With Student Loan Payments Set to Return, Here’s How to Get Help

For 42.9 million student loan borrowers, it’s been 18 months without a payment. That ends in October — ready or not.

The interest-free federal student loan payment pause, known as a forbearance, was extended three times after it initially went into effect in March 2020 as a way to help reduce the financial blow many borrowers experienced as a result of the pandemic.

But with payments set to resume in a few months, servicers — the companies that manage student loan payments — are already fielding thousands of calls a day from borrowers seeking student loan help, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance, a nonprofit trade organization for student loan servicers.

Time is running out for both servicers and loan borrowers to prepare for repayment.

While Education Secretary Miguel Cardona has indicated it’s not “out of the question” to extend the loan forbearance beyond Sept. 30, for now borrowers should be prepared for bills to come due sometime in October (they’re supposed to be notified at least 21 days prior to their exact billing date).

Talk with your servicer now

Servicers are expecting borrower demand for help to increase and may have trouble keeping up. The repayment system has never been turned off before, so no one is sure what restarting it simultaneously for 42.9 million people will look like.

“We don’t have any guidance from the department [of Education] about what a resumption strategy would look like,” says Buchanan. “We are in the time frame where those plans need to be communicated; it cannot wait.”

Richard Cordray, the newly appointed head of the Education Department’s federal student aid office, told The Washington Post for a story on June 11 that restarting payments was “a very complex situation” and said the office planned to provide more information to servicers soon. He also said the department planned to hold the servicers accountable by setting rigorous performance benchmarks.

Despite the uncertainty, if you’re worried about your ability to make payments, there’s no downside to contacting your servicer now to beat the rush, says Buchanan. Ask about your best options to manage payments, depending on your situation.

If you’re not sure who your servicer is, log in to your My Federal Student Aid account to find out. To ensure you don’t miss any notifications, check that your contact information is up to date on your loan servicer’s website and in your StudentAid.gov profile.

Know your repayment options

“Your options are not ‘pay or default,’” says Megan Coval, vice president of policy and federal relations at the National Association of Student Financial Aid Administrators. “There are options in between for lowering payments. Nobody, including the federal government, wants to see you go into default.”

Default happens after roughly nine months of late federal loan payments. It can result in a damaged credit score, wage garnishment, withheld tax refunds and other financial burdens.

  • If payments will be a hardship: Enrolling in an income-driven repayment plan sets payments at a portion of your income, which could be $0 if you’re out of work or underemployed. Or you could opt to pause payments (with interest collecting) using an unemployment deferment or forbearance.
  • If you were delinquent before the pause: Your loans will be reset into “good standing.” Making monthly payments on time will help you retain that status. But if you think you might miss a payment or you don’t think you can afford payments altogether, contact your servicer about enrolling in an income-driven plan.
  • If you were in default before the pause: Contact your loan holder or the education department’s default resolution group to find out how to enter into loan rehabilitation and get back into good standing.

Find a legit resource

Servicers may be your first point of contact, but they don’t have to be your last. You may have other needs your servicer isn’t providing, such as financial difficulty beyond your student loans or legal advice.

Cash-strapped borrowers can find legitimate student loan help for free with organizations such as The Institute of Student Loan Advisors. Other student loan help, such as a credit counselor or a lawyer, will charge fees. You can find reputable credit counselors through organizations such as the National Foundation for Credit Counseling.

Financial planners can also help, but it’s best to look for one with student loan expertise, such as a certified student loan professional.

You can find legal assistance, including advice on debt settlement and pursuing bankruptcy, with lawyers who specialize in student loans or with legal services in your state as listed by the National Consumer Law Center.

If your issue is with your servicer, contact the Federal Student Loan Ombudsman Group, which resolves federal student aid disputes. You can also file a complaint with the Federal Student Aid Feedback Center or the Consumer Financial Protection Bureau.

Avoid scammers

Legitimate student loan help organizations won’t seek you out with offers of debt resolution through unsolicited texts, emails or phone calls. Most importantly, you don’t have to pay anyone to apply to consolidate your debt, enter into an income-driven repayment plan or apply for Public Service Loan Forgiveness.

