INSURANCE Do Stay-at-Home Parents Need Life Insurance?

INSURANCE

Do Stay-at-Home Parents Need Life Insurance?

Do Stay-at-Home Parents Need Life Insurance?

5 MINUTE READ

Parent. Its official definition ought to be, “Caretaker of child. Synonyms: nanny, tutor, launderer, chauffer, coach, nurse, therapist, chef . . . ” And the list goes on.

This definition especially applies to a stay-at-home parent (SAHP). While SAHPs may not pull down a six-figure income from a corner office, they provide a lot of valuable services for the family.

Let’s talk about why stay-at-home parents need life insurance, how big that policy needs to be, and what families should do with the payout if the unimaginable happened.

What a Stay-at-Home Parent Covers

The whole point of life insurance is to replace your income so your family can function if something were to happen to you. That makes sense for the spouse who goes to the office every day, but what does that mean for the stay-at-home parent? Why do SAHPs even need term life insurance if they don’t technically make an income? Because of the services they provide.

Here are some of the jobs a stay-at-home parent covers:

  • Teacher
  • Childcare provider
  • Chef
  • Chauffeur
  • Housekeeper
  • Laundry services
  • Tutor
  • Coach
  • Project manager

Running a household is a lot like trying to herd a litter of kittens! If something horrible were to happen to the SAHP, who would take care of these needs? The surviving spouse can’t quit work—they still need to bring home an income. That’s where term life insurance kicks in.

 

Protect your family with term life insurance. Get a quote now!

Do Stay-at-Home Parents Need Life Insurance?

life insurance policy for a stay-at-home parent doesn’t replace their income—it provides the money necessary to cover all the jobs the SAHP did before they passed away.

We know there’s no way to ever replace a parent. Nothing will ever fill that hole. But with the money from a life insurance payout, the surviving spouse can hire someone to cover many of the responsibilities the SAHP used to cover.

It’s a matter of keeping your family going in the worst of situations. Life will never go back to normal, but by hiring people to help fill in the gaps (at least temporarily), you can make sure nobody’s needs fall through the cracks. And that’s what matters, right?

So, when should you get life insurance as a stay-at-home parent?

If you’re fresh out of college and without debt, you don’t need it quite yet. But if you’re married and kids are on the horizon, it’s good to go ahead and purchase a policy now.

Then you’ll be covered no matter how long it takes for that little one to come along. After all, they tend to arrive on their own schedule—and often earlier than you’d planned!

How Much Life Insurance Do Stay-at-Home Parents Need?

The big question is how much term life insurance you should purchase for the stay-at-home parent. There’s no one-size-fits-all answer to this because every family is different, but a 15- to 20-year policy between $250,000–400,000 is a general rule. After that time, the kids are grown and out of the house, so there’s no need for coverage.

You need to think through what you’ll do in three major areas: childcare, education and household duties. Those decisions might mean you get a bigger policy to cover the extra costs.

Childcare. If something were to happen to the SAHP, how much money would you need to cover childcare expenses? According to Care.com, childcare for an infant costs about $200 a week for a day care center and $600 a week for a nanny.1 

So 50 weeks of care (you do get a vacation, right?) could run between $10,000 and $30,000. And that’s just for one child. Of course, those costs differ depending on where you live, but you get the idea.

Education. A lot of families choose to homeschool their children. If that’s the case in your family, you and your spouse need to decide where the kids will go to school if something were to happen to the SAHP.

If you want to go the private school route, then you’ll need to factor in those costs. The national average for private school tuition is about $10,700.2 Again, that’s just for one child. And that doesn’t include all the extra costs like supplies, fees and extracurriculars.

Household duties. Who will be responsible for cleaning the house if something happens to the stay-at-home parent? If you paid someone to clean and do laundry, that will cost you about $26 an hour.3 That’s an average, so if you live in California or New York, you may have to offer up the occasional arm and leg to pay for these costs.

Remember, how much life insurance you get for the SAHP will depend on your family’s needs.

Let’s think about Shauna, a mom who stays home to take care of her young children. If something happened to her, it would cost between $25,000–40,000 a year to pay for the different jobs she does on a weekly basis, like childcare, laundry and meal preparation.

Shauna and her husband would need to take out a 15- to 20-year term life policy on Shauna and make the policy worth between $250,000–400,000. That’s 10 times the amount of work she does in a year.

If tragedy struck and Shauna passed away, her husband could work with a financial advisor to put the life insurance benefit in a good mutual fund.

Each year, he could use the growth from that mutual fund (which could be around 10% a year) to pay for the costs of childcare, meal preparation, house cleaning and the other jobs his wife used to handle. So that life insurance policy of $250,000–400,000 could give Shauna’s family between $25,000–40,000 a year to take care of the services she provided.

Stay-at-home parents often devalue the financial role they play in their family. Don’t make that mistake, especially when it comes to life insurance! Nobody could ever take the place of the stay-at-home parent, but replacing their income is important. Make sure your family’s needs are met by getting the right life insurance coverage for both parents.

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How Teens Can Become Millionaires

INVESTING & RETIREMENT

How Teens Can Become Millionaires

3 MINUTE READ

As you approach adulthood and start to think about your future, are you ready to be financially responsible for yourself? If you answered yes, congratulations—you’re ahead of the game! But if you answered no, don’t worry—there’s still plenty of time to set yourself up for success.

Whether you’ve never stepped foot in a bank or you are actively saving and investing for your future, all it takes is a little effort and a lot of patience to become confident in your financial decisions.

A Millionaire’s Best Friend

One awesome thing you can take advantage of is compound interest. It may sound like an intimidating term, but it won’t be once you know what it means. Here’s a little secret: Compound interest is a millionaire’s best friend. It’s really free money. Seriously. But don’t take our word for it. Just check out this story of Ben and Arthur from our Foundations curriculum to understand the power of compound interest.

Ben and Arthur were friends who grew up together. They both knew they needed to start thinking about the future. At age 19, Ben decided to invest $2,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Ben stopped putting money into his investments. So he put a total of $16,000 into his investment funds.

 

The right financial advisor will help you make the right plan. Learn how.

Now Arthur didn’t start investing until age 27. Just like Ben, he put $2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Ben, but he invested for 31 more years than Ben did. So Arthur invested a total of $78,000 over 39 years.

When both Ben and Arthur turned 65, they decided to compare their investment accounts. Who do you think had more? Ben, with his total of $16,000 invested over eight years, or Arthur, who invested $78,000 over 39 years?

Believe it or not, Ben came out ahead . . . $700,000 ahead! Arthur had a total of $1,532,166 while Ben had a total of $2,288,996. How did he do it? Starting early is the key. He put in less money but started eight years earlier. That’s compound interest for you! It turns $16,000 into almost $2.3 million! Since Ben invested earlier, the interest kicked in sooner.

Related: Imagine how much faster your nest egg could grow with an extra $700 or more. You could find money like that simply by having an independent insurance agent check your insurance rates.

What You Can Do Now

The trick is to start as soon as possible. Talk to your parents or teachers about how to open a long-term investment account so you can become a millionaire, too. And remember, waiting just means you make less money in the end. So get moving!

