Is There Such a Thing as Good Debt?

Posted on August 26, 2014 by VP of Marketing and Business Development Jessica

Most of the time, the word “debt” has negative connotations. Debt costs you money and therefore takes money away from financial goals like saving and investing.
So could there ever be good debt? That’s no easy answer. How you use debt has a big impact on whether or not you can consider it “good.” If you have too much of a “good” thing — that’s when it can turn into bad debt. So let’s consider 3 types of debt: investing in a college education, buying a home, and starting a business.

1. Are Student Loans Always Good Debt?
Student loans aren’t always good debt, because most people don’t consider how long they’ll be paying back their student loans when they take them out. But that doesn’t make them bad. If you take them out to obtain a job that you could have only secured with a college education and earn enough to make your student loan repayments manageable, your student loan debt was a good debt.

Here are some tips for student loans:

Keep your total loans under your projected starting salary when you graduate. If you’re able to do that, you should be able to pay them off with the standard 10-year plan.
Cut down on the loan amount. Get college credits while you’re in high school, go to a community college for your first two years, stick to a state school, and apply for scholarships.
Get a job to pay for your living expenses while you’re in school so you don’t take out loans for living expenses.
Keep in mind that private student loans don’t offer the flexibility of federal loans, so try to apply for federal student loans first.

2. How Much Should I Borrow for a Mortgage?
Owning a home used to be considered the American dream, and for many people it still is. Most people need to take out a mortgage for their purchase. If you think you’ll be in the same area for several years and can put a 20% down payment on a home, a mortgage could be a good long-term investment. Interest rates on mortgages are historically low, and owning a home can also provide tax benefits. The nice thing about a home is that it’s an investment you can live in.

However, many people end up buying a home without thinking about how it will affect their lifestyle or how they’ll pay their mortgage if an emergency came up. To avoid this, here are a few rules of thumb:

Make a 20% down payment so you can avoid paying private mortgage insurance.
Don’t use your entire savings account for a down payment. Homes are a hotbed for dipping into your emergency savings, as there are far more unexpected expenses that come up than when you’re living in an apartment.
Boost your credit score before you buy. Make sure you have a score above 700 so you can qualify for the best mortgage rates available. This can save you thousands of dollars in interest over the life of the loan.
If you think you might move in the next five years, you might want to rent so you don’t have to move during a down market and possibly sell your home for a loss.
In figuring out your monthly housing costs, the principal and interest on the mortgage loom large. But don’t forget property taxes, insurance, utilities, repairs, landscaping, snow removal and other factors. Make sure that your monthly housing expenses leave room for other expenses too.

We offer a number of great mortgage options, including refinancing – click here to learn about our 10, 15, 20, and 30 year mortgage features and see what a good fit for your home is!*

First Financial also offers a Mortgage Rate Text Messaging Service so you can receive updates on our low Mortgage Rates straight to your mobile phone. You can subscribe to our Mortgage rate text message service by signing up for text alerts, and receive instant notification when our mortgage rates change.**

3. What About Using a Loan to Start a New Business?
Entrepreneurship seems to be the new job security for many people in this generation. Incurring debt to start a business can be good debt if the funds help you to build a sustainable livelihood that allows you to repay any money borrowed and improve your financial situation. Just be cautious of how much debt you’re taking on.

Follow these tips to be financially smart and successful in your business:

Self-fund your business venture with savings first.
The smaller the investment, the quicker you can make money.
Do your research and get experience in the field before your launch. Some business opportunities require much bigger up-front investments, which may lead to a small business loan.

Did you know First Financial offers Business accounts, loans, and services? We understand that not every business is the same and, therefore, not every loan need can be the same. This is exactly why we look at each individual business and create a customized lending solution to meet your specific needs. Please contact us at business@firstffcu.com and we’ll be happy to provide you with more information on business loans and services.

Debt Costs Money, So Use it Wisely
Debt can be good, but only if it helps you leverage your assets to build wealth. Every good debt has the potential to turn bad, so do your research first. The fewer monthly obligations you have, the more money you have to fund a lifestyle that you love.

Don’t forget about our free, online debt management tool, Debt in Focus. In just minutes, you will receive a thorough analysis of your financial situation, including powerful tips by leading financial experts to help you control your debt, build a budget, and start living the life you want to live.

* A First Financial membership is required to obtain a mortgage and is open to anyone who lives, works, worships, or attends school in Monmouth or Ocean Counties. Subject to credit approval. See Credit Union for details.

**You must check the Text Message Signup box when registering in order to receive rate change text messages.⁺ If you do not receive an automated confirmation message after enrolling, please text “Yes” to (201) 808-1038

⁺The Text Message Signup box must be checked in order to receive text messages. Standard text messaging and data rates may apply.

Help – I spent too much on the holidays and I’m still paying for it months later!

Posted on March 14, 2014 by VP of Marketing and Business Development Jessica

If the holidays have left your budget overstretched, there are ways to recover (even if 3 months have passed) … you just need to act as quickly as you can.

