Budgeting Basics for Purchasing Your First Car

Budgeting Basics for Purchasing Your First Car
By Warren Clarke (guest blogger) CARFAX

5 January 2017

(Editor’s note: As U.S. automakers set a new record for cars and trucks sold in 2016, GreenPath welcomes guest blogger Warren Clarke from CARFAX to share five tips on buying a vehicle in 2017.)

Your first car purchase represents an important milestone in your adult life. Owning a car gives you the freedom to travel as you please, but it also brings certain responsibilities. As a car owner, you’re tasked with tackling all the expenses associated with purchasing and maintaining your vehicle.

You can avoid unnecessary hassles and stress if you manage this endeavor in a structured and organized way. In other words: prepare a budget.

Here are some tips to consider as you put together a budget for purchasing your first car:

1. Set a Purchase Price
Your first step in making a car purchase involves deciding how much you’re willing to spend on your vehicle. Most car purchases involve financing. When going this route, a good rule of thumb is to set a loan payment that is no more than 20 percent of your monthly income. This will help ensure you have enough resources on hand to meet other financial obligations.

One of the biggest factors of purchase price comes down to choosing between a new or used vehicle.

New cars offer the benefit of having never been driven, and this will delay certain types of repairs. New cars also come with manufacturer warranties that protect you from repair expenses. These warranties vary from automaker to automaker. The carmakers offering the best warranties right now are Hyundai and Kia, which provide 5-year/60,000 mile basic warranties and 10-year/100,000-mile powertrain warranties on all new vehicles.

On the other hand, used cars are often a much more affordable choice. Most cars lose about 19 percent of their value to depreciation after just one year of ownership. This makes used cars a compelling alternative from a financial perspective. If purchasing a used model, it’s important to have a mechanic inspect the vehicle. Set aside roughly $100 (about the cost of an hour’s labor for a mechanic) to cover this inspection.

If you want to reap the financial benefits of purchasing a used car while minimizing your exposure when it comes to repair costs, consider purchasing a certified pre-owned (CPO) model.

CPO cars are used cars that have been thoroughly inspected and refurbished, and they bring less repair risk than the average used car. Look for a CPO program that is backed by the manufacturer, since these CPO models come with manufacturer warranties.

2. Include Registration and Title Fees
Each state requires that a newly purchased car be registered by its owner, and this registration comes with certain fees. The method of calculating these fees varies from state to state, and your local Department of Motor Vehicles or town office will be able to give you an idea of what these fees look like in your neck of the woods. Keep in mind that these fees can be quite significant, so they should not be an afterthought.

3. Consider Sales Tax
Most states collect statewide sales taxes, and the rate can climb as high as 7.5 percent. If you live in a state that collects sales taxes, you will be taxed on the total cost of your vehicle purchase, so it’s important to factor it into your budget calculations. If you finance the car from a dealership, chances are the taxes will be included in your monthly payment, but if you purchase the car from a private seller, you may have to pay them separately when you register your car.

4. Make Room for Car Insurance
Car insurance is required by law, but the minimum coverage required varies from state to state. Keep in mind that state minimums are often quite low, and they may not be enough to meet your needs in an accident. Consult with an insurance professional to get a sense of the coverage that best suits your needs.

Your driving record and the neighborhood you live in will have an effect on the cost of your car insurance. Your insurance rate also hinges on the vehicle itself: In most cases, the lower a car’s price tag, the lower its insurance rate. As you weigh how much you can afford to pay in car insurance, keep in mind that you can reduce this financial burden by purchasing a less-expensive vehicle.

According to the Automobile Association of America (AAA), the average car owner pays roughly $1,115 per year in car insurance. This translates into roughly $93 per month.

5. Put Aside Money for Maintenance and Repairs
Over time, your car will suffer wear and tear, and parts will need to be replaced and repaired. You can stay ahead of these expenses by including them in your budget.

The amount required for maintenance will depend on several factors. One is the age of the car. All other things being equal, the newer the car, the less money you’ll have to spend on maintenance. The cost of the car is another factor. An affordable hatchback will be cheaper to maintain than a costly luxury sedan, since the parts for these economy cars are less expensive.

Data gathered by AAA AAA reveals that the average annual cost of maintaining a vehicle stands at $766.50 per year, or about $64 per month.

Preparation Is Key
From a financial perspective, car ownership sometimes brings a few bumps in the road. Some expenses are easy to predict, while others may be more unexpected and unusual. However, with prescient financial planning, you’ll be ready for all outcomes.

(Warren Clarke is a consumer advocate and car expert. As a writer for CARFAX, he has the chance to share his budgeting tips with car buyers.)

