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Help Your Kid Graduate From College Debt-Free

Today, most parents are saving money for their children’s college education — 72% of them, according to a study by Fidelity Investments. But some 68% of students still graduate from school with student loan debt, at an average of $30,000. Here are three ways you can elevate your savings strategy to help your kid graduate without debt.

Squeeze the most out of your 529

There are two main types of 529 college savings plans: prepaid plans, which are often modeled around costs for in-state public colleges; and savings plans, which operate similarly to a 401(k) and may be managed by a financial advisor. Both prepaid and savings plans are available in state-based 529s.

If your state offers a tax deduction, it’s usually best to go with that plan, says Denise Downey, a certified financial planner in Spokane, Wash. Those savings can be used to increase your 529 contributions, so your child will have more money for college. You can choose another state’s plan, but be aware that those tax incentives may only apply if you invest in your home state’s 529 plan. Be sure to take a close look at the terms of each plan when comparing your options, too. Excessive management or administrative fees can negate your financial gains.

Maximize your child’s federal aid eligibility

After you submit the Free Application for Federal Student Aid, or FAFSA, you’ll get a student aid report that includes your estimated family contribution, or EFC. That determines how much federal aid your child is eligible for. Many colleges use it to decide how much need-based aid to award.

For dependent students, the assets and income of both the student and parents are factored into your EFC, and different transactions can have an impact on your EFC. For example, selling an investment property or withdrawing money from your retirement account early is counted as additional income. That will increase your EFC. And the more money that’s in your child’s name, the less need-based aid he or she may be eligible for.

Since the FAFSA currently uses your tax information from the year before last, you’ll have to make the necessary adjustments to your finances during the first half of your child’s junior year of high school to maximize their federal aid eligibility.

Teach a financial lesson

Saving money for your child’s college education is important, but financial literacy can take your money even further. Deborah Fox, a San Diego certified financial planner, suggests using an allowance to teach the basics of handling money early on. You can take that a step further by offering to give your child a small loan from the “Bank of Mom and Dad” to help them understand what it means to take on debt and repay it. That, she says, is a lesson that will stick.

More from NerdWallet New parents: Save money (and sleep better) with these 5 tips Is student loan debt really ‘good debt’? FAFSA4caster: What to know before you use it

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

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

 

Help Your Kid Graduate College Debt-Free

Today, most parents are saving money for their children’s college education — 72% of them, according to a study by Fidelity Investments. But some 68% of students still graduate school with student loan debt, at an average of $30,000. Here are three ways you can elevate your savings strategy to help your kid graduate without debt.

Squeeze the most out of your 529

There are two main types of 529 college savings plans: prepaid plans, which are often modeled around costs for in-state public colleges; and savings plans, which operate similarly to a 401(k) and may be managed by a financial adviser. Both prepaid and savings plans are available in state-based 529s.

If your state offers a tax deduction, it’s usually best to go with that plan, says Denise Downey, a certified financial planner in Spokane, Wash. Those savings can be used to increase your 529 contributions, so your child will have more money for college. You can choose another state’s plan, but be aware that those tax incentives may only apply if you invest in your home state’s 529 plan. Be sure to take a close look at the terms of each plan when comparing your options, too. Excessive management or administrative fees can negate your financial gains.

Maximize your child’s federal aid eligibility

After you submit the Free Application for Federal Student Aid, or FAFSA, you’ll get a student aid report that includes your estimated family contribution, or EFC. That determines how much federal aid your child is eligible for. Many colleges use it to decide how much need-based aid to award.

For dependent students, the assets and income of both the student and parents are factored into your EFC, and different transactions can have an impact on your EFC. For example, selling an investment property or withdrawing money from your retirement account early is counted as additional income. That will increase your EFC. And the more money that’s in your child’s name, the less need-based aid he or she may be eligible for.

Since the FAFSA currently uses your tax information from the year before last, you’ll have to make the necessary adjustments to your finances during the first half of your child’s junior year of high school to maximize their federal aid eligibility.

Teach a financial lesson

Saving money for your child’s college education is important, but financial literacy can take your money even further. Deborah Fox, a San Diego certified financial planner, suggests using an allowance to teach the basics of handling money early on. You can take that a step further by offering to give your child a small loan from the “Bank of Mom and Dad” to help them understand what it means to take on debt and repay it. That, she says, is a lesson that will stick.

