Most Americans who go to college today borrow money to earn their degree. The average amount of debt per student has climbed to $33,000 - a number that continues to grow. 1 After graduation, many people find themselves overwhelmed by the burden of repaying their student loans. Monthly payments are often high and can absorb a good chunk of your paycheck leaving you with very little left over to plan for the future - forget about having any fun. But student loan debt shouldn't make you put your life on hold. Thankfully there is Credible, a free service that allows you to compare personalized prequalified rates from multiple lenders to find the best options for refinancing student loan debt. Here's how Credible helped these graduates ease the weight of their student loan debt.
How Emily Cut Her Interest Rates with Credible and Saved $11,000
Emily Pritchard didn't need an accounting degree to tell her that $100,000 in student loan debt was a tall mountain to climb, but she set her sights on paying off her student loan debt before she was 30. It wasn't until she was halfway through college that she realized the gravity of the debt she'd been accumulating.
"Halfway through, I almost transferred to another school because of the cost," Pritchard recalls. Undeterred, she completed her degree and made it her mission to educate herself on how best to repay her student loans. "When I graduated in 2012, the interest rate on one of my loans was 11 percent, which is outrageous." She tried many options, and eventually found the Credible marketplace to be the perfect solution for her.
After graduating, options for refinancing were limited. "Because I work in financial services, you are hearing about interest rates all the time," she recalls. "I started Googling, 'Who does student loan refinancing? What is the process?'" The first time she refinanced, she went through a credit union which gave her a 6.5% variable interest rate. Knowing she could do better, she found Credible and was able to refinance again into a loan with a 4.75% fixed interest rate and a shorter repayment term. With these new terms, she estimates she's able to save an additional $11,000 over the life of her loan. On top of that, her loans haven't put her life on hold. While there's still a journey ahead toward repayment, her financial discipline and commitment to paying off her loans has put her on a path to a better future.
How Refinancing Through Credible Saved Stephanie $23,000
In 2007, Stephanie White graduated with two bachelor's degrees and $55,000 in loans to repay. Working two and sometimes three jobs but barely paying off her loan principal, she wanted to boost her earning potential and become a nurse practitioner. By getting an accelerated bachelor's in nursing and working in an ER while earning her master's, she was certified as a nurse practitioner. But she now found herself $85,000 in debt.
"Suddenly, I have a lucrative career as a family nurse practitioner, but I'm paying more than $1,000 a month on my student loans," says White. "They say, 'You're a high earner,' but I had no disposable income." With her loan payments being consumed by interest, she believed she'd be stuck in debt until her 40s. White needed a better solution, and that's when she went through Credible.
She's used Credible twice to help refinance her loans.
"The first time, I just refinanced my higher, 6.8 percent interest rate loan," she recalls. "I was skeptical, but it saved me a ton of money. I realized there were no loopholes and refinanced three more loans." She expects to save $23,000 over the life of her loan by reducing her interest rates to 3.5%. Thanks to Credible, she's able to spend less time worrying about her debt and now uses her disposable income on things she actually enjoys.
The Credible marketplace can save borrowers money by showing them real rates they're prequalified for with multiple lenders. Fill out a short form, and Credible's integrations with lenders and credit bureaus provide eligible borrowers with personalized rates in minutes, without affecting their credit score. Best of all, Credible's services are free -- there are no hidden fees, origination fees, or prepayment penalties when refinancing student loans. And because your personal information isn't shared unless you see an option you'd like to proceed with, you won't be bombarded with marketing materials just because you checked your rates.
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.