While it might be tough to admit it (case in point: you’ve ignored the debt you racked up over the last few months), the first step to reducing your post-holiday debt is realizing and prioritizing it.

Beverly Harzog, author of Confessions of a Credit Junkie, says the best way to start a re-payment plan is to go after the debt on the highest interest rate card first and once that is paid off, go after the next one and so on and so on.

If you overspent this holiday season and know you won’t be able to pay off your credit card bills when they arrive next month, you need to adjust your spending habits ASAP.

Consumers should look at their spending categories and aim to shave small amounts off of each area (even if it’s $5 or $10 to start). Making many small cutbacks will be less painful than trying to find an extra $1,000 all at once to help pay off the credit card balance.

If you put a lot of your holiday gift spending on a high-interest rate credit card, Harzog recommends transferring the balance to a credit card with a lower interest rate. Even if you can reduce the interest rate just a little bit, it will help pay it down faster.

If you are facing significant debt, it might be time to find new ways to generate extra income that is earmarked solely to paying off the debt. If you don’t want to get a traditional part-time job, review your talents and skill set to find alternative ways to make money, whether it’s giving piano lessons, fixing computers, catering, or doing web design.

Ed Gjertsen, Vice President at Mack Investment Securities, recommends the seven-day cash challenge to break an overspending habit. With this challenge, you estimate how much money you spend each week and then take out that amount of cash at the start of the week and see how long it lasts.

“When people do this, by Wednesday or Thursday they are usually out of money,” he says. “They don’t think of all the times they swipe that card. It gives them a reality check of how much they are spending.”

What’s the Worst Kind of Debt?

Posted on January 10, 2014 by VP of Marketing and Business Development Jessica

What is the worst kind of debt to carry? Is it student loan debt, credit cards, a mortgage — or something else? Even the experts don’t always agree on which debt is “good debt” and which is “bad,” so imagine how confusing it can be to consumers who are dealing with debt!

Student Loan Debt

Why student loan debt is the worst: The loans are often given to young people with no credit experience and no clue how they will pay them back. Balances are often high, and the jobs borrowers counted on to make payments may be non-existent or take a really long time to acquire. Finally, unlike every other type of consumer debt, it is very difficult to discharge balances in bankruptcy.

And why it may not be: College graduates, on average, still earn significantly more over their lifetime than those without a college degree. In that sense, student loan debt can be considered an investment that pays off in future earning power. In addition, students may be able to defer payments on their student loans during times of economic hardship (usually at a cost), which makes them more flexible than other types of loans. In addition, borrowers may be eligible for reduced payments and loan forgiveness under the Income-Based Repayment Program or other loan forgiveness programs.

How does student debt affect credit scores? Large balances typically don’t hurt credit scores as long as the payments are made on time.

Credit Card Debt

Why credit card debt is the worst: With interest rates hovering around 15 percent on average — and more than 20 percent for some borrowers — credit card debt is often the most expensive kind of debt consumers carry. And with the low minimum monthly payments that issuers offer, cardholders can find themselves in debt for decades if they aren’t careful.

And why it may not be: While making minimum payments on credit cards is not a great idea over the long run, having that option can come in handy in a financial pinch. It can give cardholders time to get back on their feet without ruining their credit.

As far as credit scores are concerned, as long as cardholders keep balances low (usually below 10 to 20 percent of their available credit), and make minimum payments on time, credit card debt should not hurt credit scores.

Mortgage Debt

Why mortgage debt is the worst: If you wonder how bad mortgage debt can be, just ask the owners of some $8.8 million homes that CoreLogic said had negative or near-negative equity as of the second quarter of 2013. That means those owners owe close to, or more than, what the property is worth. That also means they can’t sell those houses without shelling out money to pay off their mortgage or doing a short sale that damages their credit scores. Even for those who aren’t under water, rising taxes and/or insurance premiums, the cost of maintenance and loans that typically take 30 years to pay off can make one’s home feel like a financial prison at times.

And why it may not be: Over time, homeownership remains one of the key ways average Americans build wealth. If you are able to keep up with your home loan payments, eventually the home will be paid off and provide inexpensive housing or rental income. Equity that has built up can be accessed through a reverse mortgage or by selling the house, or it can be passed along to heirs — sometimes tax-free.

When it comes to credit scores, this type of loan will generally help, as long as payments are made on time. Even large mortgages shouldn’t depress credit scores, unless there are multiple mortgages with balances. That’s usually a problem that affects real estate investors however, not homeowners with one or two homes.

Tax Debt

Why tax debt is the worst: If you owe the Internal Revenue Service or your state taxing authority for taxes you can’t pay, you can suffer a variety of painful consequences. If a tax lien is filed, your credit scores will likely plummet. In addition, these government agencies usually have strong collection powers, including the ability to seize money in bank accounts or other property, or to intercept future tax refunds.

And why it may not be: The IRS offers repayment options that may allow a tax debt to be paid off over time at a fairly low rate. (Similar programs are available for state tax debt in many states). And unlike applying for a loan, you don’t have to have good credit to get approved for an installment agreement.

