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Mixing Up These Student Loan Terms Could Cost You

If you have student debt, you don’t have to go looking for confusing jargon — it’s built right into the system. Take student loan refinance and student loan consolidation.

These terms are often used interchangeably, since both let you bundle several loans into one. But the similarities stop there. That’s because federal consolidation and refinancing, also called private consolidation, are two very different processes.

At NerdWallet, we try to keep things clear by using the word “consolidation” when we’re talking about federal consolidation. This is a process that simplifies federal loan payments and can help borrowers qualify for programs like income-driven repayment plans and public service loan forgiveness.

Refinancing, on the other hand, is a way to lower your interest rate and save money on the total cost of your loans. Mixing up the two — which many borrowers do — can have long-term financial consequences.

How to tell consolidation and refinancing apart

Here’s a basic breakdown of each move.

Federal consolidation
  • Loans eligible: Federal only
  • Completed through: The federal government
  • What it does: Combines all of your federal loans under a single servicer of your choice. Your new interest rate is the average of all the individual rates, rounded up to the nearest 0.125 percentage point.
  • When to use it: To simplify payments if you have multiple servicers or to qualify for specific federal repayment programs
  • Qualifying: Most federal loans are eligible. Generally, you can apply after you leave school or drop below half-time enrollment.
  • Drawbacks: Up to 20 extra years in interest payments due to an extended loan term
Refinancing, or private consolidation
  • Loans eligible: Federal and private
  • Completed through: A private lender
  • What it does: Swaps out your existing loans for a new one with terms based on your financial history
  • When to use it: To save money on the overall cost of the loan; reduce monthly payments
  • Qualifying: Most lenders look for a low debt-to-income ratio, a steady source of income and a credit score in the mid-600s or higher
  • Drawbacks: Loss of borrower protections on federal loans
The costs of mixing up refinance and consolidation

Accidentally refinancing instead of consolidating would mean losing the safety net provided by federal borrower protections, such as forgiveness and income-driven repayment. That means that you’d have only deferment or forbearance options if you ever have trouble making your payments. Those options will increase your long-term costs.

On the flip side, accidentally consolidating means you wouldn’t save money by getting a lower interest rate or shorter loan term, as you would if you refinanced. You’d actually get a slightly higher rate, and you may extend your loan term to up to 30 years, depending on how much you owe and what repayment plan you sign up for. That will increase your total cost of borrowing.

Let’s say you graduated in 2016 and maxed out federal loans all four years of college, leaving you with $27,000 in debt and an average interest rate of 4.4775%. Consolidating would add 10 years to your term and increase your rate to 4.5%, costing you an extra $7,400 of interest compared with staying on the standard repayment plan.

Getting through the application process unscathed

Take these three steps to ensure you get the right outcome for your situation:

Know what you want. If you want to save money on your loans by changing your loan terms, check out refinancing. If you want to simplify your federal loan payments under a single servicer, or if you have Federal Family Education Loans and want to qualify for programs available only for direct loans, federal consolidation is the right move.

Make sure you’re OK with potential drawbacks. Neither federal consolidation nor refinancing can be undone, and each carries its own risks. Consolidating may extend your loan term. And if you’re going for loan forgiveness, be sure to exclude direct loans from consolidation or you’ll lose all qualifying payments on those loans. That means it’ll take even longer to get forgiveness. Refinancing can be risky, too. If you opt for a variable interest rate, for example, you may see your payments increase as the financial market changes.

Go to the right source.

  • Federal consolidation: Apply directly through the federal government to ensure you’re getting the right results. Start by logging into the Federal Student Aid website with your FSA ID and select “Complete a Consolidation Loan Application and Promissory Note.”
  • Refinancing: Check that the lender offers terms based on your current financial factors, like income and credit score. If that’s not spelled out for you, talk with a customer service representative to get clarification. But it’s probably best to look elsewhere to avoid signing up for a service or product you don’t want.

Federal consolidation and refinancing aren’t right for every borrower. If you’re looking to tie your payments to your income and you have direct loans, for example, you’d only need to apply for income-driven repayment. If you can afford your payments and want to keep the security of your federal loans, staying on the standard plan would be your best option.

