Understanding Your Student Loan Promissory Note

Generally speaking, promissory notes are legally binding contracts that state the terms of a loan, such as the amount to be repaid, the interest rate that will be charged, and any other important terms and conditions of that particular loan.

A student loan promissory note is no different; you’ll be required to sign one, accepting the terms of your student loan(s) before the lender disburses your money.

If a student loan promissory note sounds super important, that’s because it is. You can think of it as your student loan contract. Like any legal contract, it’s important to know the nuances of what you’re signing. Here’s what you should know about student loan promissory notes and master promissory notes.

What Is a Student Loan Promissory Note?

A promissory note is your student loan contract. It details the terms and conditions of that loan, as well as any rights and responsibilities you have as a borrower. Both federal student loans — loans backed by the U.S. government — and private student loans require that you sign a promissory note.

With private student loans, borrowers will generally be required to sign a promissory note for each student loan they borrow, because each loan’s terms and conditions may be different. Federal student loan borrowers may have the option to sign just one master promissory note.

What Is a Master Promissory Note?

Borrowers with federal student loans may be able to sign just one master promissory note. If eligible, a master promissory note covers all federal loans borrowed for a period of 10 years. There are versions of the master promissory note for both students borrowing Direct Subsidized or Unsubsidized Loans and a version for borrowers who are using Direct PLUS Loans.

Whether you’ll be able to sign a master promissory note is determined by the school you attend and the types of federal loans you have. Some schools do not offer the option to have students sign a master promissory note that covers borrowing over multiple years.

So be certain to understand what your school allows, and whether you need to sign multiple promissory notes or one master promissory note. The financial aid office at your college should be able to guide you through the process.

What Should I Look for on My Student Loan Promissory Note?

Understanding the terms and conditions of a student loan promissory note is akin to understanding the terms of student loans. Here are some important items to consider on your loan, and note:

Loan type: First, it is important to know what type of loan you have. Federal loans will have different terms than private loans, which are loans accessed through an independent bank, credit union, or other lender.

Repayment options: Federal loans come with some options to help you manage your debt post-graduation, such as student loan forgiveness and income-driven repayment. If you have federal loans and access to multiple repayment plans, take some time to understand the ins and outs of different plans.

Deferment options: Federal loans may also offer options for student loan deferment, which would allow you to suspend making payments during periods of economic hardship, immediately after you leave school, etc. Private loans may also offer some deferment options, but every lender is different, so you’ll need to check your note.

Interest rate: The interest rate is a percentage of the principal loan amount that the borrower is charged for borrowing money. Be certain to understand the interest rate on your student loans, and whether that rate is fixed or variable. Federal student loans have fixed interest rates.

Private student loans may offer variable rates. If the rate is variable, it is possible that it will increase in the future, which would also increase your monthly payments. Be especially wary of private loans that offer introductory rate offers that later expire — they could end up costing you quite a bit of money.

Additional costs: In addition to the loan’s interest rate, a student loan promissory note should include information on any additional costs, such as a loan fee (also known as an origination fee). Student loan fees will vary by lender, so be sure to check yours. Sometimes a loan fee is deducted directly from the amount that is disbursed.

Prepayment fees: Speaking of additional costs, one thing to check for is whether your student loan allows you to “pre-pay” loan payments. If you think there’s a chance you’ll want to pay your loan back faster than the stated terms, check to see whether prepayment is allowed, and if so, how additional payments are applied and whether there are any fees attached. Making prepayments on the principal value of the loan could help reduce the amount of money you owe in interest over the life of the loan.

Cosigner removal: With some loans, especially private loans, you may be required to have a cosigner. (That’s because private loans rely on your — or your cosigner’s — creditworthiness to determine the terms of your loan. Federal loans do not.) Upon graduation, some borrowers want to release their cosigner of the responsibility of having their name on the loan, so you may want to find out whether that’s a possibility.

Allocation of funds: Some loans may require that the money is spent only on designated expenses, such as books or tuition. If you’re looking to upgrade your apartment, you might not be allowed to do so using student loan funds. Make sure to check on any stipulations on how you can spend the money.

When Is the Promissory Note Signed?

In general, borrowers will need to sign the promissory note for their loans before receiving any funds. Students who are borrowing federal student loans are able to sign their master promissory note online by logging into their federal student loan account.

Private lenders may have their own policies for signing a promissory note, it’s helpful to check-in directly with the lender if you have any questions.

Understanding Your Options

If you haven’t picked up on it already, knowing how student loans work and understanding your student loan contract is the name of the game. Taking out a student loan can be a huge financial commitment and shouldn’t be done without careful consideration — which means knowing what’s on that promissory note.

Before going to sign your student loan promissory note, it’s also a good idea to spend some time thinking about your financial goals. A good place to start is by looking at how much you’ll take out in loans, total, and compare that to how much money you can expect to make after you graduate from school. Use a student loan calculator to get an idea of what your monthly payments could be given your total debt and the interest rate.

Rarely is it financially sound to take out more in loans than you absolutely need. It might seem like Monopoly money now, but this is all money that you’ll have to pay back, with interest. The repayment process can be painstaking, especially as a person early in their career or during a setback, like layoffs or a health issue. Taking out the bare minimum in student loans may mean working part-time in college, exploring more affordable college options, or continuing to apply for scholarships after you’re enrolled.