More from NerdWallet New parents: Save money (and sleep better) with these 5 tips Is student loan debt really ‘good debt’? FAFSA4caster: What to know before you use it

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

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

 

Mortgage Rates Today, Jan. 9: Little Change; FHA Reduces Insurance Premiums

Mortgage rates showed little to no movement on Monday, with 30- and 15-year fixed rates holding steady, and 5/1 ARM rates up a hair, according to a NerdWallet survey of mortgage rates published by national lenders this morning.

Mortgage Rates Today, Monday, Jan. 9 (Change from 1/6) 30-year fixed: 4.31% APR (NC) 15-year fixed: 3.73% APR (NC) 5/1 ARM: 3.84% APR (+0.01) FHA reduces annual insurance premiums

Mortgages insured by the Federal Housing Administration just got a little cheaper. The U.S. Department of Housing and Urban Development announced Monday that the FHA will reduce the annual mortgage insurance premiums on most FHA loans by a quarter of a percent. The reduction will save FHA-insured homeowners who close or have funds disbursed on or after Jan. 27 an estimated $500 this year. About 1 million households are expected to buy or refinance with FHA loans this year, according to the news release.

“We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers,” Ed Golding, principal deputy assistant secretary for HUD’s Office of Housing, said in the release. “Homeownership is the way most middle-class Americans build wealth and achieve financial security for themselves and their families. This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream.”

The change reflects improving financial conditions for the FHA and also the new environment we’re seeing with rising mortgage rates. The new annual premium is now close to its pre-housing-crisis level, according to the report.

“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” said HUD Secretary Julián Castro. “This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”

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

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

More from NerdWallet The pros and cons of home equity lines of credit Best lenders for FHA loans Calculate your monthly mortgage payment

Michael Burge is a staff writer at NerdWallet, a personal finance website. Email: mburge@nerdwallet.com.

Mortgage Rates Today, Jan. 9: Little to No Change; FHA Cuts Insurance Premiums

Mortgage rates showed little to no movement on Monday, with 30- and 15-year fixed rates holding steady, and 5/1 ARM rates up a hair, according to a NerdWallet survey of mortgage rates published by national lenders this morning.

Mortgage Rates Today, Monday, Jan. 9 (Change from 1/6) 30-year fixed: 4.31% APR (NC) 15-year fixed: 3.73% APR (NC) 5/1 ARM: 3.84% APR (+0.01) FHA reduces annual insurance premiums

Mortgages insured by the Federal Housing Administration just got a little cheaper. The U.S. Department of Housing and Urban Development announced Monday that the FHA will reduce the annual mortgage insurance premiums on most FHA loans by a quarter of a percent, saving FHA-insured homeowners who close on or after Jan. 27 an estimated $500 this year. About 1 million households are expected to buy or refinance with FHA loans this year, according to the news release.

“We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers,” Ed Golding, principal deputy assistant secretary for HUD’s Office of Housing, said in the release. “Homeownership is the way most middle-class Americans build wealth and achieve financial security for themselves and their families. This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream.”

The change reflects improving financial conditions for the FHA and also the new environment we’re seeing with rising mortgage rates. The new annual premium is now close to its pre-housing-crisis level, according to the report.

“After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families,” said HUD Secretary Julián Castro. “This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”

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

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

Michael Burge is a staff writer at NerdWallet, a personal finance website. Email: mburge@nerdwallet.com.

7 Ways to Improve Your Finances in 2017

The new year is a great time to take a fresh look at your finances. Ready for a boost in 2017? Here are seven steps to give you a running start.

1. Know your credit score

Your credit rating not only affects whether you can get approved for future credit, but it also may factor into  the fees you pay for loans, credit cards and insurance policies, even whether a landlord approves you as a tenant. Keeping track of  your credit score can help you put together a game plan for improving your finances, whether it’s paying off debt or finding better rates on your accounts. Scores usually range from 300 to 850 — the higher, the better.

2. Cut high-interest debt

If you have existing loans with high rates, consider consolidating the debt into a single lower-rate loan. More of your monthly payment can then go toward lowering the balance. If you carry balances on high-interest credit cards, think about making a balance transfer to a card that offers a promotional 0% APR.  Look for a card that doesn’t charge a balance transfer fee, and aim to pay down the debt by the time the promotional period ends.

3. Open a new checking account

Major U.S. banks charge monthly fees of about $10 to $12 for even the most basic checking accounts. That adds up. If you’re paying a similar amount to your bank, try switching to a new checking account that doesn’t have a monthly fee, or at least one where the monthly fee is easy to waive, such as by signing up for direct deposit or having a low minimum balance.  It would be like giving yourself an annual bonus of $120 to $144.