Regardless of which path you choose, remember that signing up for consolidation, refinance or any federal loan repayment plan is free to do on your own.

Devon Delfino is a staff writer at NerdWallet, a personal finance website. Email: ddelfino@nerdwallet.com. Twitter: @devondelfino.

Coupon scam: ALDI warns customers of fake offers on Facebook

Fake coupons for low-cost grocery store ALDI have been making the rounds again on Facebook and could give computers viruses.

>> Read more trending news

WSYR reported that Facebook user Melissa Sheriff noticed a post that claimed to offer a $100 off coupon at ALDI stores, and it seemed too good to be true.

"Next thing I know everyone is sharing it," Sheriff said. "People are sharing it on each other's pages and messaging the coupon to each other and tagging each other in posts saying, ‘Great deal, great deal, you have to print out this coupon.'"

Related: If you see this Publix coupon, it's a fake

Related: Kroger warns shoppers of fake '$60 off' coupon

Aaron Sumida, vice president of ALDI’s Tully division, issued the following statement in response to the scam:

We understand the confusion that some customers have experienced with digital coupon scams affecting ALDI and other retailers. On Friday, we shared a post on our Facebook page to let our customers know that ALDI doesn't issue electronic coupons or gift cards. These offers weren't authorized or distributed by ALDI and will not be honored at ALDI locations. We sincerely regret any inconvenience this situation may cause our customers.

ALDI also addressed the scam in a Facebook post Friday.

“There’s a fake ALDI coupon making its way around the internet…again. We don’t offer electronic coupons and they won’t be accepted at our stores. We’re working on fixing the situation, so if you’d like to help us out and spread the news, feel free to share this post. We’re sorry for the confusion,” the company said.

ALDI is not the only retailer being used in fake coupon scams. Kroger and Publix grocery stores have also been victims of coupons claiming to offer $60 and $75 off of purchases.

Clock Ticks Louder for Older Aspiring Entrepreneurs

In an alternate universe, Ron Sheble would retire in his mid-60s and move to Arizona to hike the desert with his wife, living off savings and stock options from his years in corporate finance.

But life works out in funny ways. Since 2013, the 59-year-old Lincolnshire, Illinois, resident has co-owned and operated Advanced Vehicle Technology Services, Inc., a company that converts fleet vehicles — think delivery trucks and police cars — to run on natural gas or propane.

Sheble and co-owner David Hagopian, both of whom were laid off from the same corporation, knew little about alternative fuels to begin with. But after kicking in their own savings to start up the business, toiling through a year and a half in the red and growing annual revenue to more than a half-million dollars, neither is ready to return to a desk job.

“We’re going to stick with it,” Sheble says. “The bleeding has stopped.”

Starting a business is difficult at any age, but entrepreneurs like Sheble and Hagopian, both north of 50 when they set out, have specific constraints to consider. Chief among them is time: Older entrepreneurs have fewer productive years ahead to make up for the lean times that virtually all new businesses experience as they gain footing.

People in their 50s also have different financial priorities than younger people. Their children are going to college and (yikes!) grad school; they generally have to spend more on health care; and they’re thinking harder about retirement.

“Really, the math has to work out for these people,” says Michele Markey, vice president of Kauffman FastTrac Inc. in Kansas City, Missouri, a nonprofit provider of entrepreneurial training.

In the first few years, new business owners can experiment and figure out whether they have what it takes to be an entrepreneur, says Eleanor Dillon, an Arizona State University assistant professor of economics and co-author of a study on self-employment dynamics published in February by the National Bureau of Economic Research.