Start your college journey off right with The Graduate Survival Guide! You’ll learn about common mistakes college students make, including student loans, credit cards and more. Order your copy today!

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Start Saving for Retirement Today, Not Tomorrow!

Start Saving for Retirement Today, Not Tomorrow!

Retirement is a financial number. It’s all about saving enough to live the retirement you want. The earlier you start, the quicker you’ll get there. Start saving now!

  1. 1) Start with a firm financial foundation.

    Dave recommends that you begin investing for retirement after you’ve done two things: paid off all debt but the house and saved up three to six months of expenses.

  2. 2) Determine how much you need to save for retirement.

    Retirement isn’t an age. It’s a financial number. It’s the amount of money you’ll need to enjoy the kind of retirement you want. Plan how much you need to save for retirement by determining your Retire Inspired Quotient (R:IQ).

  3. 3) Follow a simple investing plan.

    Invest 15% of your gross income into pretax retirement accounts and Roth IRA. Put your retirement money in mutual funds with a great track record. Read more about specific funds here.

  4. 4) Treat retirement investments as a marathon, not a sprint.

    The longer you keep your retirement money invested, the more it can grow with the magic of compound interest. When you’re choosing retirement funds, it’s a great idea to work with an investing expert endorsed by Dave. Find a SmartVestor Pro in your area!

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TAXES Married Filing Jointly? What You Should Know

TAXES

Married Filing Jointly? What You Should Know

Married Filing Jointly? What You Should Know

7 MINUTE READ

Romantic or not, taxes are a part of life. And now that you and your spouse are officially a part of each other’s lives, you starry-eyed lovebirds can now change your filing status to married filing jointly.

It’s not the date night you were expecting, right?

Well, don’t feel bad. Every married couple has to do their taxes. Even the most perfect Nicholas Sparks couple has to fill out their Form 1040 at some point. But what does married filing jointly mean? And how is it different than married filing separately? Let’s dig a little deeper and find out.

What Is Married Filing Jointly?

Married filing jointly (or MFJ for short) means you and your spouse fill out one tax return together.

Now, don’t get us wrong: You don’t have to file jointly. You could file separately. But it’s rare (like four-leaf clover rare) to find yourself in a situation in which filing separately is better than jointly. We’ll talk more about those situations below.

Who Can File Jointly?

If you just got married, congrats! But you may not be able to file jointly just yet.

You need to have been married before January 1 of this year to file last year’s taxes jointly. So if you got married on December 31 of last year or earlier, you can file together. But if you got married on or after January 1 of this year, you must file separately this tax season.

 

Don’t let taxes stress you out. A tax pro is the way to go!

How Do You File Jointly?

Filing your taxes jointly isn’t that different from filing as single or head of household. You and your spouse still have to report your income and list deductions and credits. The biggest difference is that you’ll choose married filing jointly as your filing status instead of the others.

But if this is your first tax season as husband and wife, you’ll need to take care of a couple of things first:

If this is your first tax season as husband and wife, you’ll need to take care of a couple of things first.

1. Notify the IRS of any address changes.

If you moved, be sure to notify the IRS of your address change by filing Form 8822.

2. Tell your employer you’ve moved.

Don’t forget to let your employer know of any changes to your name and/or address so your W-2 arrives on time and in good order.

3. Report any name changes.

Did you take your spouse’s last name? Well, make sure you tell the Social Security Administration so the name next to your Social Security number matches the name on your tax forms. If you don’t, the IRS will hold your tax refund until you resolve the issue. Fill out Form SS-5 and file it at your local Social Security office.

Now, if you don’t have time to change your name before the tax deadline, you can file using your maiden name. But make sure you take care of the name change by next year.

Can You File Jointly if You’re Widowed?

Yes. If your spouse passed away during the past tax year, you can file jointly for that year. After that, you have to file as a qualifying widow or widower, head of household or single filer.

Married Filing Jointly vs. Married Filing Separately

As we said before, the IRS doesn’t force you to file jointly. You can always file separately. Married filing separately is a filing status for married couples who, for whatever reason, decide, “Meh, we don’t want to do our taxes together.” As a married couple, you should merge your finances, but there may be a tax nuance or two that could cause you to consider filing a separate return.

When do you want to file separately?

Basically, our rule of thumb is this: File separately when it saves you money. Whichever filing status puts more money in your pocket (or takes less money out of it), that’s the filing status we recommend.

It’s rare that filing separately will mean more money for you. But there are some circumstances in which this is the case, like these:

1. Your spouse isn’t paying their taxes.

Your spouse may play “catch me if you can” with the IRS and not pay their taxes. We don’t recommend this but, in that case, you should definitely file your taxes.

2. You don’t know if your spouse is honestly reporting their income or deductions.

Remember: When you file jointly, you’re both held responsible for the accuracy of your tax returns. If your spouse has intentionally reported false numbers, the IRS will see you as a partner in crime.

3. You or your spouse want to claim medical debt as a deduction.

If you or your spouse had medical bills last year, you may be able to deduct some of it. How much you can deduct depends on how much money you make.

Basically, the more income you make, the less you can deduct from your medical expenses. And sometimes you make so much you can’t deduct anything. So if your spouse makes a lot more than you do and you file jointly, your medical deduction will be a lot less than if you file separately.

Figuring out which way works best can be mathematically intense. If you’re not sure, take your case to a tax pro and let them do the math for you to be safe.

What are the advantages of married filing jointly?

More likely than not, you’re better off filing jointly. Here are a few reasons why:

1. You have a higher standard deduction.

If you file separately, you only get a $12,000 standard deduction. Filing jointly doubles that amount to $24,000. Yeah, that’s right. We said $24,000! Most tax filers can substantially lower their taxable income with that.

2. You get more tax credits.

Tax credits are like gift cards from the IRS—they apply to your final tax bill and reduce it dollar-per-dollar. Call it a late wedding present (or an anniversary gift), but the IRS gives more tax credits to married couples filing jointly than to couples filing separately.

If you’re married filing jointly, then you may qualify for some of these tax credits:

  • Earned Income Tax Credit
  • Child and Dependent Care Tax Credit
  • Adoption Credit
  • Credit for the Elderly and Disabled
  • American Opportunity Credit
  • Lifetime Opportunity Credit for Higher Education Expenses

Now, just to be clear: You can get these credits if your filing status is married filing jointly, single or head of household. But if you’re married filing separately, you won’t be eligible.

3. You can save time.

We can’t overstate this. When you file jointly, you only have to fill out one tax return—not two. So you’re saving time. And if you’re using a tax pro, filing separately could cost you more money.

4. Filing jointly is less complicated.

When you file separately, you have to follow certain rules that can make your day a little thornier. For example, only one of you can claim your child as a dependent. On top of that, you’ll have to agree on whether you’ll take the standard deduction or itemize. Yep. No cherry picking. If your spouse wants to itemize, then you have to itemize.

Want to Spend Less Time on Taxes and More Time With Your Spouse?

