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Good Debt Versus Bad Debt

by | Jul 18, 2022 | ECU Blog

Debt can be good debt if it’s used for items that appreciate, such as a home equity loan. Debt can be bad debt if it is used for items that depreciate such as durable goods or credit card debt. Credit unions can help you learn more about debt and how to manage it.

Not all debt is necessarily bad, particularly when it can help you build wealth. It’s important to know the difference between good debt and bad debt and how to sort the good from the bad.

If you buy something that immediately goes down in value, that’s bad debt.

Let’s say you buy disposable items or durable goods with a high-interest credit card, and you don’t pay the balance in full when the bill arrives. You’re being charged interest while that item continues to depreciate and lose value, so that’s bad debt. On the other hand, investment debts that create value—such as real-estate loans, home mortgages, student loans, and business loans—are examples of good debt.

What about taking on more debt to reduce current debt?

A tax-deductible home-equity loan at 6% is considered good debt if you can use it to pay off a credit card with an interest rate of, say, 17%. Of course, the key is not to run those debts back up. What about auto loans? You might think they’re always bad debt because most cars go down in value, but if you take out an auto loan for a car that gets better gas mileage than your old vehicle, you could be better off financially.

What’s the best type of debt?

The No. 1 example of good debt is mortgage debt because home values generally increase. They plummeted during the Great Recession (2008–2009), but have increased nearly 49% since 2010. The current national average appreciation rate is 14.5% per year. Homeownership is one of the best ways to build wealth over time. Other strategies for building wealth include:

  • Set “smart” goals (specific, measurable, adjustable, realistic, and time-oriented).
  • Pay yourself first, and automate your savings using payroll deductions.
  • Establish an emergency fund and take advantage of credit union savings vehicles, like savings accounts, money market accounts, certificates of deposit, youth savings, college fund, and holiday club accounts.
  • Understand basic investing principles, such as compound interest, risk, diversification, dollar-cost averaging, and asset allocation.
  • Reduce your debt. Start by paying off high-interest credit card debt and avoid late fees. Paying your bills on time makes up about 35% of your credit score.

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Preapprove Your Way to a Better Car Deal

by | Jul 18, 2022 | ECU Blog

It can be beneficial to get preapproved for a car loan before shopping for a new car. Getting preapproved for a car loan means you’ll know what size loan you’re qualified for, what kind of rate you’ll pay, and it shows car sales staff that you’re a serious buyer.

Before you set foot on the car lot, get preapproved for an auto loan at your credit union. Getting preapproved for a car loan means you’ll know what size loan you’re qualified for, and what kind of rate you’ll pay, and it shows car sales staff that you’re a serious buyer.

If you have questions about how many cars you can afford, or how financing works, a credit union loan officer will be happy to help.

To apply for preapproval, you’ll need to show:

  • Name and address
  • Social Security number
  • Driver’s license number
  • Employer information (name, hire date, gross income)
  • Current housing information—monthly payment, time in current residence
  • Debt obligations—current credit card debt, home association dues, auto insurance

You may also be asked to list a reference or provide other information.
Once you’re preapproved, you’ll receive a preapproval letter that you can take car shopping showing the amount you’re approved for.

Getting preapproved gives you a big advantage in the sales lot. It removes the pressure of negotiating financing contracts at the dealership and allows you to focus your attention on finding the right vehicle at a price you can comfortably afford. And, if you need another incentive, our low auto loan rates can get you on a faster track toward making your dream car a reality.

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*Institution NMLS # 418484. All loans are subject to our normal credit rating and underwriting policies and guidelines. Rates are subject to change. *Some Restrictions Apply, *Subject to Lender Approval. For updated rate information, call (615) 687-4801 during regular business hours.

What You Need to Know About Personal Loans

by | Jul 18, 2022 | ECU Blog, Featured News

 

What is a Personal Loan?

A personal loan is money borrowed from a financial institution and is paid back with variable or fixed monthly payments over a period of time. Personal loans are flexible with short to moderate-term payment plans. Most personal loan terms can range between one and seven years.

Borrowers can use a personal loan for:

  • Debt Consolidation
  • Home improvements
  • Wedding expenditures
  • Medical expenses
  • Banks and credit unions offer personal loans, with credit unions not only offering highly competitive rates, but also short term loans, and small dollar loans to cover unexpected expenses or emergencies. Locate a credit union near you to compare terms and fees.

Most personal loans are unsecured. This means they are not backed by any collateral. Additionally, your income, credit score, debt, and other factors will determine if you are approved or not.

If you don’t qualify for an unsecured loan, you may apply for a secured personal loan. A secured loan is backed by collateral or an asset such as your house, car, or co-signer. A co-signed loan requires an additional applicant with a high credit score to guarantee the loan. If you can’t pay the loan, the co-signor is responsible for any missed payments.

Additional types of personal loans include:

  • Fixed-rate loans – rate and the monthly payment remain the same
  • Variable-rate loans – rate and payments change
  • When you pay off a loan at a credit union your membership remains open. If all you’ve ever had is one loan with a credit union, the five dollars used to open the savings account will stay open and active.

