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How a Late 2017 Interest Rate Increase Might Impact Your Finances

interest rate impact

Guest Post: By Patty Moore, a blogger who writes about personal finance, careers, and family. You can follow Patty on Twitter @WorkMomLife.

In the United States, interest rates are controlled by the Federal Reserve Bank. It controls a key interest rate, the Fed Funds Rate, that banks charge each other to borrow money. Changes to the Fed Funds Rate ripple through the economy and can directly affect your finances. That’s why so much attention is paid to forecasting any upcoming changes to the Fed Funds Rate.

The Federal Reserve meets six times a year to consider the Fed Funds Rate, and the next meeting is in December. At the most recent meeting, in September, the Fed indicated that it will raise the Fed Funds Rate by one-quarter of 1 percent in December. It bases these decisions on various economic conditions. One is inflation – the general rise in prices across the economy. The Fed fights high inflation, and raising interest rates is an important tool. Note that the Fed anticipates inflation before it actually occurs to get an early jump on the fight against it.

Inflation and Interest

Inflation occurs when the economy overheats and shortages in materials and/or workers develop. Shortages force companies to bid up the amount they’ll pay to workers and suppliers in order to compete with each other. These increases show up in the prices of things you buy, and also in your take-home pay.

Raising interest rates will slow down inflation, because borrowers have to pay more interest when they borrow. That leaves less money left over to pay higher, inflated prices and therefore slows down the economy, which slows down inflation.

So, when the Federal Reserve see signs that the economy is threatening to overheat and raise the inflation rate, it boosts the Federal Funds Rate to slow everything down.

Impact on Borrowers

As we said, a change in the Fed Funds Rate ripples through the economy, because lenders have to pay more interest on the money they borrow in order to lend it out. Therefore, rates will increase on new credit cards, mortgages, car loans, personal loans. If you have borrowed money at a variable interest rate – that is, at a rate that can change over time – then you can expect to pay more interest charges. Most credit cards are variable rate, so a higher Fed Funds Rate should show up shortly on your credit cards’ monthly billing statements. More of your hard-earned money must then go to paying interest on any unpaid balances. You can avoid this effect by paying off your entire balance each month, but that’s often not possible for many of us.

Existing fixed-rate loans, such as those on cars and most mortgages, aren’t affected by changes to the Fed Funds Rate, but new ones will be issued at higher rates. Existing credit cards and adjustable-rate mortgages can see rates change shortly after a Fed rate hike. You can deflect changing interest rates by refinancing variable rate debt (ex. Credit cards) into fixed rate products, see example here. Some experts suggest moving variable rate credit card debt to a fixed rate term loan during rising interest rate environments.

Private student loans frequently charge a variable interest rate. Depending on your student loan agreement, you might see a higher interest rate on your loan right away, or you might not see it for up to a year. Eventually, the higher rate takes hold and your remaining private student loan debt will cost you more money each month. Most student loans in America are made by the federal government and have a fixed interest rate that protects you from rate hikes. However, the Department of Education sets new interest rates each spring that take effect on July 1, causing new loans to be more expensive during inflationary times.

If you have any adjustable rate loans or credit cards, try to replace them with fixed-interest-rate ones when rates are rising. Also, try to pay off your credit cards in full each month, so that you don’t have to pay any interest at all on credit card balances.

Impact on Savers

The flip side of interest rate hikes is that savers earn more interest on their savings. Fed Fund Rate hikes might not impact the amount of interest you earn right away, because banks and other savings institutions use a “sticky” interest strategy. This means that the banks raise interest money on loans right away, but take their time passing along higher interest rates to savers. That’s unfair, but it’s also a fact of life. Eventually, competition causes banks to pay more interest on savings accounts, certificates of deposit and money-market accounts. Investors who buy Treasury bills see interest rates rise quickly on new debt in response to Fed Funds Rate hikes.

Naturally, the effects of a lower Fed Funds Rates are the opposite – good for borrowers, bad for savers. When interest rates are very low, as they had been from 2009 to 2016, it’s hard for some retirees to earn enough interest on relatively safe savings accounts and might turn to riskier sources of income, such as stocks and junk bonds. That’s unfortunate, because retirees are the least able to absorb losses, since they are no longer earning a salary or wages.

Now What:

  • The Federal Reserve is increasing interest rates in 2018.
  • If you currently have variable rate debt (ex. credit cards), plan on your interest rate and monthly payment increasing in 2018. Let this be motivation to pay down debt!
  • Fixed interest rate debt will not be impacted. Consider refinancing variable rate debt to a fixed interest rate.
  • The interest rate you receive on your savings accounts, CD’s, and money-market accounts will increase! This is good news for savers!