Once you’ve graduated, keep in mind that refinancing your student loans is a way for some graduates to lower the interest rates on their loans or lower their monthly payments. Refinancing is a process where your existing loans are consolidated and paid off with a new loan from a private lender.

Generally, the borrower has the option to keep the same repayment schedule or increase or decrease the amount of time left on their loan. (Increasing the duration of a loan may result in paying more interest over time, whereas decreasing the duration of a loan may result in higher monthly payments, but less interest paid overall.)

If you’re planning on using your federal loans’ flexible repayment plans or student loan forgiveness programs, refinancing with a private lender may not be the right choice for you as you will lose access to those federal benefits. However, some private lenders, like SoFi, offer protections to borrowers who lose their jobs or experience economic hardship. SoFi even provides career counseling to help their borrowers get back on track.

The Takeaway

A student loan promissory note is a contract between the borrower and the lender that details the loan’s terms and conditions and where the borrower promises to repay the loan. Federal student loan borrowers may be able to sign just one master promissory note, which will cover all federal loans for a period of up to 10 years. Private lenders generally require a promissory note for each individual loan.

Understanding the terms and conditions of your loan when signing of the promissory note can help you set your expectations for borrowing and ultimately repaying your student loans.

Whether you need help paying for school or help paying off the loans you already have, SoFi offers competitive interest rates and great member benefits as well.

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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.

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Source: sofi.com

How Much Auto Insurance Do I Really Need?

Figuring out just how much car insurance you really need can be a challenge.

At minimum, you’ll want to make sure you have enough car insurance to meet the requirements of your state or the lender who’s financing your car. Beyond that, there’s coverage you might want to add to those required amounts. These policies will help ensure that you’re adequately protecting yourself, your family, and your assets. And then there’s the coverage that actually fits within your budget.

We know it may not be a fun topic to think about what would happen if you were involved in a car accident, but given that well over five million drivers are involved in one every year, it’s a priority to get coverage. Finding a car insurance policy that checks all those boxes may take a bit of research — and possibly some compromise. Here are some of the most important factors to consider.

How Much Car Insurance Is Required by Your State?

A good launching pad for researching how much car insurance you need is to check what your state requires by law. Only two states do not require a car owner to carry some amount of insurance: New Hampshire and Virginia. If you live elsewhere, find out how much and what types of coverage a policyholder must have. Typically, there are options available. Once you’ve found this information, consider it the bare minimum to purchase.

Types of Car Insurance Coverage

As you dig into the topic, you’ll hear a lot of different terms used to describe the various kinds of coverage that are offered. Let’s take a closer look here:

Liability Coverage

Most states require drivers to carry auto liability insurance. What it does: It helps pay the cost of damages to others involved in an accident if it’s determined you were at fault. Let’s say you were to cause an accident, whether that means rear-ending a car or backing into your neighbor’s fence while pulling out of a shared driveway. Your insurance would pay for the other driver’s repairs, medical bills, lost wages, and other related costs. What it wouldn’t pay for: Your costs or the costs relating to passengers in your car.

Each state sets its own minimum requirements for this liability coverage. For example, in California, drivers must carry at least $15,000 in coverage for the injury/death of one person, $30,000 for injury/death to more than one person, and $5,000 for damage to property. The shorthand for this, in terms of shopping for car insurance, would be that you have 15/30/5 coverage.

But in Maryland, the amounts are much higher: $30,000 in bodily injury liability per person, $60,000 in bodily injury liability per accident (if there are multiple injuries), and $15,000 in property damage liability per accident. (That would be 30/60/15 coverage.)

And some may want to go beyond what the state requires. If you carry $15,000 worth of property damage liability coverage, for example, and you get in an accident that causes $25,000 worth of damage to someone else’s car, your insurance company will only pay the $15,000 policy limit. You’d be expected to come up with the remaining $10,000.

Generally, recommendations suggest you purchase as much as you could lose if a lawsuit were filed against you and you lost. In California, some say that you may want 250/500/100 in coverage – much more than the 15/30/5 mandated by law.

Recommended: What Does Liability Auto Insurance Typically Cover?

Collision Coverage

Collision insurance pays to repair or replace your vehicle if it’s damaged in an accident with another car that was your fault. It will also help pay for repairs if, say, you hit an inanimate object, be it a fence, tree, guardrail, building, dumpster, pothole, or anything else.

If you have a car loan or lease, you’ll need collision coverage. If, however, your car is paid off or isn’t worth much, you may decide you don’t need collision coverage. For instance, if your car is old and its value is quite low, is it worth paying for this kind of premium, which can certainly add up over the years?

But if you depend on your vehicle and you can’t afford to replace it, or you can’t afford to pay out of pocket for damages, collision coverage may well be worth having. You also may want to keep your personal risk tolerance in mind when considering collision coverage. If the cost of even a minor fender bender makes you nervous, this kind of insurance could help you feel a lot more comfortable when you get behind the wheel.

Comprehensive Coverage

When you drive, you know that unexpected events happen. A pebble can hit your windshield as you drive on the highway and cause a crack. A tree branch can go flying in a storm and put a major dent in your car. Comprehensive insurance covers these events and more. It’s a policy that pays for physical damage to your car that doesn’t happen in a collision, including theft, vandalism, a broken window, weather damage, or even hitting a deer or some other animal.