4. Boost your savings rate

Is your spare cash sitting around in an average savings account, earning a rate that’s barely over half a percent? You can do better. Higher-yield savings accounts can earn twice as much, around 1% APY or more, so it pays to shop around. Your money can grow faster with little effort on your part. And if interest rates rise this year thanks to the Fed rate hike, the rates on these accounts could rise, too.

5. Simplify your budget by automating

If one of your money resolutions for 2017 is to do a better job of sticking to your budget, make it easy on yourself by setting up automatic deposits and payments. Arrange for regular transfers to your savings and investments accounts, and automate payments for fixed expenses. Once you have the big items covered, it’ll be easier to deal with smaller expenses.

6. Get a side hustle

If you need to increase the “income” column in your budget, consider applying for a part-time job, or become one of the 55 million Americans who freelance.  Start by identifying an interest or hobby you have that others are willing to pay for, such as photography, marketing or tutoring skills. Then spread the word that you’re looking for work.  You could soon have a nice new income stream in the new year.

7. Plan beyond 2017

Think way beyond, as in retirement. The earlier you save, the more your money can grow. This is true even if you put away only a small amount each month.   Consider increasing your 401(k) contribution by 1% or opening an IRA if you don’t have a retirement account. Take steps now to build a cushion. In the future, when 2017 is a just a distant memory, you’ll be glad you did.

Margarette Burnette is a staff writer at NerdWallet, a personal finance website. Email: mburnette@nerdwallet.com. Twitter: @margarette.

College Saving Tips for 2017

By Winnie Sun

Learn more about Winnie on NerdWallet’s Ask An Advisor

As FAFSA and college application deadlines approach, the cost of higher education is on the minds of many. The amount of student loan debt in America is increasing — as of September, students held $1.4 trillion in debt, up from $961 billion in 2011, according to the Federal Reserve Board. The average borrower graduates with more than $30,000 in student loan debt, and the government recently reported that more than 11% of students were in default by their third year of repayment.

» MORE: Tips from financial advisors on keeping college loans under control

Given these dire statistics, it’s easy to feel overwhelmed, and many may indeed view college as a luxury they can’t afford. Yet, with the right strategies, it is possible to get a college education for minimal debt. As a financial advisor, I work regularly with clients who are college-bound, current students or recent graduates. The following are my most effective tips for making college more affordable.

Start saving early

This tip is perhaps the most important. The more money you have in savings before you start college, the less you’ll have to borrow. 529 college savings plans can be started as soon as a child has a Social Security number. Money put into 529 plans is tax-sheltered, and growth is free of federal taxes if the money is used for higher-education costs such as tuition, books, school supplies or housing. The money can also be transferred between family members.

Students also can consider getting a part-time job. Many high schoolers work in retail stores or restaurants. Tutoring is also a good part-time income source. Having an employment history before you apply to college can enhance your resume, too.

Choose the right school

The cost of college tuition depends on the school you choose. Do your research and shop around to find out about course offerings and degrees available at several different schools before applying. Talk to current and former students in your intended program, and talk with professors and financial aid offices. You may find that several schools offer similar degrees, and sometimes lesser-known, public colleges can provide more individual attention and an education that is equal to or better than the big-name private colleges.

With the cost of out-of-state tuition significantly more than that of in-state tuition, it’s worth considering which option is truly better for your intended major.

You may also want to consider attending a community college for the first two years of an undergraduate degree. Many community colleges and universities have partnerships that allow students to then transfer and complete the final two years of their degree at the university. This allows you to earn a university degree for significantly less cost.

» MORE: Student loan default: What it means and how to deal with it

Apply for scholarships and grants

Students are eligible to receive federal grants once they complete their FAFSA application. There are also thousands of scholarships available from schools, businesses and charities. Some are not highly advertised, so make sure you see them all by using a scholarship search engine. Collegeboard, Moolahspot and Fastweb are good places to browse for scholarships. Try to apply for as many as you possibly can. Consider applying for scholarships a part-time job your junior and senior years of high school.

Keep in mind that schools typically do not publish all available scholarships on their websites. To avoid missing out on any opportunities, contact the financial aid offices of the schools to which you will be applying to explain your situation and ask for information about any scholarships they may have for you.

Don’t forget, there are also plenty of scholarships available only to students who have completed some college, so your scholarship hunt doesn’t end when you graduate high school. There’s plenty of money out there once you start higher education.