If you’re an aspiring older entrepreneur, ask yourself these questions to decide if starting your own business is the right move:

  • How does a business fit with my other financial goals? You should have a focused objective for your business and project how it’ll fit with your other financial priorities, Markey says. For example, how long will it take you to break even on your initial investment? Until then, your business is costing you the returns you could have made putting your money in a retirement account or some other investment.
  • How am I going to pay for this? Along the same lines, you should determine if you intend to fund your business from your savings or seek outside funding, either equity investors or debt. It’s difficult to get financing to start a business from traditional banks, but there are a few options for startup funding in the alternative financing market.
  • Should I start a side gig? Having an income while you develop your business will relieve some pressure, and it doesn’t hurt to hold on to health insurance if your employer offers it. If you’re under 65, the eligibility age for Medicare, you can buy individual insurance, but you’ll likely pay more on your own versus with an employer plan, and you’ll get less generous benefits.
  • What’s my endgame? If you’re an older business owner, your commitment to the business shouldn’t be as open-ended as a younger person’s might be, Markey says. Do you want the business to just provide income, or do you want to leave something behind after you no longer can or want to run it? Your endgame matters because it will influence how you invest in the business and operate it.
  • How do I learn more? Sure, tons of books and websites are devoted to business, but nothing beats sharing ideas with like-minded people. A good place to start is your local Small Business Administration small business development center. Also talk with people who would be your target customers to get feedback on your product or service. “Getting out and moving around amongst people gives the idea life,” Markey says.

Sheble adds: “Know that it’s going to take time. Unfortunately it’s going to take years” to ramp up a business.

Still, he’s nowhere close to hanging it up — there are more mechanics to hire, more contracts to book. And his take-home this year is only about half what he made in his last corporate job.

Sheble expects to “be working a lot more years,” so Arizona will have to wait a bit, he says. In the meantime, he’s still building his resume, four decades into his working life. He’s also having fun.

“Most of the time,” Sheble quips. “Let’s use the 80/20 rule and call it 80% of the time.”

Andrew L. Wang is a staff writer at NerdWallet, a personal finance website. Email: awang@nerdwallet.com. Twitter: @andrew_L_wang.

This article was written by NerdWallet and was originally published by USA Today.

Outsmart Debt Like a Mom

Being a mom is hard work; being in debt makes it even more difficult. And tackling that debt while juggling other family responsibilities can feel impossible. Where do you start? How long will it take? What do you tell the kids?

Plenty of moms have been in this position, each with her own journey toward debt relief, from getting a personal loan to selling the family home. We asked three mothers — and one new mom who’s a certified financial planner — to share what they know about paying down debt.

First, everyone has a different starting point

For some, like Cherie Lowe, a mom of two girls who runs the personal finance blog Queen of Free, a smaller change made a difference. She and her husband paid off almost $127,500 in debt over four years — starting with $100 a month.

“The first thing we did was adjusting my husband’s withholding,” Lowe says. “We didn’t get a tax refund, but it allowed us to have an extra hundred dollars that we weren’t already living on to help us pay off our debt.”

Big changes, however, can bring immediate relief. Laura Dobbins, who runs the personal finance blog My Shiny Nickels, didn’t imagine that her house would be the first thing to go. But selling her dream home — which had a $400,000 mortgage — and moving with her husband and four children into a smaller place was the first change she made. It reduced her overall debt by $30,000 in the first year. “We don’t regret it a single day at all,” Dobbins says.

Julie Mayfield, who writes the personal finance blog The Family CEO, was a stay-at-home mom with two kids when she decided to get her family’s finances in order. The first step she and her husband took toward paying off $47,000 was making debt payment her job.

“We approached it from a place of intention,” she says. “What do we want to spend money on, and what are we spending money on that isn’t important? That worked for me better than to just be penny-pinching all the time.”

The best lessons learned along the way

For Dobbins, the key is finding what motivates you. She gives herself small wins to head off burnout, by tackling debts from smallest balance to largest rather than according to interest rate. “If your largest-interest-rate debt is $25,000, you’re going to get three years in and be like, ‘What am I doing again?’”

Mayfield found ways to reassess over time.

“If you can refinance your mortgage or get rid of private mortgage insurance, or cars, or rent, the big stuff comes first,” Mayfield says. “After that, I think it’s helpful to focus on the consistent things, the things that come up every month — the cable bill or eating out — because that’s going to be where you get the most results from your efforts.”

Realize there will be unexpected expenses. “We were prepared for there to be uncontrollable variables as much as we could be,” says Kelli Grant, a personal finance reporter and certified financial planner who recently had her first child with her husband, a freelancer. But certain challenges still took them by surprise. “Our little guy grew super fast, so we were perpetually looking for larger clothes and larger shoes.”