Every marriage hits a speed bump every now and then, but taxes don’t have to be one of them. If you have a complicated tax situation or you’re not sure whether you should file jointly or separately, working with a tax pro is likely your smartest option. And if you’re looking for a trustworthy tax expert in your area, we can help!

We’ve vetted some of the best tax pros in the country. They have years of experience and, believe it or not, they love this stuff. Our pros can talk taxes all day! They have a thorough understanding of the tax changes this year and how they affect you and your spouse.

The sooner you connect with a pro, the sooner you can check taxes off your to-do list and get back to more, well, romantic things.

Find a tax expert today!

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How to Get Your Taxes Done Right

How to Get Your Taxes Done Right

Taxes. If you’re like most, you’re not a big fan of this five-letter word. While it’s true that income tax preparation can be frustrating and complicated, knowing these basics can save you money, time, and stress.

  1. 1) Understand Taxable Income

    The amount of taxes you pay is based on your taxable income rather than your total income. Reducing taxable income means you pay less come tax time.

  2. 2) Don’t Miss Any Tax Deductions

    Because deductions reduce your taxable income, the more deductions you have the less you’ll owe in taxes. That means you don’t want to miss any if you’re itemizing. Download our Tax Preparation Checklist to make sure you’ve got everything you need.

  3. 3) Take Advantage of Tax Credits

    Tax credits are a big deal because they reduce your tax bill dollar for dollar, rather than just reducing your taxable income. Find a good tax pro in your area to help you take advantage of every possible credit like child care or small business expenses.

  4. 4) Pay Attention to Your Withholdings

    Withholdings are a percentage of your paycheck your employer sets aside to cover your taxes. We recommend adjusting your withholdings so you break even. You won’t get a big refund from the IRS but you won’t send them a huge check.

  5. 5) Determine If You Need a Tax Pro

    If your tax situation is simple, you may be able to handle it on your own. Once your financial life gets a little more complicated though, having a pro check for every possible deduction and credit is worth it. Take our Tax Quiz to find out if you need a tax pro.

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INSURANCE Do I Need Life Insurance for My Child?

INSURANCE

Do I Need Life Insurance for My Child?

Do I Need Life Insurance for My Child?

6 MINUTE READ

Let’s face it: Thinking about the death of your child is almost more than you can bear. But you’ve seen those sweet baby-faced commercials urging you to buy life insurance for your child, and you wonder whether it’s a good idea. After all, you’d do anything for your kids.

So, what’s the right thing to do? Here’s the honest truth: Getting life insurance for your kids is not the best option for your family. We’ll explain all the choices without any emotional hype so you can make an informed decision.

Why People Buy Life Insurance for Kids

If buying life insurance for kids is such a bad idea, why do so many people do it? For one, advertisers do a great job of pulling at your heartstrings to make you think it’s the best thing since home delivery for your groceries. But there are some other myths people believe about life insurance for kids. This is what you’ll hear:

Myth #1: It provides a savings vehicle for my child’s education.

You’ve probably seen this as a feature of whole life insurance for children. The idea is that the monthly premium will build up savings for college. Sounds great, right? Not so fast.

 

Protect your family with term life insurance. Get a quote now!

First, the fees will eat away at your return. And the return isn’t great—about as much as a traditional CD (Certificate of Deposit) you’d get at a bank. Not only that, but you’ll also have to pay fees to get your money when it’s time to pay tuition. In what world is this a good idea? Not the real world—that’s for sure.

Myth #2: It guarantees my child can get more life insurance later.

Some parents and grandparents want to make sure their kids can get good life insurance even if the kids develop a medical problem early on.

The truth is, most people in their 20s and 30s have no problem getting a good term life insurance policy, so there’s really no need to buy life insurance for your kids.

If you do buy life insurance for your kids and they want to carry their policy into adulthood, they can only get a limited amount added to it. And in many cases, that amount is too small to provide for their family long-term.

Myth #3: It covers funeral expenses and other costs.

Yes, life insurance would cover funeral expenses, but the likelihood of actually needing it is so slim that you’re better off putting the monthly premium payments into a savings account. Then you retain control of that money and can use it for other reasons, like if your child needs their tonsils taken out. And that type of emergency is much more likely to happen!

Alternatives to Children’s Life Insurance

If you don’t buy life insurance for your child, how do you pay for burial expenses if the unthinkable happens? We’ve got an easy fix. Instead of paying premiums, you can put that money in an emergency fund. If you stash away three to six months of living expenses, you can cover the cost of a funeral—or any other emergency that might pop up along the way.

If you don’t have that money stashed away yet, you can get a rider for your children on your term life policy (or your spouse’s). A rider is an add-on to a basic policy. Think of it like adding bells and whistles to your car.

This kind of rider is pretty cheap—around $50-60 a year—and it covers all your kids, no matter how many you have, until they are no longer member of your household (that’s what Dave did for years).

How to Invest in Your Child’s Financial Future

As a parent, you want to set your child up for success—especially when it comes to money. So if you were thinking about getting life insurance for your kids as a way to start them out on the right financial foot, here are some better ideas than opting for a life insurance gimmick:

  • Open a college fund. Basically, there are two kinds of college funds: a 529 plan and an ESA (Education Savings Account). There are pros and cons to both, but either one would be a much better choice than a whole life insurance policy. As a plus, you get some tax benefits!
  • Open an IRA. An Individual Retirement Arrangement is a great way to get your kids started out right. You don’t have to fork over a whole lot of cash to open one, and you can add to it a little at a time. You can even offer to match any money your child puts in it, showing them the value of an employer match!
  • Open a custodial account. You might have heard of the UGMA (Uniform Gift to Minors Act) and the UTMA (Uniform Transfer to Minors Act). Fancy words, simple concept: Think of a savings and investing account that minors can’t touch until they become adults. But there are lots of rules with these accounts (for instance, this money counts against your child’s financial aid), so know what you’re getting into first.

Do You Need Life Insurance for Your Child?

The reason you buy life insurance is simple: It replaces your income if you pass away and helps your family take care of their financial needs when they can no longer rely on your income. But since you don’t depend on your child’s paycheck (they depend on yours!), there’s no need to buy a policy for your kids. It’s easier and cheaper to get a rider on your own term life policy.

Here’s the deal: You love your children and want to start them out on the path to success, but getting a life policy on them is the wrong road. The best insurance move for your family is for you and your spouse to get term life insurance. That way, if the unthinkable happens and one of you passes away, you know the policy will replace your income and put your kids in the best spot possible.

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GETTING OUT OF DEBT What Happens to Your Debt When You Die

GETTING OUT OF DEBT

What Happens to Your Debt When You Die

A man sits at a counter reviewing papers in front of him.

11 MINUTE READ

Unless you’re a member of the Addams family, you probably don’t enjoy talking about death. But have you ever thought about what happens to debt when you die? Do your student loans survive? What about your credit card debt?

The average American has about $29,800 in personal debt, not including a mortgage.1 And while you might think all your financial problems will die with you, it’s possible your family could inherit your debt. Talk about unfinished business!

Don’t let your debt come back to haunt those you love. By taking control of your money now, you can feel confident that you’re leaving behind a legacy you can be proud of.

