Steve Tomisek, CFP®

By: Gaby S. Dominguez

Welcome to our series called Confident Kids℠!

The goal and mission is to assist parents and grandparents in helping their children and grandchildren learn how to think about money, i.e., how to save, how to invest, and how to become financially responsible, not only as children but as teenagers, young adults, and eventually as parents.

Age Focus: any student loan borrower & students heading into college

Over the past few years, federal student loan borrowers have faced an overwhelming series of changes and updates. As tempting as it may be to tune out the noise and ignore the return of payments, doing so could be devastating. There are crucial, upcoming deadlines that borrowers must keep in mind. If you’re among the 40 million individuals with federal student debt, here are important dates and action items you should add to your checklist immediately.

New Employer Retirement Benefits for Student Loan Borrowers

■ Date

December 31, 2023

In late 2022, a significant retirement-savings reform package was passed, the SECURE Act 2.0. This introduced new benefits for workers with student loans and retirement plans. Traditionally, employers would “match” worker contributions to retirement accounts like 401(k)s or 403(b)s.

Now, employers can “match” on-time student loan payments by contributing an equivalent amount into a retirement account. This benefit also extends to payments made for workers’ spouses or dependents.

■ Why This Matters

With this new benefit, you no longer have to choose between saving for retirement and paying off student debt – You can effectively do both.

■ Recommendations

• Reach out to your HR department to see if they are implementing these new benefits.
• Even if your company does not currently offer this benefit, asking about it can initiate the conversation and show demand.

Expanded SAVE Repayment Benefits

■ Date

July 2024

This summer brings additional student-loan repayment benefits linked to the Biden administration’s new SAVE income-driven repayment (IDR) plan. Enrolled borrowers can have their monthly payments capped at 10% of their discretionary income— defined as income above 225% of the federal poverty line. For example, single borrowers earning less than $32,800 annually or families of four making less than $67,000 will have a $0 payment. Currently, about 3 million borrowers qualify for $0 monthly payments.

■ Other SAVE Benefits Effective in July

• More affordable undergraduate loan payments.
• Potential for loan forgiveness in as few as 10 years.
• Consolidating loans won’t affect progress toward forgiveness.
• Payment credit toward forgiveness during deferment or forbearance.
• Automatic IDR enrollment after missed payments.

■ Recommendations

• If you want to benefit from these changes, sign up for SAVE before July.
• Keep in mind that SAVE might not be suitable for everyone, particularly those with higher incomes, as it could increase your payments. Use the Education Department’s repayment calculator to determine the best repayment plan for you.

End of the Student Loan Payment On-Ramp

■ Date

September 30, 2024

The Biden administration’s “on-ramp” period, designed to help borrowers transition back into making payments post-pandemic, will end this fall. Missing student loan payments after this date will have more severe consequences.

■ Current On-Ramp Benefits

• The Education Department isn’t reporting missed or late payments to credit bureaus.
• Loans aren’t being placed into default or delinquency status.
• Borrowers aren’t being referred to collections.

(Outside of the on-ramp period, loans become delinquent after 90 days of missed payments and go into default after 270 days.)

■ Recommendations

• Continue making affordable student loan payments to get accustomed to regular, on-time payments by the end of the on-ramp period.
• If you suspect your credit has been incorrectly affected by missed payments during this period, check your credit report and contact the Education Department’s student loan ombudsman.

Prepare for Uncertainty

As the Biden administration continues to navigate the complexities of the student loan forgiveness plan, it’s crucial to prepare for the possibility that the new program may fall apart. The best strategy for your financial well-being is to proactively manage your student loans. Utilize the tools already available, such as the SAVE plan, other IDR options, the on-ramp period, the Fresh Start program, or existing student loan forgiveness plans.

By staying informed and taking advantage of these benefits, you can effectively navigate the challenges of student loan repayment this year. Provide yourself with relief instead of distress!