If you’re an expectant mom who’s worried about getting in debt, Grant stresses planning for your newborn’s expenses. “Babies have hospital bills, too,” she says. “My son had his own bills from being there. Insurance counts him as a separate person with his own limits and deductibles.”

Kids can handle the truth

Dobbins enlisted her children’s support on the same philosophy that she and her husband held themselves to: “We can do anything for a year.”

Honesty and attitude are key, she says. “When we moved, they knew that that’s why they were moving, and they obviously were not thrilled,” Dobbins says. “We tried to be positive about it ourselves.”

And over time, being transparent with her children has served them well, Dobbins says. “The kids are super aware of money now,” she says. “They have this mentality about where money goes.”

Lowe started paying down her family’s debt in 2008, during the housing market crash — news that her eldest daughter heard about, too. “The headline was something like, ‘Trouble on Wall Street Means Trouble on Main Street,’” Lowe says. “We live on Main Street, so she was asking, ‘Why is there trouble?’”

Lowe and her husband decided that they had to be as honest with their kids as possible. “We told her, ‘We borrowed more than what we should have, we’re going to pay it all back, and that means we’re going to make some changes in the way we live our lives,’” she says. And she was sure to answer any questions her daughters asked about the family’s money situation.

Grant plans to let her son know how the family finances are handled. For now, she’s thinking of the future.

“College costs obviously are a big one,” she says. “My husband and I thought about that right upfront. I’m still paying off my own undergraduate student loans, so I’m juggling that with my other financial goals. But we made it a priority to put aside money every month for his college savings.”

Unconventional savings are optional

Lowe recommends holding off on more unusual penny-pinching strategies until you’ve done the essentials. For herself, once the groundwork was laid, she found creative ways to further cut costs.

“We didn’t have [cable] TV at all for a while. The only thing we had at all was a VCR and a DVD player. My husband built our own antenna out of a two-by-four and hangers,” Lowe says.

Some changes happened accidentally. “Our microwave quit working while we were trying to get out of debt and I decided to wait 30 days before buying one. And then we never replaced it,” Lowe says.

Mayfield doesn’t recommend outside-the-box saving strategies. “I didn’t sell my plasma,” she says. “We didn’t do anything that crazy.”

Grant found that her priorities changed in ways she didn’t anticipate. “Coffee was never something that I enjoyed before having a baby, but now that we’re routinely awake at 5 a.m., we put aside money for coffee shipments,” she says.

No matter what your financial situation, there’s a positive way forward. Check out this guide to paying off debt to find out where you can get started.

Veronica Ramirez is a staff writer at NerdWallet, a personal finance website. Email: vramirez@nerdwallet.com. Twitter: @veraudrey.

Deductions Aren’t the Only Way to Save on Real Estate Taxes

By Bill Brown

Learn more about Bill on NerdWallet’s Ask an Advisor

The mortgage interest deduction and the state and local property tax deduction are probably the best-known tax incentives for homeownership and real estate investment.

That’s no surprise. Roughly 9 out of 10 home buyers borrow money to buy a home, meaning they likely pay some form of mortgage interest. And property taxes are a near-universal expense for homeowners. Both deductions are crucial to making homeownership possible for the average buyer.

But there are other real estate-related tax incentives that might not be as familiar.

Capital gains exclusion

All homeowners hope their property will appreciate. The flip side is that anyone selling an asset that has gone up in value may get hit with a tax bill for the profit, also known as the capital gain. Thankfully, homeowners have some help in their corner.

An individual selling his or her principal home can qualify for an exclusion of up to $250,000 in capital gains, and married people who file jointly may qualify for an exclusion of up to $500,000. There’s no need to report gains up to these limits on a tax return.

To take the exclusion, sellers must pass the IRS’ ownership and use test, but it’s fairly straightforward. Essentially, they must own the property and have used it as a primary residence for a total of two out of the five years preceding the sale. Even if owners currently rent the property and depreciate it — as we’ll discuss shortly — they might still meet the use and ownership test and qualify for the exclusion. And even if sellers haven’t lived in the home during the past five years, they might qualify for a partial exclusion.

