score in this category, you find yourself below the national average. With this score, you may or may not be accepted for loans or new credit, and if you are, the interest rate will be often fairly high.

579 or Lower: This is the lowest category. If your score sits below 579, you should definitely look for new ways to establish credit so that you are able to take out necessary loans when that time comes.

Debt can be scary, but it is extremely difficult to establish a solid credit score without taking on some amount of debt. Do not be credit invisible and begin to establish a credit history.

The five factors that go into making a credit score:

35% – Payment History: Your payment history carries the biggest wait of all five factors. It is vital that you make your monthly payments on time so that your score is positively affected. The way you handled money in the past is often the way you’ll handle it in the future.

30% – Amounts Owed: Lenders want to see that you don’t overuse your credit. Often times, you should want to keep 75% of your credit line available at all times to increase your score.

15% – Length of Credit History: Your credit score will take into account the oldest and newest accounts into consideration. The longer you have an account open, the better. Never cancel old accounts, even if you are no longer using them.

10% – Types of Credit: Your score considers a mix of types of credit. This will include credit cards, student loans, mortgages, etc. Make sure you don’t open too many or too few of one type of account.

10% – New Credit: Don’t open multiple new lines of credit in a small amount of time. This could lead to hard inquires that will negatively affect your credit score. Hard inquires occur when lenders or creditors request your credit report to approve you for a loan or credit card.

Credit cards are not the culprits; abuse of credit cards is!

Tips to help improve your credit score:

  • Check your free credit report quarterly to make sure there are no inaccuracies on your report. You can pull one free report from each of the credit bureaus per year (Equifax, Experian, Transunion)
  • Pay the bills on time to show that you are a responsible consumer
  • Reduce your debt. Each time you make payments on your debt, your credit score will improve
  • Put the shared utility bills in your name and make on time monthly payments
  • Shop for loans quickly. If lenders make multiple hard inquires within a two week period, they will only count as one inquiry.

Nolan Keim
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

 

Is It Time to Buy a Home?

Posted on by ekoochel

Is it time for me to buy a home? This is often a question many students about to graduate ask themselves. But, even if you’re not getting a diploma in May, there are still many factors to consider while preparing to buy or rent a home.

  • Interest Rates Are Low. In the past interest rates for mortgages have been close to 17%. But currently they are staying around 4-6%, which is an advantage for buyers.
  • Your credit can affect both your ability to get a mortgage and get approved for a lease. Just know that you can help yourself by building credit early on. A person with a higher credit score is more likely to receive a lower rate for their mortgage. For example:

Sales Price:                         $80,000
Down Payment (5%)      $4,000
Loan Amount:                   $76,000
4% Interest Rate              Monthly Payments = $362.84
6% Interest Rate              Monthly Payments = $455.66
That is a difference of $33.415.20 for a 30 year mortgage!

  • First Time Homebuyer’s Programs. There are various programs specifically designed for people who have never owned a home. Some of the benefits of these programs include: income-based grants (for qualified candidates), lower down payments, and help with loan approval. For more information on different programs visit http://www.kshousingcorp.org/homebuyer-assistance.aspx or schedule an appointment with Powercat Financial Counseling! (k-state.edu/pfc) Most of the time candidates are only eligible around college age, due to income restrictions.
  • Tax Deductions. If you itemize your taxes, mortgage interest and real estate taxes are deductible. So you’ll only get this benefit if you own a home.
  • When renting a home, you are often asked to sign a one year lease. Compared to buying, where you’ll typically have to be in the home for around 5 years to make your money back. In addition, you could be required to stay in a purchased home for up to 10 years if you opt for a specific first time homebuyer program!
  • If something in a rental home needs repaired, often times it is the landlord’s responsibility. They hold most of the liability. If you were to own a home and, for example, the furnace went out, that would be your responsibility to fix! This can lead to many unhidden costs- that you will not have to pay for if you rent. However, it is important to read the fine print of rental contracts to make sure your landlord does hold the liability. In addition, it could be to your advantage to get Renter’s Insurance to cover some issues your landlord won’t.
  • The housing market is ever changing. When you are paying rent you roughly know what your check to your landlord will be every month. Housing costs can quickly raise or fall. That is not to say your rent price will stay set in stone forever. But many times your monthly rent payment is locked in for a year when you sign a contract. Again, read the fine print to make sure this is the case.

Finally, there are many things to keep into consideration when deciding whether or not to buy a home. If you are uncertain of what to do, please schedule an appointment with Powercat Financial Counseling. We are always here to help. Listed are just a few of the “home buying” topics we can assist with:

  • Building credit – which you need to get approved for a loan. Better credit will help get you a lower interest rate and save money in the long run.
  • Budgeting – if you are renting or buying, you’ll need to set a budget that includes both your monthly house payment and other expenses. Some other expenses that it is important to keep in mind are: utilities, other debt payments (car, student loans, etc.), and necessities (food & clothing).
  • Personalization – come in to PFC to get more personalized home buying/renting help (or another financial topic!)

Visit www.ksu.edu/pfc to schedule your appointment today! It is never too early to start preparing for your first home purchase!

Resources:

Larry Curran, The Mortgage Company, http://www.tmckansas.com/home.html
Morgan Powell, SalinaHomes.com, http://www.salinahomes.com/

Hillary Williams

Peer Counselor I