Partners in BALANCE (June 2016)

Understanding Different Types of Student Loans

If you or a family member will be attending college soon, you’ve probably noticed that the sticker price for a college education has risen considerably in recent years. According to Sallie Mae’s National Study of College Students and Parents for 2015, families spent on average $24,164 for college in the 2014-15 academic year, and 38% of them borrowed at least some money to help pay the tab.

Though the costs can be steep, a college degree is a good investment in the student’s future. To get the best value from that investment, however, it’s prudent to make sure you get the right type of student loans for your individual situation.

Private Student Loans
For most people, federal student loans are a better deal than student loans from private entities like banks, colleges, and other lenders. This is because private student loans – though they can be used to pay for the same types of things as federal student loans – are structured much like other types of personal loans. Interest rates can be quite high – into the double digits — and they’re often variable, so there’s uncertainty about exactly how much you’ll owe. Also, repayment options are generally not flexible, and some may even require repayment to begin while the student is still in school.

Federal Student Loans
Federal student loans, which carry fixed interest rates, are generally available to all students – even those from affluent families – and most require no credit check and no cosigner. Though you accrue interest while in school, you generally won’t be required to begin repayment until you graduate. And, those with financial need may qualify for subsidized loans, which reduce their costs even more. After you graduate, if you experience financial hardship, you may be able to reduce or postpone your payments. In some cases, you can even have the debt forgiven through public service work.

So, given the many advantages of federal student loans, why would anybody take out private student loans?

Well, it’s those high costs mentioned above. While federal loans are a good deal, there are limits to how much a student can borrow, and that may not be enough to cover their college costs. However, though a college degree will usually pay off, it’s important for students to take a hard look at their earning potential after college when deciding how much to borrow. A smart rule of thumb is to borrow no more than what you expect to make in your first year of employment after graduation – this ensures a reasonable debt load that can probably be paid off within ten years or so.

And remember, neither federal nor private student loans are likely to be forgiven, even if you declare bankruptcy. So, even if you can borrow more, it’s wise to take on the minimum amount of debt you absolutely need.

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Things to Know Before Buying a Timeshare

When you visit a beautiful vacation destination, have a wonderful time, and plan to return again and again, you may dream of owning a home there. However, for many, a vacation home – with the big down payment, monthly mortgage, and ongoing maintenance costs — just isn’t in the budget. An alternative many people consider is a timeshare, which can seem like a cost-effective alternative to hotel stays. However, as with any major purchase, a lot of careful research should go into deciding whether or not a timeshare is the right choice for you. Here are some things to consider.

Are you the repeat visitor type?
As much are you may love this particular destination, take an honest look at your vacation patterns before you buy. Are you the type who likes a lot of variety, or do you prefer the predictability and comfort that comes from returning to a favorite spot at the same time each year? Also look ahead to the future. If, for example, you have young children, is this a place the family will enjoy just as much when they become teens, and that you and your spouse will enjoy once the children grow up and no longer vacation with you?

What are the complete costs of ownership?
Unless you pay cash upfront for it, you’ll still have a loan to pay with a timeshare. In most cases, you’ll also have to shell out cash regularly for annual maintenance fees, special assessments, utilities, and property taxes. You have to pay these, even if you don’t use the unit, so check to see if there is a cap on fees. When evaluating the cost of the timeshare versus typical vacation costs, remember to account for all of these costs to get a realistic comparison.

How will you pay for it?
Timeshare developers have a reputation for the hard sell, and “easy” financing may be one of the techniques a salesperson uses to close the deal quickly. But look closely at the contract, because many of these financing schemes come with sky high interest rates – often as high as a typical credit card.

It’s not a real estate investment.
When most people purchase a vacation home or other real estate, they view it as an investment. Even if they don’t use the property a lot, they are building equity in a sellable asset that is likely to increase in value over time. This is not the case with a timeshare. Timeshares are notoriously difficult to sell, and resale scams abound, so no one should buy a timeshare as an investment. And if you take a loss on a timeshare sale, which is likely, you probably will not be able to deduct the loss on your tax return as you would with other real estate or investments. Thus, it’s best to view a timeshare purchase not as an investment, but as one way to lock-in your vacation time at a specific location you know you will return to year after year.

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Stock Market Basics

Unless you majored in economics or finance in college, you probably didn’t learn much about the stock market growing up. And, if you’re like many people, your eyes glaze over when you hear stock market news. Nonetheless, despite the economic turmoil of recent years, the stock market remains among the most important options for Americans to build their wealth and secure a comfortable retirement. So, while you may still choose to work with a financial advisor to guide your investment strategy, here are some stock market basics every investor should know.