“The hard and fast rule is that applying for [consolidation and repayment] programs is free,” says Kyra Taylor, staff attorney focusing on student loans at the National Consumer Law Center. “I think when people realize what they can do for free, it makes it easier for them to spot scams.”

And don’t fall for any company that promises to forgive your student loans or wait for the government to do so — thus far, no executive action from President Joe Biden or legislation from Congress has come to pass.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

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5 Pandemic Credit Card Habits to Carry Forward

The coronavirus pandemic’s impact on consumer finances has led many Americans to rethink their money habits. For example, according to NerdWallet’s annual Consumer Credit Card Report, 19% of credit cardholders say card issuers cut their credit limits during the pandemic — and almost all of those people (93%) say their financial views or strategies changed because of it.

The vaccine rollout is allowing people to move away from their pandemic routines, but that doesn’t have to mean returning to pre-pandemic habits. Some money lessons are worth holding on to. Here are five credit card habits to consider keeping even as the masks start to come off.

1. Building or maintaining a dedicated emergency fund

At first glance, this may not seem like a credit card habit, but consider: Of the millions of Americans who saw their credit limits get cut during the pandemic, a quarter of them (25%) say they weren’t able to cover an emergency that came up during that time because of it. Credit card issuers can reduce your limits for any reason — even if you didn’t do anything “wrong” — so available credit isn’t a reliable substitute for savings.

Experts recommend that you have an emergency fund with enough money to cover three to six months’ worth of expenses. But even a starter fund of $500 or $1,000 can make a difference. If you’re just beginning, aim to establish a starter emergency fund quickly — perhaps by cutting back expenses for a few months or making minimum payments on outstanding debts — and then set up automatic contributions toward your ultimate goal.

Emergency funds need to be safe and easily accessible, so it’s best to keep the money in a savings account. Interest rates are at historic lows right now, so even the highest-paying account won’t earn much interest. But the main purpose of an emergency fund isn’t supposed to be its income-producing potential. It’s insurance — a resource to lean on if something urgent comes up.

Keeping cards active so they aren’t closed

One of the most important factors in your credit score is credit utilization, or the percentage of available credit you’re using. A reduced credit limit can translate into higher utilization — and a lower score.

For example, if you have a credit limit of $10,000 and a balance of $3,000, your utilization is 30%. If your limit is suddenly cut in half to $5,000, your utilization jumps to 60%. The lower your utilization, the better for your credit score. That may help explain why 29% of cardholders who experienced a credit card limit decrease say their credit score went down as a result. And while utilization has no “memory” — the damage to your score lasts only as long as utilization remains high — the effect can keep you from accessing new credit right when you need it most.

Utilization is measured both on a per-card basis and across all your accounts, so having a card account closed for inactivity can have a big impact on utilization, too. All the available credit in that account disappears, which means existing balances make up a bigger percentage of your total credit limit. One way to mitigate this risk is by making sure your existing credit card accounts remain open. If you don’t use a card for a long time, the issuer may close the account without notice. Use the card once a month to keep it active — perhaps by putting a small recurring expense on it, like a subscription.

Keeping utilization down

Speaking of credit utilization, keep it as low as you reasonably can, both for your credit score and in order to more easily withstand financial crises. The survey shows that of cardholders whose credit limits were reduced during the pandemic, 30% plan to make more than one credit card payment per month to keep their balances low. You can also consider other methods of lowering your credit utilization.

There is a potential drawback to this: If issuers choose to decrease limits en masse again, they may cut the limits of those who aren’t using much of their available credit. Still, keeping a low balance is good for your credit score, and if you’re carrying a balance from month to month, it also means you’re paying less in interest. Paired with an emergency fund, it’s likely worth the risk of a potential future limit decrease.