If you finance or lease your car, your lender will probably require it. But even if you own your car outright, you may want to consider comprehensive coverage. The cost of including it in your policy could be relatively small compared to what it would take to repair or replace your car if it’s damaged or stolen.

Personal Injury Protection and Medical Payments Coverage

Several states require Personal Injury Protection (PIP) or Medical Payments coverage (MedPay for short). This is typically part of the state’s no-fault auto insurance laws, which say that if a policyholder is injured in a crash, that person’s insurance pays for their medical care, regardless of who caused the accident.

While these two types of medical coverage help pay for medical expenses that you and any passengers in your car sustain in an accident, there is a difference. MedPay pays for medical expenses only, and is often available only in small increments, up to $5,000. PIP may also cover loss of income, funeral expenses, and other costs. The amount required varies hugely depending on where you live. For instance, in Utah, it’s $3,000 per person coverage; in New York, it’s $50,000 per person.

Uninsured/Underinsured Motorist Coverage

Despite the fact that the vast majority of states require car insurance, there are lots of uninsured drivers out there. The number of them on the road can range from one in eight to one in five! In addition, there are people on the road who have the bare minimum of coverage, which may not be adequate when accidents occur.

For these reasons, you may want to take out Uninsured Motorist (UM) or Underinsured Motorist (UIM) coverage Many states require these policies, which are designed to protect you if you’re in an accident with a motorist who has little or no insurance. In states that require this type of coverage, the minimums are generally set at about $25,000 per person and $50,000 per accident. But the exact amounts vary from state to state. And you may choose to carry this coverage even if it isn’t required in your state.

If you’re seriously injured in an accident caused by a driver who doesn’t carry liability car insurance, uninsured motorist coverage could help you and your passengers avoid paying some scary-high medical bills.

Let’s take a quick look at some terms you may see if you shop for this kind of coverage:

Uninsured motorist bodily injury coverage (UMBI)

This kind of policy covers your medical bills, lost wages, as well as pain and suffering after an accident when the other driver is not insured. Additionally, it provides coverage for those costs if any passengers were in your vehicle when the accident occurred.

Uninsured motorist property damage coverage (UMPD)

With this kind of policy, your insurer will pay for repairs to your car plus other property if someone who doesn’t carry insurance is responsible for an accident. Some policies in certain states may also provide coverage if you’re involved in a hit-and-run incident.

Underinsured motorist coverage (UIM)

Let’s say you and a passenger get into an accident that’s the other driver’s fault, and the medical bills total $20,000…but the person responsible is only insured for $15,000. A UIM policy would step in and pay the difference to help you out.

Recommended: How to Pay for Medical Bills You Can’t Afford

Guaranteed Auto Protection (GAP) Insurance

Here’s another kind of insurance to consider: GAP insurance, which recognizes that cars can quickly depreciate in value and helps you manage that. For example, if your car were stolen or totaled in an accident (though we hope that never happens), GAP coverage will pay the difference between what its actual value is (say, $5,000) and what you still owe on your auto loan or lease (for example, $10,000).

GAP insurance is optional and generally requires that you add it onto a full coverage auto insurance policy. In some instances, this coverage may be rolled in with an auto lease.

Non-Owner Coverage

You may think you don’t need car insurance if you don’t own a car. (Maybe you take public transportation or ride your bike most of the time.) But if you still plan to drive occasionally — when you travel and rent a car, for example, or you sometimes borrow a friend’s car — a non-owner policy can provide liability coverage for any bodily injury or property damage you cause.

The insurance policy on the car you’re driving will probably be considered the “primary” coverage, which means it will kick in first. Then your non-owner policy could be used for costs that are over the limits of the primary policy.

Rideshare Coverage?

If you drive for a ridesharing service like Uber or Lyft, you may want to consider adding rideshare coverage to your personal automobile policy.

Rideshare companies are required by law in some states to provide commercial insurance for drivers who are using their personal cars — but that coverage could be limited. (For example, it may not cover the time when a driver is waiting for a ride request but hasn’t actually picked up a passenger.) This coverage could fill the gaps between your personal insurance policy and any insurance provided by the ridesharing service. Whether you are behind the wheel occasionally or full-time, it’s probably worth exploring.

Recommended: Which Insurance Types Do You Really Need?

Why You Need Car Insurance

Car insurance is an important layer of protection; it helps safeguard your financial wellbeing in the case of an accident. Given how much most Americans drive – around 14,000 miles or more a year – it’s likely a valuable investment.

What If You Don’t Have Car Insurance?

There can be serious penalties for driving a car without valid insurance. Let’s take a look at a few scenarios: If an officer pulls you over and you can’t prove you have the minimum coverage required in your state, you could get a ticket. Your license could be suspended. What’s more, the officer might have your car towed away from the scene.

That’s a relatively minor inconvenience. Consider that if you’re in a car accident, the penalties for driving without insurance could be far more significant. If you caused the incident, you may be held personally responsible for paying any damages to others involved; one recent report found the average bodily injury claim totaled more than $20,000. And even if you didn’t cause the accident, the amount you can recover from the at-fault driver may be restricted.

If that convinces you of the value of auto insurance (and we hope it does), you may see big discrepancies in the amounts of coverage. For example, there may be a tremendous difference between the amount you have to have, how much you think you should have to feel secure, and what you can afford.