What are the Benefits of a Personal Loan?

Personal loans offer greater flexibility in what can be done with the funds. Unlike a car loan which is only used to purchase a car, personal loans are used for a wide variety of needs and circumstances. Personal loans can be used for:

  • Moving Costs
  • Emergency expenses
  • Funeral costs
  • Appliance purchases
  • Vehicle financing
  • Medical expenses
  • Vacation spending
  • Home improvements
  • Holiday expenses

Pros and Cons of Personal Loans

Personal loans have a lot to offer. Personal loans can build credit and consolidate debt into one convenient monthly payment. Consolidating debt through a personal loan is a better financial move than using payday loans. Payday loans can have an interest rate of 400% or higher and must be paid out within two weeks.

Personal loans are attractive because they:

  • Have lower interest rates
  • Require no collateral
  • Can consolidate debt into one payment
  • Build credit over the length of the loan
  • Offer flexible borrowing limits

Personal loan considerations:

  • Fees and penalties
  • High-interest charges
  • May require collateral
  • Create unnecessary debt

Personal loans can be an excellent way to cover planned and unexpected expenses, but consumers need to be aware of personal loan considerations. Be aware of all fees and penalties before signing any documents. Some lenders charge prepayment penalties. Check what the fee is for late payment and origination fees.

Only those with the best credit score will qualify for a low Annual Percentage Rate (APR). If you don’t qualify for a secured loan, you may need to use collateral. If you cannot pay the loan, the lender can keep the collateral listed. If your budget can’t take on another monthly payment, a personal loan might not be the best solution.

What is APR?

The annual percentage rate or APR is the yearly cost of a loan and is always shown as a percentage. An APR for a loan includes fees and is the total price you pay to borrow the money. Try to avoid a loan with a high APR. Determining the APR is simple:

  1. Add all fees and total interest over the life of the loan
  2. Divide by the loan principal
  3. Divide result by the length of the loan
  4. Then multiply that result by 365
  5. Finally, multiply by 100 to get the APR as a percentage

How to Apply for a Personal Loan

  • Decide on how much to borrow
  • Check your credit score
  • Shop for the best loan type (fixed or variable, secured or unsecured)
  • Gather all personal information (pay stubs, driver’s license, etc.)
  • Apply for loan

  • Get approved and start making payments

 

What You Need to Know About Loans. (n.d.). Default. Retrieved July 18, 2022, from https://www.yourmoneyfurther.com/personal-money-solutions/personal-loans/what-you-need-to-know-about-loans

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Practical Ways to Save Money

by | Jul 14, 2022 | ECU Blog, Wealth Mgmt

AUTHOR:  MADISON HOMAN

Key Summary:
Saving money often starts with changing “spending” habits. Here are some ideas that can help: Get cooperation from your family; Involve your kids; Control living expenses. Want to learn more practical ways to save money? A credit union can help!

When you’re on a mission to save money it might seem like it will take forever for savings to grow. Saving money often starts with changing “spending” habits. Here are some ideas that can help:

Get cooperation from your partner.

Controlling spending starts with you but, if you have a spouse or children, it’s essential to have buy-in from family members to make it work.

Talk with your partner first, then involve your kids in age-appropriate ways. Discuss money management as a couple—get organized, put goals and details in writing, and schedule a money management meeting. Also:

  • Develop a spending plan together.
  • Agree on who will take responsibility for what.
  • Learn more about your finances. Honesty is key. Know details so you know what you’re dealing with.
  • Set SMART goals: specific, measurable, attainable, results-oriented, and have set time periods.

Involve your kids.

Once you and your partner are on the same path, involve your children:

  • Make it fun — Have a weekly contest to see who can save the most. When grocery shopping, see who can find the best deal on a certain item.
  • Be consistent — Make sure you and your partner agree on what you’ll teach your kids about money management and how you’ll do this.
  • Stay flexible — Realize that life happens. If you can’t save as much one week or month, that’s OK. Get back on track as soon as you can.
  • Be a role model — What you do in front of kids makes more of an impression than what you say.
  • Separate wants and needs — Maybe your family would like to take a vacation, but you also need a different car. You don’t have to go without everything, and you can make adjustments to plans. For example, consider a “staycation” where you take day trips around town instead of scheduling a family road trip this year.
  • Pay bills together — Let your children watch as you pay bills online or write checks.

Control living expenses.

We often accept expenses as they are without trying to change them. Here are some areas where, with just a little work, you might be able to reduce your bills:

  • TV, Internet, and phone — Check with providers to make sure you’re getting the lowest rates. Contact providers before the promotional periods end to find out what future rates will be. Don’t hesitate to contact providers at any time to ask for the best deal. Find out if bundling services can help you save.
  • Insurance — Compare policies. Check the National Association of Insurance Commissioners website for price comparisons and the Insurance Information Institute for advice about picking reputable companies. Consider raising deductibles. Ask about discounts for kids away at college and not using vehicles, and about good student discounts for kids in high school.
  • Food — If you fall into the routine of going out for dinner or picking up takeout, try cutting back. Stop at the grocery store and buy ingredients for a fun meal—have a taco night or make your own stir fry. Bring leftovers to work or have healthy options at home to use for lunch. Use coupons when grocery shopping. If you don’t get the newspaper, consider downloading the flipp app to your phone or tablet. The app allows you to browse ad flyers for stores in your area and highlights the top deals.
Saving money often starts with changing spending habits.