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Study Finds More Staying Within Holiday Budget

kristen-holt-greenpath-preisdent-and-ceoStudy Finds More Staying Within Holiday Budget
By Kristen Holt, CEO

GreenPath Financial Wellness

For many Americans the holiday season is an opportunity to focus on the things that matter most in life.  Exchanging gifts is a long-standing tradition and is a way many share joy with loved ones. This tradition may also bring upon financial strain.

At this time of year GreenPath often sees study after study that demonstrate the negative impact of holiday spending on household credit. This year, we are encouraged by a trend showing that American households plan to take out less credit than in prior years.

A recent holiday spending survey found:

  • 77% of American adults planned to buy holiday gifts last year, and, on average, expected to spend $728. Of those purchasing presents, 78 percent didn’t expect to borrow to fund the purchases. Half of those who were taking on debt expected to pay it back within three months.
  • Low-income individuals were the least likely to borrow to buy gifts, foregoing purchases they couldn’t afford.
  • Families with children were more likely to take on debt and less likely to forgo gift-spending across the board.1

While an average of $728 to spend on holiday gifts feels high, overall, these numbers are really encouraging.  The study found that only 22 percent would find it necessary to borrow to pay for holiday gifts, and half of that 22 percent would pay it back, in full, in three months!

Furthermore, the other 78 percent that aren’t accumulating holiday debt reflect an increase in the financially-savvy of spenders in the United States.  Ideally, credit is used for convenience and should be paid back in full each month. But, using it for the short term and paying it back quickly before too much interest builds up, is the next best alternative. Paying the debt back in three months means that people are not simply sending in their minimum payments, but rather looking at their balance and sending in significant payments to tackle the debt aggressively in a short amount of time.

The study also found that lower income individuals were making financially resilient choices, when it came to staying within a budget. Saving for an emergency is a wise priority, instead of extending a large amount of credit for holiday gifts when on a fixed budget.

GreenPath is proud to serve thousands of clients every year that are committed to achieving their personal and financial goals.  We often hear compelling stories from our clients that have successfully navigated holiday spending expectations, with the most common solution being communication.

Honest and straightforward communication on personal finance is key in helping to relieve the stress and pays dividends in our most precious relationships in the long-run.

Finally, an important thing to remember during the holiday season is that spending time with people you love is a true gift. Think creatively of how to give memories to each other, which cost nothing.

Happy holidays from all of us at GreenPath Financial Wellness.

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1 https://www.federalreserve.gov/econresdata/notes/feds-notes/2016/holiday-spending-and-financing-decisions-in-2015-survey-of-household-economics-and-decisionmaking-20161201.html

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5 Steps To Save Big on a New or Used Car

5 Steps to Save Big on a New or Used Car
GreenPath Financial Wellness
December 2016

Earlier this year,autos it was reported by Fitch Ratings that Americans with lower credit scores are falling behind on auto payments at an alarming rate. While auto sales have cooled this past month, and some deals are out there for remaining 2016 models and incoming 2017 models, you still have to do your homework before stepping on the showroom floor.

Here’s a few steps consumers should consider, who are in the market for a new or used car:

Step 1 – Research
Many people buy cars based on what they look like or what they are familiar with. Instead of buying the same type of car that you’ve always driven, it may be wiser to list the attributes you are looking for, and then do some research. Really think about what you want versus what you need.

Step 2 – Find Financing
Once you know what you are looking for, think about if you would like to buy new, used, or lease. What financing options are realistic for you, based on your income and credit? Don’t borrow more money than you are comfortably able to repay. Your credit score will directly impact the interest rate you will pay on your loan.

For example, an individual with a FICO score of 720 is likely to be offered a loan for about 5.75%., while a credit score of 660 will increase the rate to about 9.2%. This will cause the monthly payment to be $15-$20 higher.

Step 3 – Take Your Time
Now that you have a better idea of your price range, start shopping around for selection and dealer incentives for your particular car choices. Do not rush out and buy the first car you see on an impulse. It’s better to exercise some patience and be sure about your choice. Be wary of any dealers that make you feel rushed into buying something. Shop online as well as in person — that helps you compare prices for similar models.

Step 4 – Determine Payment Amount
Getting a lower monthly payment isn’t always the best route. Sometimes a dealer will simply increase the number of months on your loan in order to lower your monthly payment, but that often means you’ll pay much more in interest over the life of the loan. Be careful about ending up in car loans that last 6, 7, or 8 years — that’s a long time to have a car payment (and it’s a lot of interest to pay!)

Step 5 – Consider Other Costs
Your total transportation expense will include the vehicle payment, as well as everything else – insurance, gasoline, oil changes, ongoing maintenance, license plate fees, etc. Make sure that you have added all potential costs into your budget. Once everything looks good, you’re ready to buy the car.

By doing your research, knowing exactly how much car you can afford and by taking your time, you can turn your car buying experience into a pleasant one!