The good news when it comes to credit scores is that tax debt itself isn’t reported to credit reporting agencies; a tax lien is the only way that it may show up. By entering into an installment agreement, you may be able to get a tax lien removed from your credit reports, even before you’ve paid off what you owe.

Auto Loan Debt

Why auto debt is the worst: The average auto loan now lasts five and a half years, and some 12 percent last six to seven years, according to Edmunds.com. That means payments will last long after that new car smell has worn off and well into the years when maintenance and repair costs start creeping up. Even more troubling, these borrowers may be stuck if they need to sell their vehicles since they may be “upside down,” owing more than what they can sell their car or truck for.

And why it may not be: Many consumers budget for a car payment, and as long as they aren’t hit with unexpected expenses, they are able to make this payment a priority. In addition, borrowers may be able to refinance their auto loans and lower their monthly payments. Plus, cars often get people to work, where they can earn the money they need to pay off debt.

Vehicle loans that are paid on time can help credit scores, and are rarely a problem unless someone has several car loans outstanding at once or misses a payment.

The Worst Kind Of Debt

When it comes down to it, the worst type of debt is … (drumroll please), the one you can’t pay back on time. If that happens, your credit scores will suffer, your balances may grow larger due to fees and interest, and you may find yourself borrowing even more as you try to keep up with your payments.

Article Source: http://www.huffingtonpost.com/creditcom/whats-the-worst-kind-of-d_b_4220046.html

3 Money Mistakes that Can Land You in Debt

Posted on October 17, 2013 by Marketing Coordinator Nicole

We’ve all heard the following personal finance advice:

“Don’t spend more than you make.”
“Pay your credit card off at the end of every month.”
“If it sounds too good to be true, it probably is.”

While it’s all good advice, following these basic budget rules is easier said than done. Incurring debt can happen quickly (unexpected medical bills) or gradually over time (spending more than you make each week), and hurt your credit score and your financial future.

Here are three major money mistakes to be avoided at all costs.

Money Mistake #1: Making Money Decisions Not Based on Facts

It can be alluring to transfer outstanding credit card debt to a card offering a 0% annual percentage rate (APR) to help lower the payments and make it easier to pay off the balance. However, experts warn 0% cards often come with added and fees and charges that make the process even more costly.

“There’s also an excellent chance the APR going forward, after a particular grace period, is going to be at least as high as it was before,” says Mike Sullivan, chief education officer at Take Charge America.

“People need to be honest with themselves,” he adds. Before transferring any debt, take the time to read all the fees, rate hikes and charges and then do the math to determine if transferring balances will actually save money.

Money Mistake #2: Not Having the Right Credit Card

Making rash decisions without taking into account the long-term monetary implications is also a source of trouble.

We’ve all been on an airplane when the flight attendants come down the aisle with a stack of credit card applications that promise enough miles for a free flight just for signing up today, right this minute. The same thing happens when you’re at the checkout counter at any retailer and you’re offered a discount and “loyalty rewards” if you sign up for the company card. Sounds good enough—both offers will save you money, right? That is the wrong assumption, says Sullivan.

“There’s a psychological factor that explains this behavior,” he says. “The less people know about a given topic, the more they assume they understand it fully. It’s human nature, and it could end up costing you a fortune if you’re not careful.”

Having the right credit card for your situation is critical to your financial success. For instance, if you are an avid traveler, you might want a card that doesn’t add foreign exchange fees, or if you drive a lot, look for one that offers bonus points for fill ups.

Experts say the best way to get the right card is to compare rates, benefits and services that best fit your needs. There are a variety of websites that help compare credit cards and don’t be scared to call a company and ask about certain cards if you have questions.

Money Mistake #3: You Don’t Take Out Responsible Loans

Certain purchases tend to require taking out a loan: college, a home and a car. And not all debt is considered bad debt, unless of course, you take out an irresponsible loan.

According to Sullivan, a major mistake many people make is financing their auto loan through a car dealer.

“In all likelihood, you’re not getting the best deal through the dealer,” he says. “People tend to skip the research and just go with whatever the car dealer says is the best deal. You’ll likely end up spending a lot of extra money paying for even more money.”

The same goes when taking out a mortgage. This lending process can be long and complex, and oftentimes people don’t understand the terminology or the lending terms. Many people aren’t entirely aware of what a “point” is, says Sullivan, and this can hurt them. When it comes to mortgages, “discount points” are a type of pre-paid interest in which one point is equivalent to one percent of the total loan amount. The idea is to reduce the interest rate on a loan and get a lower monthly payment in exchange for an up-front payment. But in reality, you could end up paying more than you would for a loan with a higher interest rate.”

The goal is to be completely aware of your financial situation, and to make decisions based on facts about what you can and can’t spend. Do your homework and know all of the available options before selecting one option over another. And don’t forget to agree to a loan that you understand and can afford.

The article source was written by Ann Hynek, published on September 6, 2013 for FOXBusiness.