That’s why it can help to know what your state and your lender might require as a starting point. Keep in mind that having car insurance isn’t just about getting your car — or someone else’s — fixed or replaced. (Although that — and the fact that it’s illegal to not have insurance — may be motivation enough to at least get basic coverage.)

Having the appropriate levels of coverage can also help you protect all your other assets — your home, business, savings, etc. — if you’re in a catastrophic accident and the other parties involved decide to sue you to pay their bills. And let us emphasize: Your state’s minimum liability requirements may not be enough to cover those costs — and you could end up paying the difference out of pocket, which could have a huge impact on your finances.

Finding the Best Car Insurance for You

If you’re convinced of the value of getting car insurance, the next step is to decide on the right policy for you. Often, the question on people’s minds is, “How can I balance getting the right coverage at an affordable price?”

What’s the Right Amount of Car Insurance Coverage for You?

To get a ballpark figure in mind, consider these numbers:

Type of Coverage Basic Good Excellent
Liability Your state’s minimum •   $100,000/person for bodily injury liability

◦   $300,000/ accident for bodily injury liability

◦   $100,000 for property damage

•   $250,000/person for bodily injury liability

◦   $500,000/ accident for bodily injury liability

◦   $250,000 for property damage

Collision Not required Recommended Recommended
Comprehensive Not required Recommended Recommended
Personal Injury Protection (PIP) Your state’s minimum $40,000 Your state’s maximum
Uninsured and Underinsured Motorist (UM, UIM) Coverage Your state’s minimum •   $100,000/person for bodily injury liability

◦   $300,000/ accident for bodily injury liability

•   $250,000/person for bodily injury liability

◦   $500,000/ accident for bodily injury liability

Here are some points to consider that will help you get the best policy for you.

Designing a Policy that Works for You

Your insurance company will probably offer several coverage options, and you may be able to build a policy around what you need based on your lifestyle. For example, if your car is paid off and worth only a few thousand dollars, you may choose to opt out of collision insurance in order to get more liability coverage.

Choosing a Deductible

Your deductible is the amount you might have to pay out personally before your insurance company begins paying any damages. Let’s say your car insurance policy has a $500 deductible, and you hit a guardrail on the highway when you swerve to avoid a collision. If the damage was $2,500, you would pay the $500 deductible and your insurer would pay for the other $2,000 in repairs. (Worth noting: You may have two different deductibles when you hold an auto insurance policy — one for comprehensive coverage and one for collision.)

Just as with your health insurance, your insurance company will likely offer you a lower premium if you choose to go with a higher deductible ($1,000 instead of $500, for example). Also, you typically pay this deductible every time you file a claim. It’s not like the situation with some health insurance policies, in which you satisfy a deductible once a year.

If you have savings or some other source of money you could use for repairs, you might be able to go with a higher deductible and save on your insurance payments. But if you aren’t sure where the money would come from in a pinch, it may make sense to opt for a lower deductible.

Recommended: Different Types of Insurance Deductibles

Checking the Costs of Added Coverage

As you assess how much coverage to get, here’s some good news: Buying twice as much liability coverage won’t necessarily double the price of your premium. You may be able to manage more coverage than you think. Before settling for a bare-bones policy, it can help to check on what it might cost to increase your coverage. This information is often easily available online, via calculator tools, rather than by spending time on the phone with a salesperson.

Finding Discounts that Could Help You Save

Some insurers (including SoFi Protect) reward safe drivers or “good drivers” with lower premiums. If you have a clean driving record, free of accidents and claims, you are a low risk for your insurer and they may extend you a discount.

Another way to save: Bundling car and home insurance is another way to cut costs. Look for any discounts or packages that would help you save.

The Takeaway

Buying car insurance is an important step in protecting yourself in case of an accident or theft. It’s not just about repairing or replacing your vehicle. It’s also about ensuring that medical fees and lost wages are protected – and securing your assets if there were ever a lawsuit filed against you. These are potentially life-altering situations, so it’s worth spending a bit of time on the few key steps that will help you get the right coverage at the right price. It begins with knowing what your state or your car-loan lender requires. Then, you’ll review the different kinds of policies and premiums available. Put these pieces together, and you’ll find the insurance that best suits your needs and budget.

A Simple Way to Get Great Car Insurance

Feeling uncertain about how much auto insurance you really need or what kind of premium you might have to pay to get what you want? Check out SoFi Protect, which uses the Root mobile app to measure your driving habits. The better you drive, the more you can save.


Insurance not available in all states.
Gabi is a registered service mark of Gabi Personal Insurance Agency, Inc.
SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

How to Use the Debt Lasso Method to Pay Off Debt Faster

Remember how we talked about the importance of committing because of later temptations? Here’s where that comes into play.
By automating your payments, you’ll be less tempted to reduce the amount when your minimum payment goes down — sort of an out-of-sight-out-of-mind mentality.
And don’t limit yourself to credit card offers. Using a personal loan to pay off multiple cards has the same effect.
Before you reach the end of a zero-interest period, start looking for other offers that allow you to transfer your balance so you can avoid getting socked with the new higher interest rate on your old card.

What Is the Debt Lasso Method?

Auten and Schneider should know: They started their own debt lasso journey with ,000 in credit card debt. After years of poor financial choices, the couple was sitting on the floor of their basement apartment when they realized that their debt would never allow them to buy a house or enjoy life the way their friends were.
Yeehaw!
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Who Should Use the Debt Lasso?