Sources

4 Key Dates Student Loan Borrowers Should Know in 2024, Adam Hardy, January 3, 2024, https://money.com/key-student-loan-dates-2024/

By: W. Kirk Taylor, CFP® & Gaby S. Dominguez

This article is Part Two in a two-part series for Confident Kids℠!

In the realm of personal finance, the concept of credit can be seen as both an opportunity and a risk. The first part of this series, “Unlocking the Mystery of Credit: A Guide for Teens and Young Adults (Part One)” highlighted the significance of understanding credit, shedding light on its distinctions and implications. However, as we embark on the second leg of our journey, we delve deeper into the sometimes darker side of finance where credit intersects with its gloomy counterpart – debt.

The Weight of Debt

In the vast expanse of the United States, a staggering $17.06 trillion in consumer debt balances loomed heavily as of 2023. A significant portion of this burden rests on the shoulders of individuals grappling with student loans and credit card debt. According to data from 2019, a startling 43% of Americans who pursued higher education found themselves intertwined in debt, a statistic that continues to climb. Among millennials, in particular, individuals are burdened by significant credit card debt, ranging from $10,000 to over $30,000.

The Toll of Indebtedness

Studies have revealed a stark correlation between mounting debt and diminished levels of financial well-being, coupled with adverse health behaviors and outcomes. Debt goes beyond finances, taking a toll on mental and physical well-being, while eroding community cohesion and life satisfaction. Financial obligations weigh heavily on the psyche, diminishing feelings of security and contentment.

Understanding Debt: A Primer

What, then, is debt? At its core, debt represents an obligation – a promise to repay borrowed funds. From credit cards to mortgages to student loans, debt invades our daily lives, assuming various forms and functions. Whether secured by collateral – i.e. when you borrow money to buy a car, the loan is collateralized by the car, which could be repossessed if you don’t pay on time – or unsecured, revolving or installment-based, each type of debt carries its own set of implications and risks.

The Double-Edged Sword of Debt

Debt, used wisely, can be a powerful tool for achieving progress and prosperity. Mortgages facilitate homeownership, auto loans enable mobility, and credit cards offer convenience and flexibility. Yet, the allure of easy credit often drags individuals into a risky balancing act with financial ruin. Excessive and unmanageable debt can threaten stability and success if your collateral is seized by creditors, or if your credit score is impaired.

Charting a Course to Financial Freedom

For those managing debt, a solid plan is essential. Start by controlling debt with smart spending habits and careful budgeting. Pay off high-interest debts first, gradually chipping away at the mountain of obligations. Remember, the road to financial freedom is paved with discipline and determination.

A Blueprint for the Next Generation

For teens and young adults embarking on their financial journey, the path to prosperity begins with a keen understanding of debt’s pitfalls and potential. Distinguish between good and bad debt (good debt = car or home; bad debt = credit cards), cultivate a habit of saving, and wield credit with caution. By honing these essential skills early on, young investors can chart a course towards a brighter, debt-free future.

In the world of personal finance, debt often clouds aspirations for prosperity, turning dreams of financial freedom into distant hopes. Yet, armed with knowledge and foresight, individuals can confidently navigate these challenges, ultimately achieving financial freedom.

Sources

(1) Financial debts and subjective well-being of young adults: An adaption of the stress process model, Lu Fan & Soomin Ryu, September, 26, 2023, https://onlinelibrary.wiley.com/doi/10.1111/joca.12560

(2) 1 in 3 Americans maxing out credit cards because of inflation: survey, Nora Colomer, April 12, 2024, https://www.foxbusiness.com/personal-finance/credit-card-limit-debt-inflation

(3) What is debt? Get to know the common types of loans, credit, Olivia Munson, March 4, 2024, https://www.usatoday.com/story/money/2024/03/04/what-is-debt/72789879007/

(4) Debt: What It Is, How It Works, Types, and Ways to Pay Back, James Chen, March 25, 2024, https://www.investopedia.com/terms/d/debt.asp

(5) Teens’ Guide to Building a Strong Personal Finance Foundation, Nathan Paulus, December 8, 2023, https://www.moneygeek.com/financial-planning/personal-finance-for-teens/

(6) Budgeting for Teens, Boys & Girls Clubs of America, May 13, 2022, https://www.bgca.org/news-stories/2022/May/five-tips-for-teens-to-avoid-debt/

By: W. Kirk Taylor, CFP® & Gaby S. Dominguez

This article is Part One in a two-part series for Confident Kids℠!