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How good social media habits can keep your home safe

Andrew_Johnson_communications_greenpathHow Social Media Can Tip Off a Burglar
By Andrew Johnson

GreenPath communications manager

We love our social media! Whether we are posting, tweeting, liking, Snapchatting, pinning, or Instagraming, we enjoy seeing what everyone is up to and letting our friends know where we are at, what we are eating and how we are doing.

Most of the time, we share it with people we know, like family members and friends. But, many times, too, there may be not so desirable people lurking on social media, just waiting for clues on your whereabouts.

As summer draws to a close, many people may get the urge to squeeze in one last long weekend or a quick road-trip before school starts up for the kids. Many articles stress the importance of locking doors, alerting neighbors, stopping the mail, buying self-timers for the lights and other deterrents to make it appear that you are home, even when you are not.

But another way to keep a burglar at bay is to not broadcast that you are out of town with a lot of real-time vacation pictures on your social media accounts. By saying you are in Hawaii for two glorious weeks, just sets up an opportunity for someone to find your hometown and start going by your house to see how secure it is. Technology today can pinpoint homes on map apps, find addresses and in one swoop, a burglary can happen.

Furthermore, it’s always important to check the security and access on your social media. Do you have your pages accessible by anyone? By your online friends? By friends of friends? Keep your pages secure and know who your friends are!

So, yes, lock your doors, have your neighbors keep an eye on your house, stop the paper and enjoy that trip. But take a few online precautions, ahead of time, to make your home sweet home even more secure in these last few weeks of summer.

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3 Ways Student Loan Counseling Can Put Greenbacks Back in Your Wallet

2013-0417-GreenPath0803 Ways Student Loan Counseling Can Put Money Back in Your Pocket
By Nick Demeester
GreenPath Student Loan Counseling Manager

Many fresh college graduates and young professionals find themselves in low-paying jobs when they are starting out on their own. They struggle with their student loan debt, sometimes for years. That mountain of debt can feel insurmountable.  However, there is help out there to guide you in the right direction.  Consider talking to a student loan expert.

How it Works

When you contact a non-profit, student loan counseling expert, you’ll get connected to a professional who will take time to learn about your situation. They’ll empower you to make informed decisions and build a path forward. They will review your repayment options with you and help you choose the best one for your situation. They can even advocate for you with your lenders and help you manage all of the necessary paperwork.

How Student Loan Counseling Saves You Money

You can get more money back in your pocket through student loan counseling. Here are three ways:

  1. Lower your monthly payments. There are many repayment options available to you. A student loan counselor will explain the different plans you are eligible for and the pros and cons of each one. If you cannot afford your current payments under a standard plan, your counselor can help you choose a plan that will have much lower payments at the beginning. These options can free up dollars in your monthly budget so you can pay for necessary expenses.
  2. Pay less interest. Your student loan counselor will help you evaluate your situation and your budget to choose the best repayment plan. Depending on which plan you select, you could save thousands of dollars in interest over the life of your loan.
  3. Take advantage of loan forgiveness programs.  Depending on your employer, you may be eligible for a student loan forgiveness program. If you work for certain types of public service jobs, including jobs in government, education or non-profit organizations, you may qualify to have your loans forgiven after making 120 consecutive monthly payments. Your student loan counselor will walk you through the process, from determining eligibility to filing the paperwork to make sure you are on track to have the loans forgiven. If you qualify, thousands of dollars in debt can be wiped out.

Before choosing a repayment plan or consolidating your loans, it can be helpful to speak with a student loan expert about your options. It’s important to understand how your finances will be affected and what it means for your future.  You deserve to have peace of mind, knowing that you are making the best choice in managing your loans and your money.

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5 Pitfalls of Medical Debt

financial health checkDo you remember the old Pitfall video game?  The idea was to navigate a challenging jungle and avoid obstacles, like quicksand and rattlesnakes.

As we navigate the challenging world of healthcare, we must avoid financial pitfalls that lurk just out of sight.

Rare are the days of $10 co-pays and low annual deductibles.   Today’s environment is becoming so much more complex and expensive.  Here are some healthcare-related financial pitfalls to avoid:

  1. Pitfall #1 – Ignoring Your Bills

Many people would rather not deal with medical bills, leaving them unopened or even throwing them in the trash.  Not responding to medical bills may result in penalty fees, collection calls, legal action, damage to your credit score, or even refusal of medical services.

Don’t ignore your medical bills.  Call the number on your bill and talk to them.  Tell them you want to work out a payment plan.

It is usually easier to work with your service provider rather than a collections company.

  1. Pitfall #2 – Using Credit to Pay Bills You Can’t Afford

If you can’t afford to cover the cost of a medical bill, you may be tempted to put it on a credit card.  Don’t do it!  You’re simply exchanging the medical debt for a credit card debt and a much higher interest rate.  Transferring medical debt to a credit card will quickly cause the debt amount to grow, unless you can afford to pay off the entire bill right away.