What is the stock market?
Simply put, the stock market is where ownership in companies is bought and sold – this is also called trading. When you buy stock – also known as shares — in a company, you’re buying a piece of that company, and that makes you a shareholder. When you hear talk about “equities,” remember that’s just another word for stocks. The “stock market” is, however, a general term. Companies actually list their stock on one of several different stock exchanges, such as the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the National Association of Securities Dealers Quotation System, which is commonly referred to as the NASDAQ.

How do you make money in the stock market?
There are two basic ways to make money in the stock market. The first is to buy a stock, and then sell it after it increases in value – the profit you make is referred to as a capital gain. The other way to make money is to buy a stock that pays dividends to shareholders; dividends are a company’s earnings, which it pays out to its owners. Companies that pay dividends are often older or well-established firms. Often, newer companies aren’t yet making enough money to issue dividends because they’re reinvesting their earnings back into the company.

What’s the difference between a stock and bond?
Stocks are ownership investments – you’re buying a piece of a company. Bonds, on the other hand, are a lending investment. You give the bond issuer money, and they pay you interest in return, just like you pay interest to a creditor. In general, bonds are considered safer than stocks since the bond issuer has a legal obligation to pay them. They are not, however, risk-free.

What is diversification, and why is it important?
Diversification simply refers to the practice of spreading your money among a variety of investments to balance risk. It’s important because nobody can know for sure exactly how different types of investments will perform at any given time. A diversified investment portfolio has lower risk because if one type of investment is down, it can be balanced by others that may be doing better.

What is a mutual fund?
A mutual fund is a collection of stocks or bonds, in which investors pool their money. Mutual funds can be a great way for smaller investors, and those who don’t have the time or expertise to research and purchase individual stocks and bonds, to diversify their investments. Shares in a mutual fund are purchased in the same way that individual stocks are purchased.

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Shopping for Car Insurance

If you’ve gotten a lot of tickets for moving violations or filed a lot of accident claims in the past, you’re probably paying dearly for car insurance. While there’s not much you can do about your past, there’s a whole lot you can do now to make sure you’re getting the best deal possible on your car insurance.

1. Comparison Shop. It pays to shop around. This is especially true when circumstances change, like when you buy a new car or add a driver to your policy. Insurers continually modify pricing based on market conditions and business priorities, so the company that served you well when you were single and driving a sports car may not be your best choice when you transition to a different stage of life.

2. Bundle Your Policies. Insurance companies want as much of your business as they can get, and many offer big discounts when you buy more than one product from them. So, if you have a home or more than one car, be sure to see what the cost would be if you were to get all of your coverage from the same insurer.

3. Maintain a High Credit Score. There are a lot of factors insurance companies consider when determining what to charge different customers, and in most states, credit score is one of them. That’s because research has shown that people with higher credit scores tend to have fewer accidents, so they cost insurance companies less money. To get the best rates, work on making your credit score as good as it can be and be sure to check your credit report regularly to make sure there are no inaccuracies in it.

4. Check for Discounts. In addition to good credit scores, insurers may offer discounts to people in specific professions, students who get good grades, driving a car with certain safety features, and more. Ask about the discounts your insurer offers, and make sure you’re getting any that apply.

5. Ditch the Brand New Sports Car. Some cars are more costly to insure than others, either because they are more expensive to repair/replace or more likely to be the subject of a claim. That means you’ll pay less to insure a safe and moderately-priced used car, than a pricey new sports car.

6. Join a Carpool. For insurance companies, it’s a numbers game. The fewer miles you drive, the less likely it is you’ll get in an accident, so carpooling could drive down your rate. Likewise, if you get a new job with a shorter commute, be sure to let your insurance company know and ask if you qualify for a reduced rate.

7. Consider a Higher Deductible. With most insurance, there’s a trade-off. If you want lower premiums, you’ll have to swallow a higher deductible or settle for less coverage. If you want no deductible or a low deductible, you’ll pay more in premiums. Remember, though, that the most important thing about insurance is to get the coverage you need to protect yourself and your assets. So, if you want to save on premiums but don’t currently have the cash on hand to cover a high deductible, make it a goal to save up. Once you reach your goal, you can safely increase your deductible, knowing you’ll have the money you need if you get in an accident and need to make a claim.

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