Who Is Responsible for Your Debt After Your Death?

The answer? It depends.

As a general rule, any debt that’s in your name only (that’s key) gets paid by your estate after you die. (Your estate is simply all the assets you owned at the time of your death—like bank accounts, cars, homes, possessions, etc.) The executor of your estate (a trusted person you appoint in your will) is in charge of making sure everything is taken care of: They’ll handle your assets, give your family their inheritance, and pay off your debt, if necessary. This process is called probate.

 

More than 5 million have beaten debt this way. You can too!

So, let’s say you had $100,000 of debt when you died, but you also had a paid-for house worth $200,000. The executor of your estate would sell the house to cover your debt, leaving $100,000 (minus any necessary fees) of inheritance to your heirs.

But what happens if you have more debt than estate? Well, things get tricky.

Secured vs. Unsecured Debts

In the case of insolvent estates (those where the debt equals more than the value of assets), there is a certain order in which creditors (the people you owe money to) are paid, which varies by state. This process is determined by which one of two categories your debt falls into: Secured or unsecured.

Secured debt (such as mortgages, car loans, etc.) is backed by assets, which are typically sold or repossessed to pay back the lender. With unsecured debt (credit cards, personal loans, medical bills and utilities), the lender does not have that protection, and these bills generally go unpaid if there is no money to cover them. But each kind of debt has its own set of rules, so let’s look at them each individually.

Medical Bills:

This is probably the most complicated debt to deal with, but in most states, medical bills take priority in the probate process. It’s important to note that if you received Medicaid any time from age 55 until your death, the state may come back for those payments or there may already be a lien on your house (meaning they’ll take a portion of the profits when the house is sold). Since medical debt is so complex and can vary depending on where you live, it’s best to consult an attorney on this one.

Credit Cards:

If there is a joint account holder associated with the credit card, that person is responsible for keeping up with the payments and any debt associated with the card. (This does not include authorized card users.) If no one else’s name is listed on the account, the estate is responsible for paying off the card debt. And if there is not enough money in the estate to cover the payments, then creditors will typically take a loss and write off the amount.

Mortgages:

Home co-owners or inheritors are responsible for the remaining mortgage, but they are only required to keep up the monthly payments and do not have to pay back the full mortgage all at once. They can also choose to sell the house to keep it from going into foreclosure.

Home Equity Loans:

Unlike a basic mortgage, if someone inherits a house that has a home equity loan, they can be forced to repay the loan immediately, which usually results in having to sell the house. But you don’t have to die for a home equity loan to backfire on you. Borrowing on your home beyond the initial mortgage is always a bad idea, so save your heirs the headache by avoiding home equity loans in the first place.

Car Loans:

As with other secured debt, your assets can be used to cover car loans, but the lender has the ability to repossess the car if there’s not enough money in the estate. Otherwise, whoever inherits the car can continue making the payments or sell it to cover the loan.

Student Loans:

Federal student loans are forgiven upon death. This also includes Parent PLUS Loans, which are discharged if either the parent or the student dies. Private student loans, on the other hand, are not forgiven and have to be covered by the deceased’s estate. But again, if there’s not enough in the estate to cover the student loans, they usually go unpaid.

Can Loved Ones Inherit Your Debt?

When the time comes, you want to pass down that priceless wedding ring or the family farmhouse—not your money problems. As we’ve seen, most debt is taken out of the deceased person’s estate. But there are several instances that can make someone legally responsible for your debt after you die. Let’s take a look at them:

The Dangers of Cosigning

To put it simply: You should never cosign. That’s because cosigning makes you liable for someone else’s debt. If you cosign for a friend’s loan or medical bills, you are agreeing to make the payments if that person is no longer able to. And if they die, then they definitely aren’t able to make the payments, which leaves you responsible for cleaning up the mess. Save yourself and your loved ones the financial stress—do not cosign for their loans and do not let them cosign for you.

Community Property States

“For richer or poorer” takes on a whole new meaning for married couples in the nine states with community property laws (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin). In these states, the surviving spouse is legally responsible for any debt the deceased took on during their marriage (including private student loans), whether the spouse agreed to it or not. Pretty terrifying, right? All the more reason to work together as a couple to pay off your debt as soon as possible.

Filial Responsibility Laws

Almost 30 states have filial responsibility laws, meaning they require children to cover their deceased parents’ long-term care costs, such as nursing home or hospital bills. These are rarely enforced, but you don’t want to risk being unprepared if you find yourself in this situation.

Timeshares

This one may surprise you, but since most timeshare contracts include a “perpetuity clause,” the obligation to pay those ridiculous maintenance fees can pass on to your heirs. And while beneficiaries can refuse the timeshare, timeshare companies can still come knocking because it’s technically part of the deceased’s estate and is subject to probate. But timeshares are a waste of money in general, so it’s best to avoid the hassle altogether and get out while you still can.

What Can Creditors Take?

Not only does debt steal from you in the present, but it can also rob you of anything you were planning to pass down to your children or grandchildren.

Legally, creditors must be notified of a debtor’s passing by either their executor or family members. Creditors then have a specific time frame (usually 3–6 months after death, depending on the state) to submit a claim against the deceased’s estate.

Thankfully, there are a few things creditors can’t touch, including life insurance benefits, most retirement accounts, and the contents of living trusts. (This doesn’t apply if there are no living beneficiaries listed in the person’s will, though, so be sure to keep those updated!) But that beloved boat, prized coin collection or anything else that has value can easily end up being liquidated (sold for cash) to cover your debts if necessary.

And debt collectors aren’t much better than grave robbers. Even if you pass away, credit card companies still want their money, and they have no problem calling your grieving loved ones to try and get it. But unless they cosigned or are legally responsible for the amount owed, it is illegal for creditors to try to get money from a deceased person’s relatives. If you’re the family member getting these calls, you can tell those heartless creeps to buzz off! They do not have the power to demand you pay another person’s debt.

Why You Need Life Insurance

Even if your family isn’t officially liable for the debt you leave behind, having your estate eaten away by creditors can be just as traumatic. Do you really want your spouse or your kids to watch their home, cars and other possessions disappear while they’re in the middle of grieving your death?

That’s where life insurance comes in!

Because it’s exempt from creditors, life insurance basically guarantees that your spouse, children and whoever else you include as a beneficiary will get money after you die. As we’ve already mentioned, some debt after death can result in your estate being ransacked to pay it back. But life insurance acts as a shield between your family and the repo man, making sure they have enough to live on even after your assets get cleaned out by creditors.

And before you run scared and take out a whole life policy or consider credit life insurance, hold up! Term life insurance is the only way to go. It provides great coverage and ensures that your family receives a death benefit—plus, it’s a much more affordable option. If you’ve got people depending on your income, you need life insurance. No ifs, ands or buts about it! So do yourself and your loved ones a favor and get a policy today.

Debt Is Not a Death Sentence

All this talk of debt after death can be overwhelming. If you feel like you’re drowning in debt, you’re not alone. About 30% of American adults say they feel constantly stressed about their finances.2 Debt does not help you, but it also does not define you. It may seem like there is no way out, but there is hope!