That’s a big help, as well as a recognition of the fact that millions of Americans depend on their home to build wealth throughout their lives.

1031 like-kind exchanges

The “1031 like-kind exchange” sounds like it’s ripped right from an accountancy textbook, but it’s actually fairly easy to understand. Let’s say a person owns a single-family, detached rental home as part of an investment portfolio. If the home appreciates, the owner will likely owe capital gains taxes in the event of a sale — unless he or she uses the proceeds to buy a condominium in a market with higher rents.

Because the single-family home and the condo are both investment properties, tax law treats them as “like kind.” And because this transaction is a “like-kind exchange,” the owner won’t pay capital gains tax until he or she sells the new property.

This gives investors an incentive to put any realized gains back into the economy rather than pocketing them. And it’s a big deal: Major real estate investors and mom-and-pop investors alike can benefit.

Depreciation on rental property

Homeowners who rent a portion or all of their property might be able to “depreciate” that asset, which means deducting some of the cost of the property each year on their tax return. That could result in a significant income tax deduction.

If you do earn money on the sale of your home after depreciation is taken into account, you’ll generally owe tax on the depreciated portion at the 25% “depreciation recapture” rate. Any other gains will be taxed as capital gains.

Changes may be coming

For more than a century, the United States has recognized the benefits of homeownership and real estate investment. It strengthens communities and helps individuals grow nest eggs for themselves. However, Congress is considering tax reform proposals that could have sweeping implications for real estate incentives. That’s something to keep an eye on.

Everyone’s tax situation is unique. Before you count on any of these incentives, you may want to talk with a tax professional. But if you’re ready to take the plunge into homeownership or real estate investment, tax benefits — some obvious and others perhaps less so — are out there.

Bill Brown is the incoming president of the National Association of Realtors.

Marriott Rewards Premier Credit Card Rolls Out Cool 100K-Point Bonus

Eighty thousand points isn’t cool. You know what’s cool? A hundred thousand points.

That’s what the Marriott Rewards Premier Credit Card, issued by Chase, is offering for a limited time after you spend $5,000 on the card in the first three months. And if you add an authorized user and swipe the card in that same period, you’ll score an additional 7,500 points.

As our review of the Marriott Rewards Premier Credit Card notes, the card is ideal for fans of the hotel chain. Cardholders earn five points for every dollar spent at any of the more than 5,700 Marriott and Starwood properties worldwide, and points can easily be transferred between brands such as Ritz-Carlton, Renaissance, Sheraton and Westin.

As an added incentive to keep swiping the card, double points are awarded for purchases on airfare, rental cars and restaurants, and cardholders earn one point per dollar on everything else. The card also carries no foreign transaction fees, so it’s perfect for long stays abroad.

Other Noteworthy Perks

Cardholders also receive other perks. They earn 15 credits toward their next Elite membership level and one Elite credit for every $3,000 spent. Points won’t expire so long as they swipe the card at least once every two years, and each cardholder anniversary they receive a free night stay.

The card also features travel security features like trip delay reimbursement, trip cancellation insurance, purchase protection and lost luggage reimbursement.

Before You Apply 

If the 100,000-point bonus has put the Marriott Rewards Premier Credit Card on your radar, you’ll want to make sure you’ll actually use it. The card carries an $85 annual fee, and its variable APR is 16.49% to 23.49%, based on your creditworthiness. Some may find that rate a little too high, especially if they tend to carry a balance from month to month or have difficulty paying their bills off.

Before you apply, we advise checking your credit to make sure you’re likely to qualify. You can do that on Credit.com, where you’ll get two of your credit scores for free, with useful updates every two weeks. Checking your credit scores won’t hurt them one bit and is a great way to keep tabs on your finances.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

Related Articles

This article originally appeared on Credit.com.

SelfScore Launches Rewards Card for International Students in US

A year after it began offering credit cards to eligible international students, alternative lending company SelfScore is increasing its portfolio of financial products. On Tuesday, it’s rolling out the SelfScore Achieve Mastercard, a student credit card with a higher credit limit, cash-back rewards and an introductory 0% annual percentage rate on purchases.