Credit. It’s a word that carries immense weight in the realm of personal finance, yet it remains shrouded in mystery for many teens and young adults. As NextGen’s study reveals, the majority of high school students are navigating the world without any formal education on personal finance, leaving them ill-equipped to understand the intricacies of credit and its impact on their financial future.

Parents, too, often find themselves stumbling when it comes to discussing money matters with their children. The discomfort stems from various sources, including a lack of confidence in their own financial situation and a fear of passing on their mistakes. However, avoiding these crucial conversations only perpetuates the cycle of financial illiteracy.

Demystifying Credit

At its core, credit is the ability to borrow money with the promise of repayment in the future. Whether it’s a student loan, credit card, or mortgage, credit allows individuals to access goods and services when they need them, deferring payment until later. But this convenience comes at a cost — namely, interest charges and fees.

Your journey into the world of credit begins with establishing a credit history. Every time you borrow and repay money, you’re building a track record that lenders use to assess your creditworthiness. This information is compiled into a credit report by agencies like Experian, TransUnion, and Equifax, which then generate a credit score ranging from 300 to 850.

Understanding this three-digit number is crucial. It not only determines your ability to borrow but also influences the interest rates you’ll receive. With a high credit score, you gain access to better financial opportunities, from favorable loan terms to higher credit limits.

But how can you ensure a winning credit score? Think of it as a game with five key strategies

• Payment History (35%): Pay your bills on time to score big in this category.
• Amounts Owed (30%): Keep your credit utilization low by borrowing responsibly.
• Length of Credit History (15%): Maintain long-standing accounts to show your reliability.
• New Credit (10%): Avoid applying for multiple lines of credit in a short period.
• Credit Mix (10%): Diversify your debt portfolio to demonstrate financial responsibility.

For teens and young adults, building credit can feel daunting. However, there are ways to ease into the process. Authorized user cards and secured credit cards offer entry-level options, allowing individuals to piggyback on a parent’s credit history or provide a cash deposit as collateral, respectively.

Moreover, understanding the importance of credit is paramount. Good credit opens doors to major purchases, secures access to credit cards, and even influences employment and housing opportunities. But with great power comes great responsibility.

If you find yourself in debt, don’t despair. Take proactive steps to regain control of your finances

• Stop borrowing money immediately.
• Craft a realistic budget to manage your expenses.
• Build an emergency fund to cushion against unforeseen setbacks.
• Prioritize debt repayment, focusing on high-interest accounts first.
• Explore opportunities to increase your income and accelerate debt payoff.
• Don’t hesitate to negotiate with creditors for better payment terms.

(Stay on the lookout for Part Two of this series, where we will dive into debt more deeply!)

In essence, credit is a double-edged sword — a powerful tool when wielded wisely, but a potential pitfall when mismanaged. By arming yourself with knowledge and adopting responsible financial habits, you can navigate the complexities of credit with confidence and secure a brighter financial future. After all, mastering the game of credit is not just about winning; it’s about ensuring long-term financial success.

Sources

(1)  Personal Finance for Young Adults: Understanding Credit, Halsey Schreier, June 30, 2020, https://www.forbes.com/sites/halseyschreier/2020/06/30/personal-finance-for-young-adults-understanding-credit/?sh=77290fd33d5a

(2)  How to Teach Your Teens About Credit, Dia Adams, November 27, 2020, https://www.forbes.com/advisor/credit-score/teaching-teens-about-credit/

(3) Ultimate Guide to Understanding Credit for Kids, Teens, and Young Adults, Credit Critics, https://creditcritics.com/credit-guide/