Consider crowdfunding

Crowdfunding has become popular lately, especially for medical expenses, trips and special needs. Some crowdfunding sites are specifically designed to raise money for college costs. Setting up an account is usually simple — just upload a photo, add a personal story, and share with friends and family or on social media. PigIt, GoFundMe and ScholarMatch are all useful starting points.

Opt-in for work-study

Many college and financial aid applications ask whether you would like to be considered for work-study. Make sure to check the “yes” box. Work-study opportunities may include library work, selling tickets, assisting a professor or other school-related jobs assigned to you by your school. Your job earnings offset tuition costs. Work-study options provide valuable experience that can advance your career, too.

Earn college credit early for maximum savings

Students can lower the cost of college by taking Advanced Placement, International Baccalaureate or dual-enrollment courses while still in high school. These courses provide students with high school and college credit simultaneously. Taking these courses can often cut the length of an undergraduate degree down to two or three years instead of four, allowing students to enter the workforce or start graduate school earlier.

I hope these tips have helped you in your quest to save for college. If you have further questions, consult a financial advisor who can give you personalized guidance.

Winnie Sun is the founding partner of Sun Group Wealth Partners in Irvine, California.

Life Insurance Explained in (Exactly) 250 Words

What life insurance is: a policy that pays out if you die.

When you need it: if your death would cause financial hardship to someone, like a spouse.

How it’s priced: based on life expectancy. Any factor reducing life expectancy, like heart disease, will likely mean a higher price.

Comparing prices: Even if you have medical conditions, compare life insurance quotes from several companies. Insurers are competing for your business.

When you apply: A life insurance medical exam is often required. Insurance companies typically also look at your medical records, use prescription-drug databases to see what medicines you take, pull your driving record, and access a database with your answers for previous life and health applications.

Easiest life insurance to understand: term life insurance. You choose only the policy amount and the length.

Cash value life insurance: policies that contain an account that can build up money over time. Eventually you can withdraw the money or take a loan against it. Policies with cash value include whole life, universal life and variable universal life. Term life insurance has no cash value.

Once you buy: Your rates can’t go up once you have a policy, even if you develop new health conditions.

Life insurance payout: called a death benefit. It will go to the person (or people) you designate as the beneficiary.

Note on minor children: They cannot receive life insurance money directly. If you’re buying life insurance to benefit children, you should set up a life insurance trust for them.

Amy Danise is an editor and insurance expert at NerdWallet, a personal finance website. Email: adanise@nerdwallet.com. Twitter: @AmyDanise.

This article was written by NerdWallet and was originally published by The Associated Press.

One-Word Answers To Your Money Questions

Financial advice is loaded with fine print, disclaimers and caveats. But sometimes, you want a straight answer before digging deeper.

We answered 10 money questions in a single word, and linked to all the extra stuff.

1. How do lenders decide if I qualify for a loan or credit card?

Credit.

2. What if my credit isn’t good enough?

Co-signer.

3. Does checking my credit report hurt my score?

No.

4. What score do I need for my credit to be considered “excellent”?

720+.

5. How old do I have to be to get a credit card?

18.

6. How do I get money for college?

FAFSA.

7. How can I lower my student loan interest rates?

Refinance.

8. How much of my income should I spend on necessities like rent, food and gas?

50%.

9. How do I simplify multiple debt payments?

Consolidation.

10. How can I save for retirement if my employer doesn’t offer a retirement savings plan, like a 401(k)?

IRA.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

How to Avoid 3 Bank Fees You Shouldn’t Be Paying

There are many personal finance tenets to follow when you decide to take control of your finances. Perhaps one of the most important is this: Don’t pay fees unless absolutely necessary.

The average cost of checking account fees over a decade totals almost $1,000, according to a recent study. But many of these fees — including common ones such as maintenance, ATM and overdraft fees — can be avoided by choosing the right bank and cultivating good banking habits.

Here’s what you should know about common bank fees and tips for avoiding them, including options for low-fee checking accounts that also earn interest.

1. Maintenance fees

Many traditional banks charge a maintenance, or service, fee on checking accounts — about $10 to $12 per month.

Some banks will waive the charge if you keep a daily minimum balance or have a certain amount of money deposited directly into your account each month. Others require a certain number of debit card transactions each month for the waiver.

Check your bank’s policy for exact terms so that you can set up direct deposit and keep the minimum required balance to avoid maintenance fees. If you can’t meet the requirements, look for a bank without these fees.