No matter how deep in debt you are, it’s never too late to get help and turn your life around. You can be debt-free and change your family tree!

If you feel burdened by money stress, our Ramsey financial coaches are here to help guide, encourage and equip you to make the best decisions for your situation. Find a coach near you to get a personalized plan for your money.

What Kind of Legacy Do You Want to Leave?

What if, instead of worrying about how your family would survive after you’re gone, you were able to rest in peace, knowing that they were well taken care of?

You want your loved ones to remember you for the blessing you were, not the burden you left behind. That’s why it’s important to think about your legacy, which includes proper planning and attacking debt.

Estate Planning

Half the battle of leaving a good legacy is making sure you legally prepare for what will happen with your finances after you die. Having a will makes the probate process so much easier on everyone involved, so go ahead and check that off your bucket list pronto.

Getting your affairs in order also means talking with your spouse and children about inheritance, and depending on the size of your estate, meeting with your lawyer. Yes, these kinds of conversations can be awkward and a little morbid, but they can save your family a lot of pain and stress later on.

Get Out of Debt

Ultimately, the best way to make sure your debt doesn’t affect your heirs is to not have any debt while you’re living. It’s tempting to postpone paying off your debt until you’re older, but as we know, debt often outlives the debtor.

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

SAVING Car Depreciation: How Much Is Your Car Worth?

SAVING

Car Depreciation: How Much Is Your Car Worth?

Black car driving down a road at sunset

8 MINUTE READ

From those summer road trips to the beach with your best friends to bringing your baby home from the hospital for the first time, there’s no denying that some of our fondest memories involve our cars.

After all, the average American spends almost an hour each day (51 minutes) behind the wheel. That adds up to almost 13 full days of driving each year!1 But sadly, the more you drive and the longer you own the vehicle, the more value your car loses over time. It’s something the car industry calls “car depreciation.”

Is depreciation fun to think about? Short answer: No. But when you know how it affects your car’s value, you can make smart decisions about whether certain types of maintenance are worth it, not to mention whether it’s a good time to sell your car.

So, how fast do cars depreciate and how much might yours be worth? Let’s dive in!

What Is Car Depreciation?

Car depreciation is the difference between how much your car was worth when you bought it and what it’s worth when you sell it. The value of your car goes down over time with the wear and tear of everyday use. So, the more you drive your car, the faster your car’s value will drop (or depreciate). Makes sense, right?

 

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If you bought a car tomorrow for $20,000 and then sold it three years from now for $12,000, that means your car lost 40% of its value during the three years you owned it. That’s car depreciation in a nutshell.

What Causes a Car to Depreciate?

Now, several factors can put a dent in your car’s value. Some you can sort of control and others you can’t. Here are some of the biggest factors that lead to car depreciation:

  • Mileage: The more miles you drive, the less your car will be worth. But if you can keep your car’s mileage down, your car will hold more of its value.
  • Fuel economy: Have you seen many Hummers on the road lately? That’s because car buyers like cars that get more miles per gallon.
  • Shifting consumer preferences: Like fashion trends, people’s tastes in cars tend to change. Some years, folks prefer sedans. Other years, they prefer SUVs. More popular car models won’t depreciate as much as others will.
  • Condition: Damage to the car—both to the exterior and interior—will put a dent in your car’s worth when you try to sell it.
  • Reputation: A car that’s built to last will hold its value more than a model that has an unofficial reputation for breaking down or is constantly in the news for recalls.

Those are just a few things to consider when evaluating your own set of wheels.

How Quickly Do Cars Drop in Value?

OK, while there are many factors that go into how and why cars depreciate, there’s one thing that is almost always true no matter what type of car you buy: New cars depreciate much faster than used cars do. How much faster? Let’s just say we hope you have your seat belts on.

  • AFTER ONE MINUTE: A brand-new car loses somewhere between 9–11% of its value the moment you drive off the lot. So, with a $30,000 new vehicle, you’re basically throwing $3,000 out the car window as you drive the car home for the first time!
  • AFTER ONE YEAR: Research shows that new cars suffer their biggest drop in value within the first 12 months of ownership. After one year, your car will probably be worth about 20% less than what you bought it for.
  • AFTER FIVE YEARS: After that steep first-year dip, that new car will depreciate by 15–25% every year until it hits the five-year mark. So, after five years, that new car will lose around 60% of its value. 2,3 
Initial Car Value $30,000
New Car Value After . . .
1 minute $27,000
1 year $24,000
2 years $20,400
3 years $17,340
4 years $14,740
5 years $12,530

What Kind of Cars Depreciate the Most (and the Least)?

While all new cars drop in value at an alarming rate, some makes and models hold their value better than others.

Research shows that pickup trucks and Jeeps generally depreciate the least within the first five years of ownership, while luxury sedans and electric vehicles lose the most value during that same time frame.4  And brands like Toyota and Honda, with a strong reputation for reliability and durability, often get high marks when it comes to holding their value.

Here’s a list of some of the vehicles with the highest and lowest rates of depreciation in 2019:5

Top 5 Vehicles With the Lowest Depreciation

Rank Model Average 5-Year Depreciation
1 Jeep Wrangler/Wrangler Unlimited 27.3%
2 Toyota Tacoma 29.5%
3 Toyota Tundra 37.1%
4 Nissan Frontier 37.8%
5 Toyota 4Runner 38.1%

 

Top 5 Vehicles With the Highest Depreciation

Rank Model Average 5-Year Depreciation
1 Nissan Leaf 71.7%
2 Chevrolet Volt 71.2%
3 BMW 7 Series 71.1%
4 Mercedes-Benz S-Class 69.9%
5 Ford Fusion Energi 69.4%

 

There are pros and cons to buying a car on either end of the depreciation spectrum. On the one hand, cars that hold their value really well will be easier to resell for a higher price, but they’re also more expensive to buy on the front end. Meanwhile, you can probably get a great deal on a five-year-old BMW, but that’s because it can be expensive to repair.

So, as you research different cars you might want to buy, don’t forget to factor in their different rates of depreciation and why they lose so much (or so little) value—before signing on the dotted line.

A brand-new car loses somewhere between 9–11% of its value the moment you drive off the lot. So, with a $30,000 new vehicle, you’re basically throwing $3,000 out the car window as you drive the car home for the first time!

How to Know What Your Car Is Worth

At this point, you’re probably wondering how much of an impact depreciation has made on your car since you bought it. The good news is that websites like Kelley Blue Book and Edmunds can give you a good idea of how much your car is worth if you sold it or traded it in today.

They’ll take several factors into account—including your car’s current mileage, condition and even the color—to give you an accurate estimate in just a matter of minutes.

 After that steep first-year dip, that new car will depreciate by 15–25% every year until it hits the five-year mark.

How to Reduce Your Car’s Rate of Depreciation

Unfortunately, car depreciation is inevitable. But the good news is there are some steps you can take to slow down the process.

1. Keep your car’s mileage down.

According to the United States Department of Transportation Federal Highway Administration, Americans drive around 13,500 miles per year.6  That breaks down to more than 1,000 miles every month!