Your credit union can help.

The professionals at your credit union can help you—and your family—get on track with saving:

  • Use direct deposit and automatic transfers from checking into savings. Chances are, once you set up transfers to savings you won’t even miss the income—and you’ll establish a great habit.
  • Automate anything you can by using online or mobile bill pay and reminders. This will help you make consistent progress on financial goals, and help you avoid late fees.
  • Refinance your mortgage or car loans to take advantage of lower rates, if you qualify. Talk to a credit union loan officer about options to reduce your debt load or to retire debts faster.

Give yourself credit for your progress and accept that reducing spending and increasing savings will be a lifelong effort. But it also pays lifelong dividends.

Practical Ways to Save Money. (n.d.). Default. https://www.yourmoneyfurther.com/blog/post/YMF/2022/03/16/practical-ways-to-save-money

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Totaling it Up: The True Cost to Drive Your Car

by | Jul 14, 2022 | Autos, ECU Blog

AUTHOR: MADISON HOMAN

Key Summary
The true cost to driving your car can include the following factors: financing, depreciation, maintenance and repair, insurance, and your driving habits. Learning how to save on these costs can make all the difference.

As every car owner knows, cars are expensive to run. According to the 2021 edition of the AAA’s “Your Driving Costs,” you could drive a small sedan 15,000 miles a year for 48 cents per mile. The cost can reach 66 cents per mile if you put 15,000 miles on a four-wheel drive. That’s an annual cost of $9,900. And that’s just the beginning of your annual costs. Many factors feed into the cost of driving: financing, depreciation, repairs and maintenance, insurance, and driving habits. Let’s take a look at how you can save on these costs.

Financing

Credit unions often offer the best rates on new car and used car loans, according to data from Datatrac—with an average of 48-month loans more than one percentage point lower in each category. But loan rates alone do not tell the whole story. On a 60-month, $20,000 loan, the monthly payment would be $378 at 5% and $387 at 6% — not much difference. A meaningful comparison must include other factors, like loan terms, fees, and prepayment penalties. If the dealer offers a rebate or low-rate loan, don’t automatically accept a low-rate loan. Use this calculator to determine whether the low-interest rate or the rebate is the better offer for your situation.

Depreciation

Depreciation happens after the salesperson hands you the keys and you drive off the dealers’ lot. Even before your new-car joyride is over, your car has lost value. The rate of loss can be considerable. In fact, AAA estimates the average annual depreciation on 20% to 30% by the end of the first year.

Maintenance and Repair

You’re going to need to keep your car in top shape, which isn’t cheap. AAA estimates the maintenance costs of sedans at about nine cents per mile.

Insurance

The insurance expense for the average sedan with full coverage is about $1,555 per year, which would cover a driver with a good record and good credit. Drivers who are male, younger than age 25, poor students, or have a record of moving violations and/or accidents are more expensive. Drivers who combine several of these drawbacks find insurance the most expensive. Regional factors can matter: Big-city rates tend to be much higher than rural ones. Raising the deductible and reducing the maximum coverage on the policy can lower premiums substantially, but both options also increase your risk. Make sure to ask about discounts for multiple cars, good driving records, lower annual mileage, and good grades (for students).

Driving Habits

The way you drive can make a huge difference in overall costs as well.

  • Drive safely. Accidents always cost money, even if you’re insured, and you’ll be lucky if the consequences are limited to finances. Drive defensively and try to stay off the road late at night when accidents are most common.
  • Keep tires inflated. This improves mileage, preserves tires, and decreases the chance of a dangerous blowout. Inflation pressures should be listed on the sticker inside the glove box, or in the owner’s manual.
  • Drive mild, not wild. By accelerating slowly and coasting up to stoplights, you can save as much as 40% in fuel consumption. The higher your speed, the more fuel you will burn.
  • Use cruise control. Tests showed a 4% to 14% improvement in mileage from this simple step. It may also prevent the dangerous speed creep that can lead to a costly speeding ticket, which may, in turn, increase your insurance costs.
  • Drive less. This will reduce costs for gas, oil, maintenance, and depreciation.
  • Don’t drive. Think about carpooling, taking public transit, biking, or walking. After all, a gallon saved is $3 or more earned—and remember, fuel is only a small fraction of the overall cost of driving.

Totaling it Up: The True Cost to Drive Your Car. (n.d.). Default. Retrieved July 14, 2022, from https://www.yourmoneyfurther.com/blog/post/YMF/2022/03/16/totaling-it-up-the-true-cost-to-drive-your-car

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