Sallie Mae’s New Student Credit Cards : Is It Wise to Use It in Paying Down a Student Loan?
SLM Corporation, the student-loan lender commonly known as Sallie Mae, recently introduced Mastercard credit cards for college students and recent grads.
Sallie Mae’s introduction of the new credit facilities has catchy overtures. They come with a promotional offer of zero annual fee and zero interest, plus cash-back features that award an additional 25% cash-back if used to pay down a federal or private student loan.
Yet those who are not familiar with how credit cards work, should carefully read the terms and conditions.
Credit card analyst and expert, Matt Schulz of CompareCards, said cash-back returns are not big enough to worry over. What new credit card users should pay attention to are the fees, Annual Percentage Rate (APR) or interest rates, default charges and the outstanding balance of their credit card account.
Sallie Mae’s VP of Corporate Communications, Rick Castellano, is into promoting their new credit cards as a way of helping students responsibly build their credit history by rewarding them with cash-backs. Still, credit analyst Nathan Grant of Credit Card Insider, says that Sallie Mae’s unlimited one percent (1%) cash-back reward is very much the same as the cash-backs of student credit cards offered by other financial companies.
According to Grant, the bottomline is that
“Student credit cards are serious financial tools that can help build a student’s credit history only if used responsibly. Otherwise, they can be a gateway to debt when used irresponsibly,”
What Happens if You Use Your Credit Card to Pay Down a Student Loan?
Using a Sallie Mae Credit Card to pay down a federal or private student loan requires careful consideration of several factors. As opposed to business loans or personal loans, student loans, particularly federal loans, are granted under easier terms and conditions. The Sallie Mae credit cards, on the other hand, follow the same terms and conditions of conventional credit cards.
When attracted to the promise of 25% cash-back bonus, it is important therefore to first look into and compare certain aspects.
Compare the interest applied per annum on the student loan against the APR applied on credit payments. Take note that after the promotional or introductory period is over, the zero % interest ends. This denotes that the credit card balance will start accumulating daily interest based on the APR, which can be anywhere between 14.99% (15%) and 24.99% (25%).
The simple interest on a student loan is calculated based on the unpaid balance of the principal amount borrowed. If a student fails to pay on the due date, interest on the unpaid principal merely accrues and will be added to the next interest due on the loan. Calculations of future interests will still be based on the outstanding principal amount.
If you will use your credit card to pay down a student loan, the terms of the loan are bound to change. Any credit amount used to pay down a student debt becomes due on the next statement date following the payment. In order to avoid payment of APR-based interest, you must settle the amount in full.
If you do not pay the student loan payment in full, the student-loan payment plus any unpaid APR interest will be reflected as outstanding balance of your credit card. Keep in mind that with credit cards, the APR interest is calculated based on the average outstanding balance of your credit account and not on the unpaid portion of a credit purchase or loan payment.
Paying only the minimum amount indicated in the credit card statement will not reduce your outstanding credit card obligations. That is because minimum payments cover only the APR interest due for the month. In the meantime, the system will continue compounding interest on the outstanding credit card obligations on a daily basis, including unpaid portions of the student loan payment plus any unpaid interest from previous billings. .
Lifetime Mortgage : A Means by which Seniors can Optimise Their Equity on Owned Property
A lifetime mortgage is a financing option that most UK senior subjects avail in order to augment their limited income. It is a popular option that senior adults consider when looking to enjoy their golden years while their physical condition still allows them. Enjoyment here may include traveling or engaging in recreational activities, but without having to touch their “nest egg”, so to speak.
Unfortunately however, not all older adults resort to supplementing their pension or retirement money for enjoyment purposes. In fact, some do not even have enough money saved to even consider retiring at age 65. Although at that age, they can already draw benefits from Social Security. Still, additional costs of healthcare can easily deplete money set aside for a comfortable and secure life upon retirement.
Lifetime Mortgage
Lifetime mortgage is a financing option that is available to older adults aged 55 or above, who at the same time, live in a property they own. Here, a senior borrows money based on a certain value of their equity on the property; but, without the usual requirement of making monthly payments. The arrangement entails deferring payment on the condition that the property will be sold upon the borrower’s death, or once it becomes necessary for him or her to move into a nursing home.
That being the case, only the residual and not the full value of the property will form part of the estate or legacy that he or she will leave behind to his heirs or beneficiaries.
Nonetheless, there are two types of approaches to choose from when borrowing money via a Lifetime Mortgage.
Two Types of Lifetime Mortgage for Seniors to Consider
When contemplating to obtain additional retirement funds by way of a Lifetime Mortgage, the first step to carry out is to determine the loanable amount against one’s equity on a real property. Since year 2019 is almost over, a better tool for computing the loanable amount is an equity release calculator 2020. That is because the calculator will factor in, the borrower’s actual age at the time the Lifetime Mortgage contract is signed.
Based on the amount calculated, a senior borrower can then choose between a Lump Sum or a Draw Down approach to taking out one’s equity. Keep in mind though, this special type of mortgage does not have a fixed term; because payment becomes due the moment the senior borrower passes away or enters a nursing facility.
More importantly, interest on the borrowed amount will be compounded monthly. The principal amount earns the lender, interest on a daily basis, which will then be added to the principal amount each month. This means on the following month and thereafter, the principal amount on which the interest will be computed, will be greater.
The longer the lifespan of a senior borrower, the greater the potential earnings of the Lifetime Mortgage lender. If so, there is a likely possibility for the loaned amount to balloon. The final amount due may even reach a value that equals or even exceeds the appreciated value of the property held under a Lifetime Mortgage.