Now, we don’t expect everyone to bike to work every day (think about all those calories you’ll burn, though). But there are definitely things you can do to cut down on the miles you drive. Try to knock out all your errands in one weekly trip or carpool to work a couple times a week with a coworker. If you frequently take long, cross-country road trips, consider putting those miles on a rental car instead. All those miles saved add up!

2. Follow your car’s maintenance schedule.

From regular oil changes to tire rotations, it’s the little things that make a big difference when it comes to car maintenance. And staying on top of maintenance helps the car retain its value. Not only that, but regular maintenance also improves the safety and performance of your car while saving you thousands of dollars in repairs down the road.

When in doubt, check your car owners manual for a servicing schedule so you know when to take your car into your mechanic for maintenance.

Want some more maintenance tips? We have a whole chapter dedicated to car maintenance in our free Ramsey Car Guide!

3. Buy reliable, gently used cars.

Like we mentioned earlier, new cars lose their value at a much faster rate than used cars do. That’s why the very best way to buy a car is to save up and buy a reliable, slightly used car with cash.

There’s a reason why the average millionaire drives a four-year-old car with 41,000 miles on it. By buying used cars, they let someone else bear the brunt of a new car’s rapid depreciation in its first few years. And they still end up with a reliable car that’ll run for years and years with proper maintenance. Smart!

Don’t Forget About Car Insurance

Not only do new cars depreciate faster, but they’re also more expensive to insure. In fact, you can save up to 12% on car insurance by buying a five-year-old car instead of the shiny new model.7 Those savings could keep hundreds of dollars in your pocket each year!

That’s why we recommend teaming up with one of our insurance Endorsed Local Providers (ELPs). Whether you’re in the market for a new car or you plan on driving Old Faithful for many years to come, they can help you find the right coverage at the best price.

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

How to Tip in All Situations

BUDGETING

How to Tip in All Situations

9 MINUTE READ

It’s a familiar dilemma: Should I tip my barista? This waiter? My hair stylist? The valet? And if so, how much? We break down everything you need to know about how to tip.

Tipping at Restaurants and Grocery Stores

How much should I tip a waiter?

When you go out to eat at a restaurant, leave a minimum of 15%, preferably 20%. Does that sound a little steep? Here’s a reality check: If you can’t afford to leave a decent tip, then you shouldn’t be at a restaurant to begin with. Remember, most servers make in the neighborhood of $2 per hour,(1) so they’re counting on those tips to make ends meet. Don’t be a cheapskate, be generous!

Should I tip at a buffet restaurant?

Things can get a little tricky here—but stick with us. Servers at a buffet may not be bringing food to your table, but they’re still refilling your beverages and clearing your plates. So, while you don’t have to tip them as much as a waiter at a more formal restaurant, you still need to tip.

A good rule of thumb is to tip at least $1 per person at your table. Or you can opt for a strict percentage of 5% to 10%. It’s really up to you.

 

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Should I tip at fast-food restaurants?

These are the restaurants where your food is prepared and you grab it while you’re still at the counter (or in the drive-thru). There’s no hard rule on tipping etiquette at these types of casual joints, but leaving a dollar or two in the tip jar would never hurt.

Should I tip for carry out?

Whether someone brings the food out to you or you go in to get it, you should still tip around 10% when picking up or carrying out from a restaurant.

How much should I tip the grocery store bagger?

A lot of grocery stores ask you not to tip the people who bag or carry out your groceries. Some will even flat-out tell their employees to refuse tips. You don’t want to get them in trouble, but if the person is kind enough to carry your bags out to the car, it wouldn’t hurt to stick a dollar bill in their hand. And since (hopefully) you just saved money at the grocery store anyway, you can afford to do it.

Should I tip for grocery delivery?

These days, it’s hard to know what the proper tipping etiquette is for people doing new things—like shopping for and bringing groceries to your car for grocery pickup, or that dude from Task Rabbit who delivered a bag of groceries to your doorstep.

A 10% tip or a couple of dollars is perfectly fine. But just be prepared that your delivery person may not be allowed to collect a tip. For example, Kroger ClickList associates can’t accept tips.(2)

How much should I tip for pizza delivery?

Someone had to bring that piping hot, delicious pizza to your front door. Without them, you’d be plagued with hunger pains and empty handed. Be generous and give them a few dollars. Somewhere in the range of $2 to $4 is perfectly fine.

Should I tip my barista?

That little tip jar sitting on the counter as you pick up your morning cup of java is staring you down. Do you tip?

If you ordered a drip coffee or iced coffee (a.k.a. something that didn’t require a ton of preparation) then you really don’t need to feel obligated to tip. But if you ordered a fancy espresso drink, you should tip something. Even if it’s just the change from breaking your $5 bill.

How much should I tip a bartender?

A dollar or two per drink is perfectly fine tipping etiquette here.

Tipping at Hotels

How much should I tip hotel housekeeping?

A lot of people don’t even realize they need to tip at hotels. But a few bucks on the bedside table will go a long way toward making sure your room gets extra special treatment.

How much should I tip a valet?

If you choose to use the valet instead of parking your own car, you should absolutely tip a few dollars when you pick the car up. You don’t have to go crazy here, but $2 to $5 will be appreciated. Have you seen how fast those guys run?

Should I tip the concierge?

If the concierge has secured impossible-to-find tickets to a Broadway show, then yes, slip them a $10 or $20 bill for going above and beyond with their connections. If they just gave you directions to the nearest coffee shop in walking distance, you don’t need to tip them.

Tipping at Salons and Spas

How much should I tip my hair stylist/barber?

Do you need to tip your hair guru or your barber? Yes, you should—you’re trusting these people with your hair, after all! A tip anywhere in the ballpark of 15% to 20% is standard, depending on their profession and the service you received.

How much should I tip my manicurist?

When it comes to nails, it’s just like getting your hair done—tip a standard 15% to 20% and you can’t go wrong!

How much should I tip a tattoo artist?

If you just let someone draw something permanently on your body, hopefully you liked the service enough to leave a tip! The simple answer here is yes, a good tattoo artist absolutely deserves a tip of 15% to 20%.

Tipping Drivers

How much should I tip my cab driver?

We all know to tip the cab driver, especially if he got us safely to our destination. But how much is too much? This depends on the length of your trip and your driver’s ability to handle the road.

If you feared for your life during the ride, that tip is going to be a big, fat zero. If it was an overall safe trip, go ahead and tip 10% to 15%. Add an extra dollar or two if they helped you with unloading any luggage.

How much should I tip Uber and Lyft drivers?

You can easily tip your Uber or Lyft driver by using the app on your mobile device. Since you can rate your driver, most of them go out of their way to win you over with perks like snacks, drinks, and phone chargers. And while both companies say you’re under no obligation to tip, we think the same rules for cab drivers apply to Uber and Lyft drivers.

Tipping Everyone Else

Should I tip for flower delivery?

When you receive a beautiful display of flowers (or a tasty fruit bouquet), it’s most likely a wonderful surprise. So, we don’t think you have to tip for a gift.

Should I tip professional movers?