Balancing debt payoff and saving

Of Americans who experienced reduced credit limits during the pandemic, 27% decided to pay down their balances sooner than they originally planned because of it. Accelerating your debt payments can save you a lot of money: U.S. households that carry credit card debt pay more than $1,000 a year in credit card interest, according to NerdWallet’s annual household debt study.

That said, aggressively paying down debt shouldn’t take complete precedence over saving for emergencies. You don’t necessarily need to hit your emergency fund goal of three to six months of expenses before attacking debt — particularly high-interest debt — but aim to have some cash on hand before prioritizing your card balances. Money in an emergency fund is money you don’t have to try to borrow if disaster strikes.

5. Knowing your relief options, and their potential downsides

As incomes were disrupted during the pandemic, many cardholders enrolled in hardship assistance programs offered by their issuers. These programs can provide temporary help like reduced or deferred payments, waived late fees or reduced or waived interest payments. Most of those who tried to enroll in hardship programs at the beginning of the pandemic were accepted, according to last year’s Consumer Credit Card Report, but a large majority of them faced some sort of consequence for doing so, including reduced credit limits.

This doesn’t mean that you shouldn’t ask for help if you need it. But it’s important to go into a hardship program knowing the risks, in order to evaluate your other options in comparison. If you don’t have a better option, absolutely reach out to your issuer for assistance. But if you can tap your savings or ask a family member for help, you can avoid the pitfalls that commonly accompany hardship programs.

Erin El Issa writes for NerdWallet. Email: erin@nerdwallet.com.


Trial, Error and What I Learned About Money in My 20s

Your 20s are a time of self-exploration, finding your footing as an adult — and likely making some money mistakes.

To save you from learning the hard way — and pass on some knowledge as I enter my 30s — here are five money lessons from my past decade.

Get serious about goals

For several years, my main financial goal was to go out as much as I wanted and still have enough money left at the end of the month to cover rent.

Eventually, though, groggy mornings and paltry savings proved unfulfilling. My partner and I decided to set goals and plan for them. We wanted to buy a house, which meant moving to a less expensive city so we could build savings.

Tip: Know your passions to know your goals.

Sacramento, California, certified financial planner Pam Rodriguez suggests identifying what brings you joy, then crafting a financial plan to create more of those moments.

“Personal finance is a lot more emotional than it is a math equation,” Rodriguez says. “Even though the numbers have to add up, you’ll never take action unless you feel strongly about something.”

If you want to buy a house to host friends and family, for example, identify how much you’ll need for a down payment and closing costs, then work toward that savings goal over time.

Figure out a budgeting system

For most of my 20s, my budgeting system was defined by the lack thereof. Eventually, I sucked it up and started tracking my spending. At first, I felt that I was slacking if I didn’t document where every penny went. But I quickly realized that keeping a simple budget was more my style.

Tip: Choose a budgeting system that reflects who you are.

If you’re a hyper-analytical person, a detailed budgeting spreadsheet might suit you. But if you’re more hands-off, a budgeting app might do the trick.

No matter how you budget, it’s important to at least understand the money coming in and going out monthly.

“When people see their spending, they have an aha moment, because they didn’t realize where their money was going,” says Sidney Divine, an Atlanta certified financial planner.

Learn from mistakes

Did you know that if you work a contract gig and don’t put aside enough cash to cover taxes, you may be left making monthly payments to the IRS for years to come? In my early 20s, I learned this the hard way.

Tip: Locate the source of a problem and find a solution.

In my case, the problem was that I ignored my finances and didn’t think about tax obligations. I resolved the issue by proactively managing my budget and paying off my tax debt. Getting a new job that wasn’t a 1099 gig helped, too.

“You’ve got to figure out: Is it the same mistake you’re making over and over? Is it a pattern?” says Christine Papelian, a certified financial planner in Phoenix. “If it’s a new mistake, then now you have an opportunity to get back on track. It’s almost never too late to change a behavior or a habit.”

If you have a habit of making late payments, for example, think about setting up automatic bill pay so you don’t have to worry about tracking various due dates.