Decide on an amount greater than your total minimum monthly payments that you can reliably put toward your debt every month.
So if you have ,000 in credit card debt and your gross income (before taxes and other deductions are taken out) is ,000, you’re a good candidate for the debt lasso. But if you have ,000 in credit card debt with the same salary, you may want to seek other assistance to help you pay off your credit card debt.

Pro Tip
We’ll look at all the pieces, but let’s first decide if the debt lasso method can help you.

And if you’re wondering when you’ll reach the end of your debt lasso, they include a calculator on debtlasso.com to help you figure out how long it will take to pay off credit cards based on your interest rates and debt amounts.
Stop using your credit cards. No exceptions.

How the Debt Lasso Method Works

This portrait shows a gay couple sitting on a couch together in the mountains after being married.
Developed by David Auten, left, and John Schneider, the married couple known as the Debt Free Guys, the debt lasso method involves corralling your high-interest debt into a low-interest one so you can pay down the principal balance more quickly. Photo courtesy of Studio Lemus

To determine if the debt lasso method is right for you, start by adding up how much you owe in credit card debt. Then compare that total debt to your annual income. If your debt is less than half of your income, the debt lasso method could work for you.

1. Commit

After you’ve paid down a portion of your balance, your credit card company tells you that your new minimum payment is only . Yay! But that doesn’t mean you now have to spend — you should continue paying 0 each month, sending even more money toward your principal balance.
Saving your cash for now will let you build an emergency fund in case you do lose income. And if it turns out that you end up with an extra nest egg, consider it a bonus payment as you return to the debt lasso method.
Start with the easy wins by paying off any credit cards that have low enough balances to knock out in less than six months.
You can still benefit from the lasso method by negotiating a lower interest rate with your current credit card company or transferring the balance to a card with a substantially lower interest rate than what you’re currently paying.

  1. But if you have a less-than-stellar credit score, those offers may be tough to come by. Don’t give up.
  2. Remember that you’ve committed to not using your credit cards (see Step #1). So hold onto the ones you’ve paid off. Why?

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2. Trim

Developed by David Auten and John Schneider, also known as the Debt Free Guys, the debt lasso method involves corralling your high-interest debt into a low-interest one so you can pay down the principal balance more quickly — and for less money.
You may have multiple credit cards, but we’ll keep the example simple with one card: When you began your debt lasso journey, your minimum monthly payment was , so you committed to paying 0 on your credit card — 0 extra each month.
Time to saddle up.

3. Lasso

Source: thepennyhoarder.com
So they made a two-part commitment — which you’ll also need to do if you want to use the debt lasso method:
You cannot successfully use the debt lasso method unless you’re willing to commit.
Automating your minimum monthly payments for all but your lassoed credit card will allow you to focus on paying off one debt at a time. But automating your payments can do even more to help.
But if you fall somewhere in between, the lasso could help you pay off debt in a shorter amount of time and with less interest.
Compared to the average rate on credit cards, which was 17.13% in the third quarter of 2021, personal loans offered a better deal at 9.39%, according to the Federal Reserve.
If the debt avalanche and snowball methods leave you feeling a bit cold when you think of all the interest you’ll end up paying, consider the debt lasso method.
This is no time to put your debt payment strategy out to pasture. Monitoring your accounts is an important last step, as those credit card rates can run wild if left unattended.
Each time you pay off one credit card, put your money toward paying off the next highest balance.
“That was our particular rock-bottom moment, realizing that here we were in this financial and literal hole,” Schneider said.
Although opening new accounts could temporarily hurt your credit score, Auten and Schneider emphasized that the long-term benefits of paying off debt faster can help counteract that effect.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder who is fully committed to corny puns. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.

4. Automate

“If you do get an offer and then you end up not being able to make your payments, then you could get stuck with an interest rate that’s 25 to 30%,” Auten said.
Ready to stop worrying about money?
Although it may be tempting to pay every dime toward your debt, don’t drain your emergency fund when practicing the debt lasso method.
The early victory not only offers a psychological benefit but also helps your credit score.
If you’ve read about other debt payoff methods, you might be wondering if the lasso method is just a balance transfer. Auten and Schneider get that question a lot.
Ready to wrangle in that credit card debt?

5. Monitor

This woman monitors her accounts online.
Getty Images

Maintaining those credit lines will decrease your credit utilization, which accounts for approximately 30% of your credit score. And the higher your credit score, the better position you’ll be in when you’re ready to lasso.
Want to learn more? Auten and Schneider told us all about the debt lasso, including who it can help the most — and who shouldn’t use it.

Credit card agreements often include a clause in the fine print that allows them to raise your interest rates if you miss a payment during the zero-interest offer period. Some will even sneak in the right to recoup any money you saved previously during the promotional period at the new interest rate.
The takeaway lesson: Read the fine print.