No doubt about it, if your movers go the extra mile and help you bring in and set up your furniture, they deserve a tip. Or if they did an excellent job moving your exotic fish tank up three flights of stairs, they deserve a tip. Every situation is different, so use your own discretion!

Should I tip my cable guy/satellite installer?

Technically, your cable guy or satellite installer is doing their job when they come over to your house. It’s not a service they’re going out of their way to do for you.

That said, if it’s a blazing hot day, go ahead and “tip” them a refreshing glass of lemonade. And if it’s the dead of winter, why not offer them a nice cup of tea or cocoa?

Should I tip my contractor?

Since your contractor is there to do the job you hired them to do, you don’t have to tip them either. Now if they’re making you dinner, picking up your dry cleaning, and cutting your hair—that’s a different story.

How much should we tip the wedding officiant?

Your priest, your pastor, the guy at the courthouse, or even Elvis—regardless of who officiates your wedding, you still need to tip them. If it’s not required as part of the wedding fees, consider slipping the officiant $50 to $100 in a nice thank-you card at the rehearsal.

If they absolutely refuse your gesture, offer to make a donation to their church or favorite charity instead.

Should I tip my babysitter?

If your babysitter really helped you out (like agreeing to watch your little ones on short notice or having to clean up the result of your child’s stomachache from the carpet), then yeah, maybe you should tip them. But this isn’t an absolute must. It’s just a nice little gesture acknowledging the trouble they went through.

How Do I Calculate a Tip?

While most of us probably use a calculator or app to figure out the right amount to tip, it is possible to actually estimate it in your head. We know, math is hard. But this trick is simple—no math skills required!

  1. Take a look at your pretax bill total (let’s say it’s $32.79).
  2. Move the decimal point one place to the left (that gives you $3.27).
  3. Round the 27 cents up to the next “easy number”—let’s make that 30 cents. So that’s $3.30, right?
  4. Double that amount. You should end up with $6.60, which is right around 20% of your original bill of $32.79.

How Do I Calculate a Tip When Paying With a Coupon or Gift Card?

It’s really simple—calculate the tip the exact same way you would if you didn’t have a coupon or gift card. Just because you have a discounted bill doesn’t mean you get to leave a discounted tip. Go ahead and calculate your tip based on the full pretax price.

Is Tipping Etiquette Different in Other Countries?

Yes, yes and yes. If you go to Canada, you’ll find similar tipping expectations as you would in the U.S. If you travel to Egypt to check out some pyramids, the average tip is 10% across the board. But if you visit somewhere like Australia, you’ll find that it’s not the norm to leave a tip at all!

The best rule of thumb is to do your research on the country’s tipping etiquette before you travel. It will save you from embarrassment—or worse—insulting someone. Try using websites or apps like Tip This Much to help keep you in the know.

When in Doubt, Be Generous

You can’t go wrong with being generous. In fact, if you’re in a good financial position, be outrageously generous! Remember, your tip says more about you than the person you’re leaving a tip for.

Don’t forget to budget for your generosity! Check out EveryDollar, our free budget app, to help you set aside money for tipping.

If a leader doesn’t convey passion and intensity then there will be no passion and intensity within the organization and they’ll start to fall down and get depressed. Get Your Free Position Now http://lock-in-your-position.com/lp3/?sponsor=homeprofitcoach

How Do Student Loans Work?

GETTING OUT OF DEBT

How Do Student Loans Work?

How Do Student Loans Work

12 MINUTE READ

“Student loans—my favorite!” (Said no one ever.)

Here’s the thing about student loans: Not enough students understand how they really work or the effect they can have on future goals and plans. When you’re about to graduate from high school, it can feel like everyone wants you to continue your education, but nobody can tell you the best way to pay for it. It’s just kind of expected that if you want to go to college, you’re going to have to take out a massive loan (or two) in order to afford that diploma.

And that’s why we have a $1.6 trillion student loan crisis in our country right now.1  Listen: I get it. When I was in high school, no one warned me about the dangers of loans or told me how to prep for college the right way, and I made a lot of dumb decisions as a result. But I’m here to make sure that won’t happen to you!

In fact, I’ll make a deal with you. I’ll tell you everything you need to know about student loans if you promise not to take them out. Deal? Deal. (I’m so serious.)

What Is a Student Loan?

A student loan is money borrowed from the government or a private lender in order to pay for college.

 

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The loan has to be paid back later, along with interest that builds up over time. The money can usually be used for tuition, room and board, books, or other fees. But some students use their loan money for other stuff—like trips to Jamaica for spring break.

Let’s be clear: Student loans are different from scholarships and grants. Loans always have to be paid back (unless you’re one of the lucky few who gets part of your loan forgiven, but that’s pretty rare). Scholarships and grants, on the other hand, don’t need to be paid back (everyone loves free money, right?). Student loans are also different from work-study programs, where students get paid to work on campus.

How Do Student Loans Work?

People get federal student loans by filling out the Free Application for Federal Student Aid (FAFSA). Students and their parents share their financial information on the form, which is then sent to the student’s schools of choice. The financial aid office at each school crunches some numbers to figure out how much (if any) aid the student qualifies for, and then sends them an “award letter” with all the details about their financial aid offer.

Note: This aid could come in the form of student loans, or it could come in the form of scholarships and grants. So that’s why I still recommend filling out the FAFSA—just make sure you only accept the free money. This is a no-loan zone, people.

Students apply for private student loans straight from the lender. But no matter if the loan is federal or private, the student has to sign a promissory note (sounds scary, right?). That’s a legal document where the student agrees to repay the loan plus interest, and includes all the terms and conditions of the loan.2 It’s kind of like signing away your freedom. Kidding, but not really.

Types of Student Loans

There are two main types of student loans: federal and private. They’re both poisonous for your future, but the main difference is that federal loans are issued by the government, while private loans can be issued through a bunch of different sources, like banks, schools, credit unions or state agencies.

Federal Student Loans

• Direct Subsidized Loan: These are undergraduate loans for students who show financial need based on their FAFSA. The government pays the interest until the time comes to start paying the loans back. Once the student leaves school or drops below a certain number of hours, there’s a six-month grace period before repayment starts and interest begins to build up.

• Direct Unsubsidized Loan: These are undergraduate or graduate loans where students do not have to demonstrate financial need. With unsubsidized loans, the government doesn’t cover the interest—interest starts building up from the minute the school gets the loan money.

• Direct PLUS Loans: These are loans that parents can take out for their dependent students or that graduate students can take out for themselves. These require a separate application from the FAFSA and a credit check.

Private Student Loans

Basically, all you need to know about private student loans is that they’re usually more expensive and have higher interest rates than federal loans, and the student has to start making monthly payments while they’re still in school. It’s up to the lender to decide all of the terms and conditions of the loan. Plus, the student is responsible for all interest payments—there’s no counting on the government for help.

How Does Student Loan Interest Work?

Man, I love interest. The good kind of interest that makes your investments grow from a couple of hundred dollar bills to a mountain of cash, that is. But what about when it’s loan interest? That’s a totally different story. The way interest works on a loan means you end up paying way more money than you originally borrowed. It’s the worst.

