Читать книгу How to Be a Financial Grownup - Bobbi Rebell - Страница 18

TIM CHEN

• CEO, NERDWALLET

MY FINANCIAL GROWNUP MOMENT

My biggest personal finance wake-up call came after my sister asked me to help her find a new credit card. I thought it would be a fairly simple exercise; as a financial analyst, I objectively evaluated dollars and cents as a living. It took me nearly a week to research and compile a spreadsheet of about 400 cards – a fraction of what’s available in the U.S. – in order to make an informed decision. I was shocked.

Most Americans will sign up for a credit card at some point in life. If it took me – literally a trained professional – a week to objectively look at a sliver of what’s available, how can any one person be expected to choose the right credit card for them? Or the right insurance policy? Or 401k plan? I realized the deck was completely stacked against consumers.

MY LESSON TO SHARE

My major takeaway was, Millennials are at the height of their financial confusion. They are faced with dozens of critical personal finance decisions, and they need a trusted source of clarity around what to do.

The good news is, there is usually a “right” choice when it comes to personal finance. But depending on friends’ and family’s advice – or, even worse, signing up for a personal finance product because you got an offer in the mail that looked good – isn’t going to get you the best product for your needs.

The biggest piece of advice I would give anyone is: stop being scared of, or apathetic toward, your money. Be proactive and look for simple, transparent guidance on how you should approach your financial decisions and select the best products for you. Taking a little extra time now can lead to millions down the line.

GET CONTROL OF YOUR CREDIT SCORE

NERDWALLET FOUND THAT many young people are in denial about the importance of having a track record when it comes to credit. There are so many horror stories of people getting into trouble for using credit in an irresponsible way during the great recession that it may seem better to just avoid it altogether. And grownup purchases such as mortgages seem a lifetime away.

But building a credit history takes time, and often the best time to start is in college. That’s the time when companies will take a risk on a young person. Many will even give students a credit line without their parents as co-signers. Use the cards to make small purchases, and pay them off in full every month.

Another tip to boost your credit score: add up how much credit you have available. If you have three credit cards, and each has a limit of $1,000, you have $3,000 of credit available. Use only a small portion, ideally about 10 percent, and really try to use no more than 30 percent.

Stay aware of your credit score. Federal law mandates access to your credit score once a year, for free. A good place to start is www.annualcreditreport.com. All three credit agencies – Experian, Equifax, and TransUnion – make your annual reports available there. And though you can get your credit reports from all three agencies at once, you can also space out your reports and get one every four months. Know your number.

If you don’t get a credit card in college, be strategic when you do apply. Every time you do, your credit score gets what’s called a “hard” credit inquiry. The more cards you have, the riskier you look. That lowers your credit score and starts a downward cycle. NerdWallet advises Millennials to be patient and not to apply for a credit card more often than every six months, or even once a year. Also, research credit cards that are targeted toward the score you have, or toward new candidates with no score if that’s your situation. And even if you’re no longer in college, if you have a parent who will co-sign, by all means accept the help. Be appreciative and, most importantly, responsible. Now both of your credit scores are on the line.

There is usually a “right” choice

THE $1.3 BILLION ELEPHANT IN THE ROOM: STUDENT DEBT

Young adults are generally less materialistic than previous generations. Partly because there has been a cultural shift towards valuing experiences over acquiring material goods. But there’s more to the story. Many also have so much student debt that they simply can’t afford to engage in the old “Shop ’til you drop” sport enjoyed by many Gen Xers who grew up in the booming 1980s. Student debt has reached alarming levels, so it’s no surprise that Experian found that student debt was a primary focus of young adults.

The Congressional Budget Office reports that student debt in this country is now at $1.3 billion. According to The Institute for College Access & Success (TICAS), the percentage of college students who graduate with debt had climbed to 71 percent in 2012. The average amount owed is $31,946, according to NerdWallet. There are a lot of reasons. One is that state budgets have been cut at many public colleges, so students who are looking for value in their educations, by going to the public system, are footing a bigger part of the bill. And the debt never goes away. Student loans cannot be discharged through bankruptcy.

Be Proactive, Informed, and Aggressive

Sara, a 23-year-old who recently completed a five-year masters degree in elementary education at a private college in New York, is laser-focused on paying down her student debt. The total cost of the program was more than $200,000. But she went into the process with her eyes open and made a conscious decision that this program would give her the right education to get a job when she graduated.