Who Should NOT Use the Debt Lasso Method — For Now

A word of warning: If you’re in an industry where you could be furloughed or laid off suddenly, you should probably hold your horses — and your cash.
If you have a good or excellent credit score, finding a zero-interest offer where you can transfer your highest interest credit card debt should be your goal.
Committing to the process is essential, Auten and Schneider said, as it will help you later when you may be tempted to stray off course.
If you still have additional higher interest balances, prioritize paying off the credit card with the highest interest rate first.
You also might not benefit from taking up the lasso if you can realistically pay off your credit card debt in six months, since the associated fees (typically 3% to 5% of the amount being transferred) could cost you more than you’d save by taking advantage of a lower interest rate.
“The reality is that a central piece of the process is doing some sort of consolidation — whether that’s a balance transfer to a zero-interest credit card or a low-interest loan,” Auten said. “But a lot of people forget those first two pieces and the last two pieces.”
A card that doesn’t have a balance means you have more available credit, thus helping improve your credit score. And a higher credit score will help you get approved for another zero-interest credit card.

Putting all of the extra money toward your card with the highest interest rate will help you pay the least amount of interest over time. And that’s where the last step becomes crucial.

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“To get you from 20% to 25% down to a 9% to 15% — that’s a great first step,” Schneider said.

When to Apply for Student Loans: Student Loan Deadlines

If you need a loan for college, you may be wondering whether a private student loan is a right choice for you. And, once you’ve made the decision to take out a student loan, you might want to know the differences between federal vs. private student loans and the deadlines associated with each.

Keep reading to learn all that information and more, so you can determine how and when to apply for student loans.

What Are Private Student Loans?

Private student loans are student loans that are offered by private lenders like banks or credit unions to help people pay for the costs associated with college. Similar to applying for an auto loan or mortgage, private student loans require a loan application and approval from the lender.

Depending on how much money you need for school, you can borrow a set amount from a private lender, but the amount they grant you ultimately depends on financial factors like your income, credit score, and the credit history of yourself and/or your co-signer (if applicable).

Unlike federal student loans with fixed interest rates and terms, the fees, repayment plans and interest rates for private student loans are set by the individual lender. Because of this, it’s important to “shop around” with private lenders until you find rates and terms that meet your financial needs.

Private student loans can help pay for tuition, books and supplies, transportation, fees. Using your student loan for housing or room and board expenses is also an option.

Recommended: Examining the Different Types of Student Loans

Should I Get a Student Loan?

The question of whether or not you should get a student loan is quite personal, and depends on your unique financial situation. In a nation where, in 2020, the average federal student loan debt per borrower was $36,510 and the average private student loan debt per borrower is $54,921, taking out student loans is clearly a popular decision, but whether it’s the right decision is a different story.

For starters, when deciding whether it’s a good idea to take on college debt, it helps to ask whether a degree would be valued in your desired career.

In addition, there are a few other steps you can take to see if taking out a student loan will be worth it in the long run:

•   Look up the tuition, room, board and other costs of attending your desired college(s)

•   Create a budget to determine whether you can afford those costs after factoring in financial alternatives like scholarships, savings, family help, etc.

•   Use a student loan payment calculator to assess how much you can expect to pay in student loan debt when you graduate

•   Research salary levels in your desired field to see if the expected compensation will cover the cost of student loan payments over time

•   Assess how comfortably you can live at your expected income level, factoring in payment estimates from the student loan calculator

Once you’ve whittled down this information, you should have a better idea of whether taking out student loans is aligned with your long-term financial goals.

Recommended: How Do Student Loans Work? Guide to Student Loans

Other Steps to Take Before Securing Student Loans

Exploring ways to pay for school without taking on student loan debt is the first line of defense in college financial planning.

Since this isn’t always an option, you can minimize your reliance on loans by taking the following steps:

1.    Pull funds from a 529 college savings plan that you or your guardians may have set up for future college costs.

2.    Apply for scholarships and grants to offset the cost of tuition, room, board and other expenses.

3.    Fill out a Free Application for Federal Student Aid (FAFSA®) form to start the process of securing federal grants or federal student loans and use this money to cover as much of your tuition as possible.

4.    Opt for Federal Direct Subsidized Loans and Perkins Loans if you qualify.

5.    Offset your remaining college costs with unsubsidized federal loans.

6.    Opt out of PLUS loans if possible, as their interest rates and origination fees can be steep.

Finally, once you’ve exhausted the six options above, you can turn to a private student loan to cover any remaining costs associated with your college education.

When Is a Private Student Loan a Good Option?

There are some instances where a private student loan might be an option worth considering:

•   You’d like to cover the gap between your financial aid package or scholarship and your college expenses

•   You don’t have specific financial need requirements, but still want help subsidizing the cost of college

•   You’re looking to shop around with lenders to compare multiple loan options before selecting

•   You have strong credit or a cosigner with a strong credit score who could potentially help you qualify for a more competitive interest rate

•   You’re hoping to refinance your student loans in the future

When Should You Apply for a Private Student Loan?

Generally speaking, it’s wise to consider federal student loans first, but if you do decide a private student loan is the right option for you, you might be wondering when to apply for private loans.

You can apply for a private student loan directly from the desired lender’s website. It’s wise to apply after you’ve made your final school decision and once you know how much you need to borrow, so you won’t have to submit multiple student loan applications for all the schools you’re considering.