To figure out your loan interest, you have to understand a few terms. Boring, I know. But stay with me!

Loan Repayment Term: That’s how long you have to pay the loan back. For most federal loans, that’ll be 10 years (but it can take up to 30 years).3 For private loans, the term can vary based on the terms of your loan agreement.

Interest Rate: This is how much interest you’ll be paying on the loan. Federal loan rate percentages can vary per loan, but they’re usually fixed (meaning the interest stays the same every year). Private loans are typically based on your credit rating, so they can vary a lot—and they can be fixed or variable.

Principal: This is the base amount you owe for the loan, not including interest. So if you took out $35,000 in loans, your principal would be $35,000. (That’s the average amount of debt each student loan borrower will graduate with, by the way!4)

So, here’s the math (everyone’s favorite part): Let’s take that $35,000 principal and say you have a 10-year loan repayment term with a fixed interest rate of 5%. (Typical interest rates can range from 4.53–7.08%, depending on the loan type.5) With those numbers, your monthly student loan payment would be just over $370, and the total amount of interest you’d pay during the loan term would be almost $9,550. So, you might’ve started out by borrowing $35,000, but in the end you’d really pay about $44,550.

Are y’all feeling sick yet? I am.

Student Loan Repayment Options

If you decide to take out student loans (which I already know you won’t do, because you promised), you also make a decision for your future self—the decision to spend the next 10 or more years of your life making monthly payments. Don’t be a jerk to your future self.

Here’s a quick look at what you could be dealing with.

Repaying Federal Loans

• Standard Repayment Plans: The government or your lender provides a schedule with a set monthly payment amount. For federal loans, the plan is for 10 years. Private loans will vary.

• Graduated Repayment Plans: The payments start off lower, but they increase every couple of years or so. The plan is still to have everything paid off in 10 years.

• Extended Repayment Plans: These plans extend the payments beyond the normal 10-year window for borrowers who have more than $30,000 in outstanding loans. The payments could be fixed or graduated (meaning the payments increase little by little) and are designed to pay off the loan in 25 years.

• Income-Based Repayment Plans: These plans base your payments on a percentage of your income. Usually, you’ll pay between 10–15% of your income after taxes and personal expenses are covered. The payments are recalculated every year and adjusted for things like the size of your family and your current earnings.

• Income-Contingent Repayment Plans: This is similar to the income-based plan, but is based on 20% of your discretionary income (that’s the amount of income you have left after your set expenses are taken care of). The rates are adjusted every year and the balance can be forgiven—and taxed—over time (usually 25 years).

• Income-Sensitive Repayment Plans: These are similar to the other income-related plans, but the payment is based on your total income before taxes and other expenses, instead of your discretionary income. The loan payment is calculated to be paid off in 15 years.

Repaying Private Loans

Since private loans are agreements between you and the lending institution, the lender makes the rules for payment. You’ll pay a set amount each month that’s a combo of a principal payment and interest, and the payments are usually set for a specific amount of time. Any changes in that plan—like a graduated payment schedule—would need to be negotiated with the lender (you could always try bribing them with cookies or something).

What happens if you can’t afford your monthly payment?

Now listen, you guys: When you take out student loans, you commit to paying back the money. You might’ve heard about some of these options before as being an “easy way out.” But honestly, these options are only temporary, short-term fixes to long-term problems—and sometimes, they can end up costing you more in the long run.

  • Forbearance: Your payment is put on hold, but the loan continues to accumulate interest. There are two types of forbearance: general (where the lender decides your level of need) and mandatory (where the lender has to grant forbearance based on your situation).
  • Deferment: With deferment, you temporarily don’t have to make payments, and you may not be responsible for paying interest on your loan. Not everyone is eligible for deferment or forbearance, but you might qualify if you’re unemployed, serving in the military during wartime, or serving in the Peace Corps.
  • Student Loan Forgiveness: Again, not everyone qualifies for this—there are a whole bunch of different requirements, like working full time in a qualifying public service job while making payments for 10 years, teaching in a low-income school for at least 5 years, etc. The scary thing is, as of June 2019, only 1.09% of applications for student loan forgiveness through public service were actually approved.6 You can’t rely on this stuff, y’all.
  • Default: This is what happens if you keep missing payments. Your loan is referred to as delinquent the day after you miss one payment, and if you continue to miss payments, you go into default. This means you failed to pay back the loan based on what you agreed to when you signed the paperwork, and it can have super serious consequences. You could be taken to court, lose the chance to get other financial aid, or be required to pay the entire balance of your loan right away. Not fun.

How to Avoid Student Loans

Still not convinced that student loans are the worst way to fund your education? What if I told you that roughly one in five students owes more than $100,000 in student loans (which seriously slows down all financial progress after graduation)?7 According to our own Ramsey Research, 63% of student loan borrowers worry consistently about paying back the money, and 44% of them say they can’t even buy a house because of their student loan debt.

You might be thinking: Okay, Anthony, I get it. Student loans are bad. What’s the alternative?

I like the way you think. And even though the rest of the world makes it seem impossible, you can cash flow your whole college experience with some smart strategies and hard work.

Here are just a few examples of how you go to school without loans:

  1. Find scholarships and grants. You can find free money by filling out the FAFSA form,  researching organizations in your field of interest that offer scholarships, and using an online search tool like this Debt-Free Degree Scholarship Search.
  1. Choose a school you can afford. That might mean starting out at community college or going to a public, in-state school instead of a private university (there really is a huge difference in tuition costs). It might mean going to a trade school or directional school—and that’s totally okay. If you find yourself asking if college is really worth it, remember: The only real “dream school” is the one you can afford to go to debt-free.
  1. Work. Yep, even when you’re in high school. A part-time job or side hustle won’t hurt your grades if you keep it to 20 hours per week or less, and you’ll make bank for your college fund. Once you’re in college, try looking for an on-campus job or work-study program, or apply to be a teaching assistant.
  1. Be smart about your lifestyle. Going to college doesn’t mean you have to live in a designer dorm room with a $10,000 meal plan. Live at home if you can. Stop eating out with your friends every weekend. Split groceries, rent, and utilities with a roommate (or three). Use public transportation or walk whenever possible. Get creative and find other ways to cut down on costs. And listen up, y’all: Stick. To. A. Budget. That will make all the difference in helping you take control of your money.

You guys, that’s only a small part of the plan you can use to help you go to college debt-free. If you want more practical, real-life tips for cash flowing your education, check out my new book, Debt-Free Degree!

I say it all the time: The caliber of your future will be determined by the choices you make today. When you take these steps now, you set yourself up for a lifetime of success (and freedom from those monthly payments). Now let’s make it happen!

 

ABOUT ANTHONY ONEAL

Since 2003, Anthony has helped hundreds of thousands of students make smart decisions with their money, relationships and education. He’s a national bestselling author and travels the country spreading his encouraging message to help teens and young adults start their lives off right. His latest book, Debt-Free Degree, helps parents get their kids through college without student loans. Connect with Anthony on YouTubeInstagramFacebook and Twitter.

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