About The Author

Patty Moore is a single mother to one beautiful daughter while working 40 hours a week. She writes about parenting, family finances, and creating a work life balance in her blog Working Mother Life. Her hope is to help other women in similar situations to hers become better and more balanced mothers.

 

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EP22: Dating and Money with Scott Trench of Bigger Pockets

Scott Trench Bigger Pockets MM

Episode #22 – Money and Dating with Scott Trench of Bigger Pockets



 

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Scott TrenchBio: Scott Trench is a perpetual student of personal finance, real estate investing, sales, business, and personal management. He is also a real estate investor, an executive at a large online corporation, salesman, real estate broker, and author. Through a solid understanding of money management, calculated risks, and a lot of hard work, he has created financial freedom for himself as well as a successful real estate business in just three years after graduating college. He hopes to now share the knowledge he has acquired so that others will have the tools they need to repeat his results in just 3-5 years, giving them the option to go anywhere they want in the world, work any job, start any business, or finish out the journey to financial independence and retire young.

Show Description: Scott and I talk about important personal decisions to make financially before dating and relationships pop-up. Scott and I also talk about fun date ideas, financial personality bits, and other considerations to make in achieving your own financial goals while enjoying a healthy social life.

ShowNotes:Set_for_Life_Master_low_res_pdf__page_30_of_248_

0:32 – Edit: “Bigger Pockets” Not “Bigger Podcasts”
1:17 – Go USA Eagles Rugby! Rugby Tangent 😛
3:08 – Dating And Spending Habits (Jump To Here To Get To The Good Stuff 😉 )
3:20 – Fitting Dating Into Our Spending.
4:15 – Single Vs Dating Spending
5:10 – Some Nice Unwarranted Dating Advice 😉
6:40 – The Key: Be Reasonable
7:03 – Edit “Be Aware” – Not “Be Intelligent”
9:15 – The Importance Of Setting Aside Money For Dating
10:24 – From Dating To Relationships
10:40 – Financial Compatibility: A Key In Dating
16:00 – Some Awkward Moments: Recognizing Vital Differences
18:00 – Key: Find A Partner With Similar Money Values To You
18:50 – Open Your Bank Account, And I’ll Tell You What’s Important To You (The Extra Quote I mention at 22:05)
19:15 – Money Is Only One Little Part Of A Good Relationship
20:00 – Marriage and Money : A Few Thoughts
22:20 – Money Is Just A Tool
22:55 – A Great Financial Goal Every Recent Graduate Should Consider
23:45 – Changing Disposable Income Over Time
25:00 – Money Maxim, and Scott’s Book

Money Maxim

“Most people do not accumulate significant assets early in life. And if you don’t do it early in life you miss out on huge amounts of opportunities. The stakes are really high right out of college for accumulating lots of wealth and building passive income. If you don’t do it then it gets harder and harder as you age” – Scott Trench

Contacts and Links from the Show

https://www.biggerpockets.com/users/scotttrench
www.BiggerPockets.com/SetForLife

Bad Daddy’s Burger Bar

Governor’s Park Tavern

 

 

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EP21: Small Business and Tax – With Eric Estevez

Episode #21 – Small Business and Tax – With Estevez Tax Prep




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Eric-Estevez-1-e1498081204400-273x300[1]Bio: Eric Estevez has been in the tax & accounting field since 2008. His experience was gained while handling clients of all sizes, from mom & pop shops to billion-dollar institutions. His inspiration comes from books such as “Rich Dad, Poor Dad”, “Think & Grow Rich”, and “Awaken the Giant Within”. These books instilled a financial mindset of success from a young age. Eric is committed to spreading the message of financial literacy through Estevez Tax Preparation, LLC.

Show Description: Eric and I met at FinCon in 2016 and Have been in touch since then.  We talk about heaps of tax skills, notes, and ideas small businesses should incorporate into their behavior to minimize taxes and stay awesome.