Private vs Federal Student Loans

When it comes to private vs. federal student loans, there are a few features and specifics that can help you make your decision:

Federal Student Loans Private Student Loans
Funded by the federal government. Terms and conditions that are set by law. Funded by private student loans lenders like banks, credit unions, state agencies, or schools. Terms and conditions that are set by the lender
Payments aren’t due until after you graduate, leave school, or change your enrollment status to less than half-time. Payments can be due while you’re still in school, but deferment is sometimes possible.
The interest rate is fixed, based on the federal interest rate at the time, and often lower than private loans. The interest rate can be fixed or variable and is based on your individual financial circumstances.
No credit check is required to qualify, except for Direct PLUS Parent Loans. Established credit and/or a cosigner may be required to qualify.
Interest may be tax deductible. Interest may be tax deductible.
Loans can be consolidated. Loans cannot be consolidated, but can be refinanced.
You may be able to postpone or lower your payments. You need to check with your lender to see if you can postpone or lower your payments.
There are several different repayment plans. You need to check with your lender about repayment plans (if any).
There is no prepayment penalty fee. There could be a prepayment penalty fee.
You may be eligible for loan forgiveness if you work in public service. Many private lenders don’t offer loan forgiveness.

Deadlines for Federal Student Loans

To apply for federal student loans, students must fill out the FAFSA. There are three separate deadlines to consider:

1. The College or University Deadline

College deadlines for filling out the FAFSA will vary based on the school itself, but typically occur before the academic year begins. Each college will have its own FAFSA deadline, so visiting their financial aid website for this information is an important first step.

To fill out the 2022–23 FAFSA form itself, you can use your 2020 tax information to apply as early as October 1, 2021, and must submit the application by June 30, 2023.

2. The State Deadline

Your home state sets the second deadline when it comes to FAFSA applications. The deadlines are listed on the FAFSA form itself, or you can visit the state deadline list on StudentAid.gov.

3. The Federal Deadline

The U.S. Department of Education sets the final deadline on the list. This entity is in charge of FAFSA and their website will feature the 2022-2023 FAFSA application until June, 2023.

Federal student aid programs have a limited amount of funds available, so the sooner you can submit your application and avoid encroaching on the hard deadlines, the better.

Recommended: FAFSA 101: How to Complete the FAFSA

Deadlines for Private Student Loans

When applying for student loans from a private lender, there isn’t typically a set deadline in place. Still, this doesn’t necessarily mean you want to wait until the last minute, since you’ll need plenty of time before tuition, housing, and other fees are due to secure the funds from your student loan.

Many private student loan lenders can approve your application in a few minutes or less, but it can sometimes take up to two weeks for full approval. That’s why it’s smart to keep your eyes on your school’s payment deadlines and ensure your funds will be disbursed on time.

What Type of Private Student Loan May Be Right for You?

At the end of the day, there are ways to find the right private student loan for your unique circumstances, all it takes is some shopping around.

Considering the following factors can help you determine which type of private student loan makes the most sense for your personal situation:

•   Interest rates and fees

•   Payment flexibility

•   Lender credibility

•   Ability to refinance or release a co-signer

•   Whether the lender sells their loans

•   Repayment benefits

•   Whether the lender is a preferred partner of your college or university of choice (this information is usually found on the school’s website)

Because the rates and terms on a private student loan are determined by the individual lender and are impacted based on the borrower’s personal financial history, finding a private student loan may require a bit of shopping around.

Looking for Private Student Loan Options?

If you’re looking for a private student loan lender who understands the value of your education and thinks no-fees is a normal part of the application process, consider a private student loan with SoFi.

You can check your rate online and select one of four flexible repayment options on a loan that fits your budget.

The Takeaway

There are several factors that determine whether you should get a student loan — from what you can afford after factoring in financial alternatives like scholarships, savings, family help, etc. to how comfortably you can live with your student loan payments after graduation.

Generally speaking, it’s wise to apply for federal student loans first and turn to private student loans once you’ve exhausted other alternatives. This is because private student loans are not required to follow the same rules as federal student loans, and may lack benefits like income-driven repayment plans or the option to apply for Public Service Loan Forgiveness.

Private student loans are offered by private lenders like banks or credit unions to help people pay for college. You can apply for a private student loan by shopping around and comparing interest rates, fees, repayment options, and other features on the lenders’ websites.

The deadlines for federal student loans are based on the college you plan to attend, the federal FAFSA deadline for the academic year you’re applying and your state’s FAFSA deadline.

Find out more about using a private student loan from SoFi to help pay for college.

Photo credit: iStock/insta_photos


SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Source: sofi.com

2 Clever Ways to Gift Your Home to Your Kids

Transferring a home to adult children is not quite as easy as giving them the keys and letting them move in. No matter how you do it, the taxman wants his cut, whether through estate and gift taxes or those for property and income, both federal and state.

The most common way to transfer a property is for the kids to inherit it when the parent dies. Some parents will also make an outright gift of the home to their child, who can incur higher property taxes in states that treat the gift as a sale. It’s also possible to finance the child’s purchase of the home or sell the property at a discount, known as a bargain sale.

These last two options might seem like a nice solution, as many adult children struggle to buy a home at today’s soaring prices, but crunch the numbers with an accountant or financial adviser first. These transactions can get complicated fast, says Lawrence Pon, an enrolled agent and a certified public accountant in Redwood City, Calif.

Here’s how they work.

1 of 2

Bargain Sale

A person does some calculations on a calculator. A person does some calculations on a calculator.