Build financial fortitude

The past year has been a crash course in instability. And while recent crises were unusually severe, you can count on unexpected financial challenges to pop up throughout life. For instance, a broken alternator on my car once drained my emergency fund, but at least I was able to avoid going into debt to cover the expense.

Tip: Make savings mandatory.

“Focus on building an emergency fund,” Rodriguez says. “Everyone needs one because everyone is going to have an emergency come up.”

Consider using direct deposit to send part of each paycheck into an emergency savings account or setting up automatic transfers from a checking account to savings.

Take advantage of that long time horizon

Youth may be wasted on the young, and so is their financial time horizon — at least for those who don’t seize it.

Despite the various mistakes I made in my 20s, saving for retirement is one area that I didn’t neglect. Once I saw the power of compound interest via a retirement calculator, I quickly set up regular contributions to my 401(k).

Tip: Use these years to boost retirement savings.

One way or another, your 20s will have ripple effects on your retirement years. And life may get more complicated later, especially if you buy a house and start a family, making it harder to save for retirement. Tucking away more cash now can save you from playing catch-up in later years.

This article was written by NerdWallet and was originally published by The Associated Press. 

What Would It Take to Solve the Student Debt Crisis?

The possibility of federal student loan forgiveness grabs all the headlines. But experts say no single policy — not even wiping the slate clean for millions of borrowers — solves the root causes of the nation’s $1.74 trillion student loan debt crisis.

That debt has been fueled by decades of wages not keeping up with the rising cost of college. And unless wages increase and college costs decrease, students will still need to take on debt to complete degrees, and they’ll face greater difficulty repaying loans.

“There are no $1.7 trillion silver bullets,” says Seth Frotman, executive director of the Student Borrower Protection Center, a nonprofit advocacy organization.

So what could work? It’ll take more than a headline-grabbing wipeout of student debt.

Frotman says, in addition to canceling debt, he would prioritize efforts to make college more affordable and to reform the borrowing and repayment systems. Michele Streeter, senior policy analyst at The Institute for College Access and Success, says student loans remain an important college access tool for students, but forgiveness and repayment programs should be easier to access and automated whenever possible.

As a new crop of students gets ready to borrow for college and multiple generations of borrowers grapple with debt, experts weigh in on possible solutions.

Forgive student loan debt

Broad forgiveness — around $10,000, for example — could help the most vulnerable borrowers: those who never graduated and lack the bigger paychecks that typically come with a degree to pay off the debt they acquired along the way.

Experts diverge on whether there should be broad forgiveness. But if it does happen, they agree future debt accumulation must be addressed.

“Until somebody can come up with a proposal for what happens on day two and everyone starts borrowing again, that will be one major hurdle to any level of forgiveness,” says Carlo Salerno, vice president for research at CampusLogic, a developer of college financial aid management tools.

Streamline existing forgiveness programs

There’s too much red tape inherent to existing forgiveness programs, experts say. Salerno calls it a “bureaucracy and paperwork crisis.”

These programs have low rates of acceptance: As of November 2020, 6,493 Public Service Loan Forgiveness applications, or 2.2%, were approved, and so far just 32 borrowers total have received income-driven repayment forgiveness (though most won’t be eligible until 2035).

Democrats in Congress have suggested making all federal student loans and repayment plans eligible for PSLF, waiving restrictions for forgiveness and automatically qualifying borrowers.

Cut or lower interest rates

Federal student loan borrowers haven’t had to make payments since March 13, 2020, and they won’t again until Oct. 1. During this pause, zero interest is accruing. That means loans won’t grow and, if you can afford to make payments, you can pay off your debt faster.

Making zero interest permanent or lowering interest on existing debt could help borrowers pay off their debt without growing the principal, says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

Many borrowers Mayotte hears from say their biggest gripe is growing interest.

“They say, ‘I feel like I should pay (my loans) back, but I don’t feel like I’m on a level playing field because of the interest,’” Mayotte says.