She started the process in high school by getting as many scholarships as possible. She received about $16,000 a year. She also knew she could count on some help from her parents. They paid as much as they could while she was in school. But they told her at the start that once she graduated, and her younger sister started college, their resources would shift, and she would be responsible for the rest of the debt.

Sara now has both a degree and the debt to go with it. A whopping $100,000.

The good news: her educational bet paid off and she got a great job, in her field, right away. After working at a day camp in the summer, she has started her new job teaching math to middle-school students. She’s living at home and will put just about every penny she earns toward paying off her debt. She’s also calculating the best way to pay, fully aware that there are different payment plan options and timetables that offer varying interest rates. Her lesson to young people: read the paperwork. There can be a lot of ways to save, even in the debt-repayment stage.

Student Debt Payoff Tips

Use direct deposit. Most lenders will shave about 0.25 percent off the interest rate if you do. Statistics show lenders that if the money comes to them automatically, it’s more likely to get paid. Over the life of the loan that could save hundreds, even thousands, of dollars in interest rate payments.

Consolidate your loans. Sometimes lenders will bundle them all together. Not only does this make it easier to track everything, but you can often get a lower rate. Be sure to ask them to factor in a history of on-time payments as well as a good credit score.

Pay more often. Try paying every two weeks instead of once a month. You’ll pay the equivalent of 13 months a year and knock down the total faster. By the way, this works with other debt, such as mortgages, as well!

Open Secret: Student Debt Can Sometimes Be Forgiven

Certified Financial Planner Cary Carbonaro, author of The Money Queen’s Guide, shares a great new way to battle student debt. It’s called Public Service Loan Forgiveness (PSLF). If you work in a public service job, your federal student loans may be at least partially forgiven after ten years. You have to be working full time in an eligible public service or nonprofit job, and you have to have made on-time payments. And it only applies to certain types of federal loans. But the Consumer Finance Protection Bureau (CFPB) has said that about a quarter of U.S. workers could be eligible. Jobs include teachers, social workers, and many non-profit workers, as well as those at government agencies and groups such as the Peace Corp. It’s worth investigating.

Take a Close Look at Your Benefits

Companies are starting to offer to help young employees pay off their student debt. For example, PwC recently started offering its lower-level employees $1,200 a year to help pay down student debt. The benefit is good for six years and can help pay down a significant portion of the loan. One young employee I spoke with, Gabriella, was happy enough to have yoga and a gym. But with $30,000 in debt, the student loan perk was much more important.

As of now only about 3 percent of companies are offering this perk, according to the Society for Human Resource Management (SHRM), but as the job market tightens, it’s likely to become an attractive way to entice young people who aren’t all that impressed with ping pong tables and free food.

Leverage Online Tools

One of the many great things about the United States of America is that every problem seems to bring a wave of entrepreneurs looking to solve it. There are quite a few new websites popping up to help companies and their employees manage the repayment of student debt. Both Student Loan Hero and Flex395 owner Tuition.io have tools to help manage student debt, including ways to analyze the costs and benefits of different payment strategies. These can be valuable tools to help you stay on top of debt and informed about new ways to pay it off.

Up Your Income with a Side Hustle

The more you can earn, of course, the faster you can pay down debt. If you have the time, consider a side hustle. It’s basically another job in addition to your primary source of income. It can be a way to earn more, gain new skills, or fulfill a creative interest. We’ll talk more about it in the next chapter. Side hustles can be a great way to earn extra cash to help you knock out your student debt so you can get it over and done with.

This may seem obvious, but I’ll mention it anyway – avoid taking on additional debt, which could distract you from paying down your student debt. That will likely mean putting off some purchases you want to make, even if retailers offer attractive financing. It may even be zero interest, but don’t buy anything new if it means monthly payments.

Take a quick look on Craigslist. Find an item that isn’t selling and ask if you can have it for free if no one buys it soon. Chat up the seller via email. Find out as much as you can. If it’s a moving sale or they’re redecorating and need the item out as soon as possible, tell them you will come and pick it up whenever they want. It may sound too good to be true, but it happens more often that you would believe.

On that note, someone you know is always redecorating or moving. Ask around. You’d be surprised how many people will be thrilled to give you something, especially furniture and old televisions, if you just come pick it up.

Which brings us to our next Role Model, legendary investor Elliot Weissbluth, and how he made a tough decision to say no to one of those no-money-down temptations when he was a young graduate.