If you sell your home to your child for less than what it’s worth, the IRS considers the difference between the fair market value and the sale price a gift. For example, if you sell a $1 million house to your child for $600,000, that $400,000 discount is deemed a gift. You won’t owe federal gift tax on the $400,000 unless your total lifetime gifts exceed the federal estate and gift tax exemption of $11.7 million in 2021, but you must still file a federal gift tax return on IRS Form 709.

Sounds simple, right? Not exactly. Now, using the same example, consider the federal income tax consequences. Let’s say the parents are married, bought the home years ago and have a $200,000 tax basis in it. When they sell the house at a bargain price to the child, the tax basis gets split proportionately. In this example, 40% of the basis ($80,000) is allocated to the gift and 60% ($120,000) to the sale. To determine the gain or loss from the sale, the sale-allocated tax basis is subtracted from the sale proceeds.

In this example, the parent’s $480,000 gain ($600,000 minus $120,000) is nontaxable because of the home sale exclusion. Homeowners who owned and used their principal residence for at least two of the five years before the sale can exclude up to $250,000 of the gain ($500,000 if married) from their income. Pon suggests maximizing the tax benefit of this exclusion.

The child isn’t taxed on the gift portion, but unlike inherited property, gifted property doesn’t get a stepped-up tax basis. In a bargain sale, the child gets a lower tax basis in the home, in this case $680,000 ($600,000 plus $80,000). If the child were to buy the home at its full $1 million value, the child’s tax basis would be $1 million.

2 of 2

Parent Financing

A picture of a loan application.A picture of a loan application.

You might also want to consider combining your bargain sale with a loan to your child by issuing an installment note for the sale portion. This helps a child who can’t otherwise get third-party financing. It also lets parents charge lower interest rates than a lender while generating some monthly income.

At today’s low interest rates, parent financing is even more advantageous, says Pon. Make sure the note is written, signed by the parents and child, includes the amounts and dates of monthly payments along with a maturity date, and charges an interest rate that equals or exceeds the IRS’s set interest rate for the month in which the loan is made. That rate was recently 1.85% for long-term loans made in November. It’s worth going through the legal steps of securing the note with the home so that your child can deduct interest payments made to you on Schedule A of Form 1040. Of course, you’ll have to pay tax on the interest income you receive from your child.

To sweeten the deal further, consider making annual gifts by taking advantage of your annual $15,000 per person gift tax exclusion. If you do this, keep the gifts to your child separate from the note payments you receive. As long as you stick to the annual per-person limit, you won’t have to file a gift tax return for these gifts.

Source: kiplinger.com

9 Top Stories From 2021 to Help You Save Money on Auto Expenses

Rising prices didn’t make car buying favorable to consumers in 2021. But when you need a new set of wheels, you need a new set of wheels.
Before buying a new set of wheels, ask yourself these seven questions to determine how much car you can afford. Use the embedded car loan calculator to understand what your monthly costs will be.
These 20 tips will help you save money when fueling up your vehicle.
For many people, the worst part of the car-buying experience is trying to haggle with the salesperson for a better price. Negotiating is an art not everyone has mastered.

9 Ways to Save Money on Auto Expenses

You can reduce the amount of money you spend on gas by being selective about where you fill up, how you pay and when you go to the gas station. How you drive and the condition of your car can even impact how much you spend on gas.

1. Learn to Buy a Car Without Haggling

Get the Penny Hoarder Daily
This article shares 11 tips on how to negotiate a car lease so you don’t walk off the car lot with regrets.

2. Decide Whether Buying or Leasing Is Best for You

Ready to stop worrying about money?
Still, we’ve also come away from this year learning how to better navigate these expenses. Here are our top stories from 2021 to help drivers save money on auto expenses.

3. Negotiate the Best Deal on Your Car Lease

We also saw gas prices rise and rental car rates soar.
Used cars are less expensive than buying the latest model, but there’s always the worry that you’ll purchase a lemon.

4. Know How to Buy a Used Car Without Getting Ripped Off

However, there are other approaches you can take at the dealership that can still score you sweet savings. A former car sales manager explains how to buy a car without haggling in this article.
This article compares six gas rewards programs from popular chains and shares how each one works to save you money.

5. Determine How Much You Can Afford to Spend on a Car

Enjoy your vacation without stressing out about all the extra costs. Instead of booking an expensive rental car when you’re away from home, there are other alternatives.
Source: thepennyhoarder.com

6. Make a Budget for Maintenance and Repairs

Just because you may only have your leased vehicle for a couple of years doesn’t mean you shouldn’t fight for the best deal you can get.
Take these tips with you into the new year.

7. Consider Alternatives to Pricey Rental Cars

If you’re interested in buying a used vehicle, heed these seven tips to make sure you’re getting a good car at the best price.
Your monthly car payment may be your biggest auto-related expense, but it’s not the only thing you should be budgeting for. All vehicles require regular maintenance, and you also need to prepare for future repairs as your vehicle ages.

8. Use These Tips to Save Money on Gas

You’ve likely felt the financial pinch.
Nicole Dow is a senior writer at The Penny Hoarder.

9. Sign Up for One of These Fuel Rewards Programs

This article explains how much to budget for car maintenance and repairs so you’re not caught off-guard when these expenses pop up.
Cars are a big expense. The last thing you want is to lock yourself into a monthly payment you can’t afford.
In 2021, the costs of new and used cars increased due to computer chip shortages, low inventory and increased demand. <!–

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This post shares six ways to get around on vacation without needing to rent a car.