Condense income-driven repayment

Income-driven repayment plans, federal options that set student loan payments at a portion of a borrower’s income, are a strong safety net. But experts say the four income-driven options — in addition to the three other federal repayment plans — should be streamlined into one new program. Some suggest automating enrollment.

“There’s no rhyme or reason for the variety of programs that exist in this space other than they were developed over time,” says Beth Akers, resident scholar at the American Enterprise Institute, a conservative public policy think tank, where she focuses on the economics of higher education. “We need to simplify the safety net for students and make it so simple that they can understand it exists and what benefits it can provide for them.”

Wesley Whistle, senior advisor for policy and strategy at New America, a left-of-center public policy think tank, says automatic enrollment into an IDR plan could benefit delinquent or defaulted borrowers, but is concerned about auto-enrolling students right out of college and its effect on their ability to repay the principal. For many, payments may not even cover interest.

“Even working full time at a minimum wage job, you’re not making enough to knock into your principal,” says Whistle, who specializes in higher education policy. That could leave borrowers still paying student loans 20-25 years into the future.

Make college tuition-free

Tuition-free college at the associate’s degree level, as President Joe Biden has proposed, could particularly benefit low-income students who otherwise wouldn’t attend college and could reduce overall borrowing. College affordability advocates are calling for tuition-free four-year programs as well.

However, experts agree tuition-free programs will still require borrowers to take on debt to cover living expenses — on or off campus.

“I don’t think it’s a terrible idea, but I don’t think it’s a game changer,” Akers says, adding she thinks expanding existing Pell Grant programs could have a stronger effect on affordability.

Expand Pell Grants

Pell Grants originally covered around 80% of college costs, but today they cover less than 28%, according to The Institute for College Access and Success.

Lawmakers and experts say Pell Grants, targeted to low-income students, should be doubled from their current maximum of $6,495 to better meet the cost of college for students with financial need.

“The program is super well-targeted,” says Streeter of TICAS. “Even if you were to double the maximum grant, that targeting is still in place, and I think that’s why it is so popular and has a lot of bipartisan support.”

Advocates also argue eligibility should extend up the income ladder to include students in middle-income brackets who still need financial aid.

This article was written by NerdWallet and was originally published by The Associated Press. 

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

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Federal Student Loan Interest Rates to Increase July 1

Federal student loans will be more expensive for 2021-22 school year. Even so, borrowers will still see some of the lowest student loan interest rates of the past decade.

Interest rates for new undergraduate federal student loans will rise from 2.75% to 3.73% for 2021-22. The interest rates for undergraduate, graduate and PLUS loans are determined by results of the U.S. Treasury Department’s May auction of 10-year notes, according to New America, a public policy think tank. The Treasury sells 10-year notes to raise money.

PLUS loans, or direct Parent Loans for Undergraduate Students, are federal student loans that parents can receive to help pay for college. Graduate students can also receive PLUS loans.

Interest rates for the 10-year notes plunged last year when investors aggressively sought the safety of federal debt as the coronavirus pandemic unfolded. As a result, federal student loan interest rates fell to a historic low in 2020.

Since late last year, investors have moved their money away from federal debt, pushing interest rates back up, according to the Financial Times.

The federal student loan interest rate is set by adding the interest rate on the May 10-year note, 1.68%, to margins set by Congress. Lawmakers vote on the margins each year and while these haven’t yet been set for 2021-22, the margins aren’t expected to change from last year.

For undergraduate student loans, 2.05 percentage points will be added to the interest rate. For other loans, 3.6 points will be added for graduate student loans and 4.6 points to PLUS loans. Here are the higher rates for each type of federal student loan:

  • Undergraduate direct loans: 3.73%.
  • Graduate direct loans: 5.28%.
  • PLUS loans: 6.28%.

Although interest rates for student loans are increasing, rates are low compared with the last decade, when rates reached as high as 5.05% for undergraduate students in 2018-19.

Interest rates for federal student loans are fixed through the duration of the loan, so loans taken out before July 1 will still have this academic year’s 2.75% interest rate. Currently, under the first COVID-19 relief bill, federal student loan interest rates are at 0% and are in forbearance until October 2021.