That being the case, taking out the loanable amount by way of a Lump Sum approach, will grow the compounded interest much faster. Not unless, a lender gives the senior borrower the option to make monthly interest payments, as a way of curtailing the ballooning effect of compounded interests.
If the option is not available, a Draw Down facility is a better approach, since an elderly borrower can gradually take out the equity borrowing. That way, interests will compound and grow at a slower pace.
Good Sides of Personal Loans if Used Responsibly
Applying for a personal loan can help you in various situations. But before we get into that, let us try to define what is personal loan? Some loans are intended to be used for specific purpose. Do you need a house? You can take a mortgage loan. In need of a house to make transportation easier? Then apply for the California car title loans. Lack funds for education? You can apply for a student loan.
Personal loan on the other hand is different. It can be used for virtually anything that you could think of. Some lenders would want to find out what you’re going to do with the money lent to you. But so long as you have borrowed it for legal reason and use it responsibly, you can do pretty much anything you want with it. But does this specifically mean? Let me give you an example:
- Mortgage loan – when you take out such a loan, your home automatically becomes the collateral
- Auto loan – same goes with this loan, the car you buy serves as the collateral for the loan you applied for.
With a personal loan, there’s no collateral involved. Meaning to say, the loan is unsecured. But due to the reason that it is unsecured, expect for the interests to be higher than normal. Though, there are personal loans as well that are secured if you wish to lower the costs.
Here are situations in which taking a persona loan could be beneficial on your end.
Consolidating Credit Cards
Say you have several credit cards that have been maxed out. You may apply for a personal loan to be able to consolidate all charges in one payment every month.
What makes this more appealing is that, the interest of your loan can be lower compared to the APR or Annual Percentage Rates on credit cards.
Refinancing Student Loans
Through this, it can give you financial relief. The interest of student loan might be 6.8 percent or even higher which depends on the loan that you have. However, you may obtain personal loan with lower interests, enabling you to pay the loan faster.
However as you use personal loan in paying either a portion or all student loan, you’d lose the ability of deducting interest payments together with the benefits that come with the loan like deferment and forbearance. If the balance for example is quite large, then personal loan will not likely be able to cover it. So it’s best that you think of all the issues carefully before deciding to refinance student loans.
Things To Take Note When Opting For A Loan
In today’s generation, a lot of people have been opting for loans and the notion that loaning is as easy as imagined. With the want and need to keep up with the pace of the society, and an individual’s needs, loaning is the easy key to buy that car, get that house, invest in this property, and have that those parties. But, as reality strikes, there are some points here and there to take note of before doing this move, because what comes easy now with this solution might lead to a future problem as well, and we all don’t want that
Here and There To Loaning
First off, loans are expected to come with interest rates, with which these loaning bodies earn, but, and as much as this is expected we might be facing a bigger problem when certain loans come with higher interest rates. In this manner, making a way for money to solve a one need, can cause bigger issues in the near future which can be another problem to dig yourself deeper in another type of scenario that involves money. With your way in might come your way out.
Another important note to be very clear and precise about is being very skeptical with the bodies or companies that you get yourself into. As people know the high percentage of others to get loans, scams and illegalities may come in the picture which causes more mess and problem. This is never impossible especially when money is involved, always make thorough background checks on people and companies before signing loans, to make sure that you are not putting yourself in a hole.
Political Instability Disturbs Financial Development and Economic Growth
There are times when people are financially unstable that the only way to get by is to borrow money either from financial institutions or from people they know who would be willing to lend them the finances they need. For instance, when an individual gets into a vehicular accident and are financially constraint, they have to look for ways to pay for any damages, medical bills, or car settlements. Fortunately, there are companies like American Pride Legal Funding who offer loans involving car accidents. Moreover, there are plenty of other lending companies who offer loans for different purposes.
Nonetheless, although there is an abundance of lending companies, people cannot rely on taking out loans all the time, since loans are supposed to ease short-term needs. Therefore, people have to look for a stable and sufficient source of income to be able to fund long-term as well as lifetime needs. However, political instability could hinder financial development, both of the people and the nation.
The Effects of Political Instability
It is a fact that to drive growth of the economy, it is crucial to have financial development so as to generate wealth as well as to develop a country. But, political instability has a weighty influence on the overall development of the economy. Political instability is usually brought about by serious inequality in the economy wherein it can disturb and get in the way of financial development. Hence, it is important for leaders of the nation to be knowledgeable about political stability, to have a clear grasp of the major factors of financial development in the modern age as well as the underlying conditions and situations that cause this stability.
To cite an example, political instability in Zimbabwe has steered to financial underdevelopment and backwardness. The instability is principally because of a frail democracy that is prompted by inequality in the economy. Therefore, we could discover an in-depth reason for the reluctance, refusal and inability to look after the investors. Such inability and reluctance is predominantly observed because of the presence of inequality that is severe. Knowing that political stability lessens financial development might have a favorable impact on the economic development of a nation.
It is observed that financial institutions like banks are likely to collapse in an environment where political instability is present wherein it may distress consumer firms gravely. In the event that a bank fails, the associated firms can lose their funding source temporarily which would lead them to seek out other secure moneylenders. Political instability and uncertainty may possibly bring about a downfall of the sector of banking, and sooner or later will negatively impact users who depend on bank credit to finance ventures and projects. Because problems and concerns in the sector of banking might influence the growth of the economy of a nation, it is imperative to come to know about relevant processes and actions that could be carried out to avert the crisis.
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