» MORE: Best free checking accounts

2. ATM fees

You’ve probably had the experience of needing cash and looking unsuccessfully for an ATM affiliated with your bank. You ended up with no choice but to go, cringing, to another ATM, resigned to paying a fee to your bank and possibly another to the ATM’s operator. Such fees average $2.01 and $2.75, respectively, according to the study.

ATM fees can be avoided by using your own bank ATM. That may require choosing a bank whose ATMs are easily accessible from your home or workplace, or looking for local bank branches and ATMs when you are out and about. You could also get cash back when making debit card purchases at many retail locations, eliminating the need for a trip to the ATM.

3. Overdraft fees

Your bank may charge you an overdraft fee if your withdrawals and transactions total more than the balance in your checking account. Most large U.S. banks charge at least $35 per overdraft, according to a recent Pew study. if you don’t correct the negative balance in a certain amount of time, you could get hit with an extended overdraft fee — that median is $20, the study said.

Consumers average about two overdrafts per year. But these fees are avoidable. The obvious solution is to avoid spending more money than you have in your account. You can also choose to have your transactions declined by the bank if your funds are insufficient.

If you opted into your bank’s overdraft program, which will carry a fee when you exceed your account balance, talk to customer service about opting out. Then keep a close eye on your bank balance, and use a credit card or cash to avoid overdraft fees.

Use an online-only bank or credit union

You can optimize your finances more by using an online-only bank or credit union. Online financial institutions have fewer overhead costs than traditional banks, so they are typically able to offer free checking accounts with higher interest rates and no maintenance fees. They typically don’t have their own ATMs but tend to be part of a network of fee-free ATMs that are widely accessible, especially in larger cities.

» MORE: Best online-only checking accounts

If you regularly have to deposit cash or like to visit a branch, try brick-and-mortar credit unions, which usually have lower fees and higher interest rates than big banks. Credit union membership may be restricted to residents of certain geographical areas or workers at qualified employers, but you may be able to join by making a donation of $5 to $10. That’s generally less than one month’s service fee at a big bank, so it’s worth the investment.

Erin El Issa is a staff writer at NerdWallet, a personal finance website. Email: erin@nerdwallet.com. Twitter: @Erin_Lindsay17.

This article was written by NerdWallet and was originally published by U.S. News & World Report.

Mortgage Rates Today, Jan. 6: Sharp Drops; Credit Access Up

Homebuyers and homeowners looking to refinance will be happy to hear that mortgage rates for 30- and 15-year fixed loans, as well as 5/1 ARMs, all dropped sharply on Friday, according to a NerdWallet survey of mortgage rates published by national lenders this morning. The 5/1 ARM rates saw the biggest dip, followed closely by 30-year fixed mortgage rates.

Mortgage Rates Today, Friday, January 6 (Change from 1/5/2017) 30-year fixed: 4.31% APR (-0.03) 15-year fixed: 3.73% APR (-0.02) 5/1 ARM: 3.83% APR (-0.04) MBA: Borrowers gained more access to mortgage credit in December

Loosening credit standards paved the way for increased mortgage credit availability in December, according to a new report from the Mortgage Bankers Association.

The Mortgage Credit Availability Index, or MCAI, is calculated using several factors related to borrower eligibility (such as credit score, loan type and loan-to-value ratio). The MCAI increased overall by 0.6% month-over-month to 175.2 in December, the MBA reported. A decline in the MCAI indicates that lending standards are tightening, while increases in the index point to loosening credit. That’s good news for borrowers who have a solid income and payment history but have been sidelined by stringent requirements to qualify for a mortgage.

The index was benchmarked to 100 in March 2012. The Jumbo MCAI (for nonconforming/jumbo mortgage loans) saw the greatest increase in availability to borrowers in December, up by 1.3%. The Conventional MCAI rose by 0.7%, followed by the Government MCAI (FHA loans and VA loans, for example) at 0.6%, with the Conforming MCAI up by 0.04%.

» MORE: Can you get a mortgage with no credit history?

“Credit availability was up for the fourth consecutive month in December, driven by jumbo loan programs as well as loan programs for borrowers with lower credit scores and low down payments,” Lynn Fisher, MBA’s vice president of research and economics, said in a news release.

In other words, more potential borrowers who might not have pristine credit scores or much cash for a down payment are gaining access to mortgage credit they wouldn’t have had since lending standards became more stringent in response to the housing downturn about 10 years ago.

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

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

More from NerdWallet The pros and cons of home equity lines of credit Best lenders for FHA loans Calculate your monthly mortgage payment

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

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