Impact of the rise in interest rates

Borrowing $5,500 in federal loans for 2021-22 — the maximum loan amount for dependent first-year undergraduate students — for a standard 10-year term will cost $1,098 in interest with monthly payments of $55. That is $3 more a month and $301 more in total interest compared with the same loan taken out at this year’s rates.

The increase in interest rates will have a bigger impact on borrowers who take out PLUS loans given the higher interest rates on such loans. There are also no specific limits on the amount of a loan; rather, it is determined by the school’s cost of attendance.

If a parent borrows around the average for a PLUS loan, or $16,500, for a 10-year term at next year’s rate of 6.28%, the cost would be $186 a month and $5,762 in total interest. That’s $9 more a month and $969 more in total interest for the same loan this year.

Federal vs. private student loans

While federal student loan interest rates will increase next year, borrowers should still pursue and exhaust federal loans before turning to private lenders. Unlike private student loans, federal student loans don’t require co-signers and all borrowers receive the same interest rate.

Interest rates on private student loans are typically higher than those on federal loans and depend on a borrower’s credit history and term length. Private student loans aren’t included in any student loan forgiveness programs and are excluded from the current pause on federal student loan payments.

But students shouldn’t turn to loans until after they’ve filled out the Free Application for Federal Student Aid — the FAFSA — and heard back from their college about scholarships, grants and other aid that doesn’t need to be repaid.

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Should You Become Your Own Boss?

Maybe you’re cringing at the thought of going back to an office. The seed of a business idea floats around in your head between work videoconference calls, after the kids are asleep or while you tend your pandemic garden. Or perhaps you were laid off during the pandemic and forced to work for yourself, and now you’re wondering if you should continue down this path.

“In 2020, there was an explosion in new business applications, reaching nearly 4.5 million by year’s end,” according to a February report by the Economic Innovation Group, a Washington, D.C., think tank. That’s an increase of 24.3% from 2019 and was the highest on record — 51% higher than the average from 2010 to 2019.

“COVID-19 was a social, cultural and emotional shock the likes of which we have not experienced for generations. Becoming an entrepreneur is a deeply personal decision, and the pandemic may have delivered the push for many to embrace it,” the report said.

Deciding if self-employment is right for you depends on your personality, your financial situation and your ability to adapt. Here are tips from people who became their own bosses.

See if you’re right for the job

Many of us now appreciate the flexibility of working from home. As a freelancer or independent contractor, you would have the power to set your own schedule.

“Being in charge is very, very attractive to many people,” says Keith Hall, president and CEO of the National Association for the Self-Employed, or NASE, a resource and advocacy group. “The other side of that coin is that when you are in charge of your own destiny, you are also responsible for it.”

Evaluate your abilities as a prospective employer.

“Freelancers need to be self-motivated, work well independently, be organized, learn how to market their services well and be comfortable with a certain level of uncertainty,” CEO Sara Sutton said by email. She runs two companies focused on remote and flexible job opportunities:  FlexJobs, a job search site, and Remote.co, which provides resources for companies considering remote work.

Hall suggests asking yourself if you have the motivation to be in charge of your own destiny. “If you wake up Monday morning and decide to stay in bed late, that’s a financial loss. Nobody is going to be standing over you making you get out of your bed.”

Make a plan that fits your finances

Before deciding whether to freelance, become a consultant or turn your side hustle into a business, take a close look at your finances.

Many cobbled together a budget during the pandemic. Revisit that plan to make sure you understand your hard costs, such as food, rent and day care. (The 50/30/20 approach is a quick way to divide your dollars into three buckets: needs, wants and savings.)

Isolate what you can put toward a business. Small costs like purchasing a domain name, buying the premium version of a software or membership fees for a networking group can add up.

Use your budget to set short- and long-term business goals, Hall says. “Know exactly what you need to earn to meet your family goals and translate that into a time schedule.”

Evaluate your timing

You may need to keep your day job for a while, but you can still build your business muscle.