ShowNotes:

1:55 – Eric’s Skill With Taxes Precedes Him
2:40 – Why People Don’t Learn Taxes For Their Business
3:30 – A Few Reasons For Professional Tax Services
4:40 – A Trait Of Successful People And Successful Small Business
6:15 – Why Everyone Needs A Book Keeper Now (Hint: The Job Market Is CHANGING)
6:45 – Most Common Tax Problems In Small Business
8:10 – A Rule Of Thumb For How Much To Save For Taxes When You Work For Yourself
9:10 – Business Write-Offs and Expense Tracking
11:00 – Commingling of Funds – The First Step In Business Expense Tracking
13:00 – How To Reduce Preparation Fees for Taxes and Balance Sheets
14:00 – The Value of Having a Monthly Accountant Instead of a Once A Year Tax Preparer
15:30 – Leveraging Your Money Wisely – The Importance of Monthly Statements
19:20 – 1099 VS W-2 : What?
23:40 – Minimizing Taxes
25:12 – Money Maxim from Eric and Contact Info

Money Maxim

Estevez Tax MM

“Know Your Numbers” – Budget, Net Worth, Income, Expenses
“If You Don’t Know Your Numbers, You Don’t Know Your Business”
Contacts and Links from the Show

www.EstevezTax.com – Eric Bookkeeping and Tax Prep Service

Estevez Tax’s core services are tax, bookkeeping, and payroll.  They also provide many other tax/accounting functions like estate, business valuations, etc.

1) Tax covers planning, estimated payments, preparation.

2) Bookkeeping services will provide monthly financials

3) Payroll

Drop FinancialGinger in your contact for a Discount!

www.JiuJitsuFinance.com – Eric’s Finance Blog

www.Saving-Sherpa.com – Look Up Justin’s Budget Worksheet

Some Book Recommendations from Eric Estevez
“Rich Dad, Poor Dad”,
“Think & Grow Rich”, and
“Awaken the Giant Within”

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What Recent Graduates Need to Know About Student Loan Repayment

Student Loan Repayment

Guest Post: from Dollar Diligence
For most college graduates, student loans are a fact of life.

Because the cost of a college degree has skyrocketed in recent years, student loans are necessary for a large number of students who would not otherwise be able to afford to obtain a degree.

Recent college graduates are nearing the end of what is known as the “grace period.” This is the six-month period of time after graduating or leaving school where a borrower does not have to make a payment on his or her student loans. After the grace period ends, a borrower will have to start making payments on his or her student loans.

That means that Class of 2017 graduates who received a diploma in April, May, or June, will soon receive their first student loan bills. It is critically important for these grads to understand the fundamentals of student loan repayment so they can be successful.

Learning more about student loans, including strategies for how to best pay off your loans, is vital to making informed decisions about your student loans moving forward.

Read on to learn the basics about what student loans are, your repayment options, and how you can take charge of your repayment schedule to pay them off more quickly.

 

Types of Student Loans

There are two types of student loans: federal student loans and private student loans. Federal student loans are offered by the government through the Department of Education. Private student loans are offered by private banks and lenders.

Federal student loans include both Direct Loans and Perkins Loans. With Direct Loans, the Department of Education is the lender. With Perkins Loans, the school is the lender.

There are three types of Direct federal student loans.

 

Direct Subsidized Loans

These are available to undergraduate students with a demonstrated financial need to help them pay for the cost of a degree at a college or career school. With subsidized loans, the government covers the cost of interest while the student is enrolled at least half-time in school, in a grace period, or during a period of deferment or forbearance.

 

Direct Unsubsidized Loans

Direct Unsubsidized Loans are available to undergraduate, graduate or professional students. They are similar to subsidized loans, except that students do not have to demonstrate financial need to be eligible, and students are responsible for interest on the loan.

 

Direct PLUS Loans

Direct PLUS Loans are available to graduate and professional students and to parents of dependent undergraduate students. Though the interest rates do not vary on these loans, the government will check to ensure that you do not have any serious adverse credit history before giving out the loan (such as bankruptcy).

All federal student loans have fixed interest rates, which means that the interest rate is the same for the life of the loan. The interest rate is the percentage that a bank or other lender charges you to loan you money. The higher the interest rate, the more money you will pay over time.  

 

Private Student Loans

There are two primary options with private student loans: those with fixed interest rates and those with variable interest rates. Variable interest rate loans tend to start out lower but can go up over time. Fixed interest rates are usually higher, but are more predictable.

Private student loans typically have higher interest rates and eligibility is based on creditworthiness. If a student does not have good credit or has no credit history at all, they can elect to add a cosigner to the loan who shares the responsibility of repayment.

It is always smart to max out federal student loans before taking out any private loans as they typically have fewer benefits and few options in the case of financial hardship.

 

Repayment Options

There are a number of options for repaying your student loans based on the type of student loan that you have (federal or private) and your current financial situation.

As mentioned, federal student loans are generally considered to be more favorable because they offer more generous repayment options, particularly for those struggling to meet their minimum monthly payments.