Also don’t be tempted to pay medical debt with a Home Equity Line of Credit (HELOC).  In addition to growing the debt, this option could potentially put your home in danger if you are no longer able to maintain minimum payments.

Did you know most medical collections will not charge any interest as long as you make the minimum payment?  Work with your medical provider and request a payment plan.

  1. Pitfall #3 – Putting Off Medical Procedures

Don’t risk your health by putting off critical medical treatment.  If the procedure is elective, talk to your doctor and find out the potential health consequences of delaying treatment.  If possible, begin planning for the expense.  Ask your insurance company to conduct a pre-treatment estimate so you understand how much money you will need.

Develop a plan for setting some money aside each month.  Do you have an expense you could do without for a short time like cable, or an extracurricular activity?  You may have to get creative.

  1. Pitfall #4 – Not Fully Understanding Coverage and Costs

Medical insurance can be confusing.  Make sure you understand your insurance coverage, out of pocket costs, copays, etc.  If your insurance refuses to pay for a claim, find out why.

Carefully evaluate all insurance plans if you are nearing the open enrollment period, especially if you think you may incur medical expenses in the upcoming year.   Evaluate premium costs, deductibles and tax saving options.  If you’re considering a high-deductible plan, using a Health Savings Account (HSA) is strongly recommended.

Don’t be afraid to ask questions.  If you have the slightest uncertainty, contact your insurance company.

  1. Pitfall #5 – Prioritizing Medical Bills Over Other Debts

It is important to pay all bills.  However, if you can’t afford to pay all of your bills, decide which are the highest priority.  Basic living expenses are most important — food, housing, child care, transportation to work, medicine and taxes are top priorities.

If you don’t have enough money to meet your obligations, figure out how much you can afford to pay.  Then contact your creditors and explain the situation.  Request a payment plan, but don’t commit to a payment amount unless  you know you can afford it.

Avoiding these medical debt pitfalls isn’t always easy.  You can’t always control your physical health, but you can control how you prepare and react.  Research your options, ask questions, map out a plan, and ask for help if necessary.  It’s a jungle out there!

If you need additional debt management assistance, reach out to a non-profit credit organization like GreenPath Financial Wellness.

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Top 5 Mistakes Millennials Make with Student Loans

T2013-0417-GreenPath080op 5 Mistakes Millennials Make with Student Loans
By Nick Demeester
GreenPath Student Loan Counseling Manager

If you are a recent graduate or young professional, you may have significant student loan debt. You might be overwhelmed with the idea of how much you owe and are struggling to make your payments. Like many other millennials, you may be strapped for cash and do not know how to make any progress.

Being short on money and facing debt can be scary, and it can lead many people to make mistakes managing their loans. However, these common errors can end up costing you thousands of dollars and even harm your financial future.

Here are the top five mistakes millennials make when it comes to their student loans:

  1. They underestimate their payments.  According to a recent study, 60% of students underestimate their monthly student loan payments and how much of their income will go towards their debt. After graduation, you may have gotten your first apartment or purchased a car. If you did not account for your student loan payments, your budget would be blown and you would risk defaulting on your loans or missing rent and car payments.
  2. They do not know their interest rates.  In the same study, 30% of students were not aware of their interest rates. Your interest rate has a huge impact on how much money you’ll pay back over time. A higher interest rate can add thousands of dollars to your balance. There are ways to bring your rate down; for many loans, setting up automatic payments can shave the percentage down by .25%, and when you make a certain amount of payments on-time, you’ll be awarded another .25% discount on interest. While that may sound tiny, that can add up to significant savings. More of your money can go towards the principal instead of interest.
  3. They are not aware of their repayment options.  Nearly 30% of millennials with student loans are currently in default. However, a huge portion of people missing payments had other repayment options they did not use. Approximately half of those millennials who missed payments were eligible for modified repayment plans based on income, meaning their payments could have been much lower and more affordable. Understanding your options can help stretch your dollars and keep you from getting behind on your loans.
  4. They miss out on valuable tax deductions.  Many recent graduates do not realize that their student loan interest is tax deductible, and they pay more money than they should. If you’ve been making student loan payments, you can lower your tax bill by deducting up to $2,500 in student loan interest on your taxes.
  5. They do not know where to go for help.  Many young professionals do not know that they can get help for managing their student loans. If you cannot afford your payments, don’t know which student loan payment plan is best for your situation or are considering consolidation, a trained professional can help you navigate the process and come up with a comprehensive plan for moving forward. You will be armed with the information you need to make informed decisions. By understanding your options, you’ll be empowered to start building a more secure future.

Student loans can be overwhelming, but with some research and planning, you can pay down your debt and start saving for your other needs. For more information, reach out to GreenPath Student Loan Counseling Services at (855) 400-3718 or clicking on this link, here.

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