At first the new card will be available only to international students studying in the U.S., but the company plans a broader rollout to all eligible college students in the fall, says Kalpesh Kapadia, the company’s co-founder and CEO.

The best news for would-be cardholders?

“We will not be looking at credit scores,” Kapadia says. Instead, the company will use its proprietary scoring system, opening the card up to people who don’t have a FICO score, commonly used to qualify for credit cards.

More on that below. First, let’s look at the new card.

» MORE: Alternative lenders offer credit cards for newcomers to the US

SelfScore Achieve Mastercard: The basics

SelfScore’s first credit card product, the SelfScore Classic Mastercard, is fairly bare-bones. Credit limits start at only $500 but can be increased to $1,500 once the cardholder meets certain requirements, like linking the card to a bank account and making several on-time payments. The Classic has no annual fee, and it doesn’t require a Social Security number. It does, however, help newly arrived students build a credit history in the U.S.

The new card has a little more meat to it:

  • Credit limits of up to $5,000
  • No annual fee
  • Unlimited cash back rewards of 1% on all purchases
  • No foreign transaction fees
  • Introductory APR of 0% on all purchases for the first six months

Both cards come with Mastercard Platinum benefits, including purchase assurance, extended warranty, travel assistance and car rental collision waivers.

How to qualify for a SelfScore Mastercard

Traditional credit scores depend on how you’ve handled credit in the past. But what if you’ve never had credit before, or your credit history was left behind in your home country when you moved to the U.S.?

SelfScore says it wants to help creditworthy students, and eventually nonstudents, who are stuck in the conundrum of not being able to get credit because they don’t already have credit.

SelfScore evaluates creditworthiness by looking at documents common to international students, such as passports, student visas and financial documentation that foreign students must submit to their universities anyway.

“Funding sources matter,” Kapadia says. “You have demonstrated that to the university and to the embassy overseas. We are piggybacking on that.”

» MORE: How foreign students and immigrants can get a credit card

Expanding access to credit

Even though SelfScore doesn’t rely on traditional credit scores, the company recognizes that international students will need those credit scores as their financial needs change over time. SelfScore reports account activity to all three major credit bureaus — Experian, Equifax and TransUnion — so responsible use of a SelfScore card will result in a better credit score over time.

But Kapadia isn’t keen on helping students build credit only to lose them when they can qualify for more enticing credit cards elsewhere. Hence the new rewards card and a hinted-at suite of premium credit cards in the future.

» MORE: The best student credit cards

Expanding mission

Right now, SelfScore is sticking to its roots — helping international students get access to credit and build a credit history in their new country. But the company’s mission has expanded over the past year. It wants to help “deserving but underserved populations gain financial independence through access to credit,” Kapadia says.

Virginia C. McGuire is a staff writer at NerdWallet, a personal finance website. Email: virginia@nerdwallet.com. Twitter: @vcmcguire.

Mortgage Rates Tuesday, March 28: Steady Decline

Mortgage rates today for 30- and 15-year fixed loans dropped by 2 basis points, while 5/1 ARMs fell by 1 basis point, according to a NerdWallet survey of mortgage rates published by national lenders Tuesday morning.

The 30-year fixed, 15-year fixed and the 5/1 ARM are continuing a downward slide after hitting peak levels in mid-March, NerdWallet’s analysis shows. The 30-year fixed rate hasn’t been this low since Feb. 27.

MORTGAGE RATES TODAY, TueSDAY, MARCH 28:

(Change from 3/27) 30-year fixed: 4.27% APR (-0.02) 15-year fixed: 3.67% APR (-0.02) 5/1 ARM: 3.83% APR (-0.01)

Get personalized mortgage rates

 

» MORE: How much home can you afford?

Homeowners looking to lower their mortgage rate can shop for refinance lenders here.

NerdWallet daily mortgage rates are an average of the published annual percentage rate with the lowest points for each loan term offered by a sampling of major national lenders. APR quotes reflect an interest rate plus points, fees and other expenses, providing the most accurate view of the costs a borrower might pay.

Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: dkearns@nerdwallet.com. Twitter: @debbie_kearns.

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