 

Income-Driven Repayment Plans

For borrowers with federal student loans, income-driven repayment plans are a good repayment option for anyone who does not currently have a high salary. This plan will cap your monthly student loan payment at a percentage of your monthly discretionary income, from 10 to 20 percent.

However, the standard federal student loan repayment term of 10 years will usually be extended around 20 to 25 years. At the end of that period, the remaining balance will be forgiven.

The benefit of an income-driven repayment plan is that it will immediately decrease the amount of money that you pay each month. However, because it extends the loan term, you will pay more in interest. You will also owe taxes on the amount that is forgiven.

 

Forbearance and Deferment

If your financial problems are temporary — for example, if you have been laid off or are suffering an illness — then you may be eligible for a forbearance or deferment of your federal or private student loans. Each of these options will put your student loans on “pause” while you cannot make payments.

For federal student loans, a deferment allows you to not make payments for up to three years. Forbearance for private student loans is available for up to 12 months. However, for both private student loans and unsubsidized federal loans, interest will continue to grow on your loan balance, which means that making this choice can result in owing more money on your student loans.

 

Student Loan Refinancing

For borrowers with multiple student loans, refinancing might be an option to help save money and reduce your interest rate. Refinancing your student loans is essentially applying for a new loan to pay off your private student loans, and if you choose, your federal student loans.

Borrowers can often obtain a lower, fixed interest rate by refinancing, which can help them save thousands of dollars in interest and pay off their loans more quickly. However, you should be aware that if you refinance your federal student loans along with your private student loans, you will lose the protections of the federal student loans, such as income-driven repayment plan options.

Refinancing requires that the borrower have a history of making on-time payments, a solid income and a credit score of at least 660.

 

Strategies for Repaying Student Loans

Paying off your student loans should be a top priority for recent college graduates, but it can be difficult to accomplish, particularly if you have a low starting salary. But by taking certain steps and working towards paying down your loans, you can achieve this goal.

Whenever possible, borrowers should pay extra money towards their student loans. This could be as little as $25 each month, or as much as $1,000. Each little bit can help to pay down the total amount owed on your student loans.  

Next, borrowers should take steps to reduce their interest rate. This can be accomplished through refinancing (described above), or often by signing up for automatic payments, or by making a certain number of on-time payments. Check with your lender to determine if they offer any incentives to reduce your interest rate.

Finally, borrowers should try to make extra payments whenever they can. A single extra payment each year can significantly reduce the total amount owed, and help you pay off your loan more quickly.

 

About The Author

Aside from his full-time job as a high school teacher, you can find Jacob blogging about personal finance, reading books about history, and figuring out which kind of puppy to get next. Follow him on Twitter to keep up with him! Or visit http://www.dollardiligence.com

 

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Ep20: TheGiftOfCollege – With Wayne Weber

Episode #20 TheGiftOfCollege – With Wayne Weber



Read more and listen more at www.FinancialGinger.com
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Wayne Weber Gift Of College

Bio: Wayne Weber is CEO and Founder of GiftofCollege.com, a company that revolutionizes college savings. He is passionate about providing families a simple and easy way to save for college tuition – bringing change to a complex process. Since 2008, Wayne has developed Gift of College into a social savings platform for parents, friends and communities with the aim of establishing the company as the leading gifting platform for college savings plans. Before founding GiftofCollege.com, Wayne led business development and sales efforts of software and hardware solutions for Fortune 500 companies including NCR Corporation and CDW. In 2007, Wayne founded Gimmepleez.com, a social savings platform that was the forerunner to his current company.

Show Description: Wayne and I talk about 529 College Savings Plans and ways pre-college, current college, and parents can help create a college fund both before and during and after college to pay for the cost of school.

ShowNotes:

0:58 – What is Gift Of College?
3:06 – How Gift Of College makes it easy to save for College
6:15 – 529’s What are those? (THIS IS IMPORTANT)
9:00 – Why 529’s are great for starting a child or teen’s saving account for school
10:20 – Additional benefits of college funds (Beyond money)
12:00 – How to create a 529 plan, or college fund
15:00 – Tax benefits for 529 College Plans!
16:45 – Ask your Employer to get involved
19:00 – Wayne’s Money Maxim
20:15 – Where to Find Gift Of College

Money Maxim

“Save Early, Save Often” – Wayne Weber

MM39 - GiftOfCollege

Contacts and Links from the Show

Give the Gift of College To Someone You Love from Nadine Perry on Vimeo.

Gift Of College’s Website

www.facebook.com/GiftOfCollege

www.Twitter.com/GiftOfCollege