“Being an entrepreneur was never a goal for me,” says Afenya Montgomery, founder and CEO of iCAN Collective, a creative workspace and event venue for women entrepreneurs of color in Chicago. Montgomery, a registered nurse and health care administrator, started health care consulting on the side. Her hunt for resources and support inspired the idea of building a community for women entrepreneurs of color.

Montgomery and her husband were raising three children and had no business experience, so leaving her day job wasn’t an option. She spent four years learning the ropes of entrepreneurship before she felt confident enough to quit.

She hosted networking events, opened a business bank account and finally registered her business as a limited liability company. Taking small steps can make the process less overwhelming, she says.

Seek support

Between strategies, goals and budgets, the thought of working for yourself might seem daunting, but entrepreneurs say you don’t have to do it alone.

Laura Licursi, founder of Elite Virtual Assistants, an agency that connects employers with remote assistants, says the pandemic was surprisingly hard on her online-only business as clients cut back. Licursi, who works from the Cleveland area, navigated through the uncertainty with a mentor from SCORE, a network of volunteer business mentors that partners with the Small Business Administration.

“My mentor helped me work through the inner workings of the business when things were slow, which really helped when business picked up again,” she says.

Entrepreneurs have more resources available than they realize, Hall says:

  • The SBA provides local resources to support aspiring entrepreneurs.
  • The NASE offers a business development grant program for members.
  • SCORE has mentorship resources, webinars and other online resources.
  • The IRS website has information on the tax implications of self-employment.

This column was provided to The Associated Press by the personal finance website NerdWallet.

Amrita Jayakumar writes for NerdWallet. Email: ajayakumar@nerdwallet.com. Twitter: @ajbombay.

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6 Reasons Not to Skip Renters Insurance

Could you afford to replace your entire wardrobe if your apartment caught fire? What about your phone, your laptop and all your furniture? If the answer is no, you probably need renters insurance.

“Renters insurance can’t stop awful things from occurring, but it can make life a little easier if and when they do occur,” Yael Wissner-Levy, vice president of communications at the insurance company Lemonade, said by email.

And the coverage may cost less than you expect — in fact, some tenants could pay next to nothing. Find out why you may want renters insurance and how affordable it can be.

1. Your landlord’s insurance won’t cover you

Some landlords require their tenants to have renters insurance, but if yours doesn’t, it’s not because they’ve got you covered. “Many renters [believe] that, since their landlord has insurance, it covers damage to their property. This is not the case,” Wissner-Levy said.

Landlord insurance covers the structure of the building but not tenants’ personal belongings. If your TV is stolen or your dishes are lost in a kitchen fire, your landlord’s insurance won’t pay to replace them — but a renters policy probably will.

A landlord’s policy is also unlikely to help if you accidentally damage a neighboring apartment. “If you [let] your bathtub or sink flood out the apartment below you, the landlord’s not going to cover that,” says Jeff Schneider, president of Gotham Brokerage Co. in New York City. “You can be sued for … causing damage to the apartment below you.”

A standard renters insurance policy includes liability coverage starting at $100,000, which can pay damages and legal expenses if you’re sued for accidentally injuring someone else or damaging their property.

2. You probably own more than you think

“[One] reason why people avoid renter’s insurance is the thought, ‘I don’t have anything valuable worth protecting,’” Wissner-Levy said. But you might be surprised.

Brandon Okita, vice president at FIA Insurance Services in Torrance, California, advises opening each drawer and closet in your home to take an inventory of your belongings. Once you start tallying up the value of each item — electronics, jackets, shoes and so forth — you’ll probably find that it would cost a lot more than you expected to replace everything.

3. Renters insurance can pay for housing after a disaster

“Most policies provide what’s called a ‘loss of use’ or ‘additional living expense’ benefit,” Schneider says. “It pays you if you are forced out of your apartment by a major claim — usually fire or extensive water damage — and you have to stay in a hotel.”

Loss of use coverage can also pay for restaurant meals or other expenses associated with living away from home while it’s being repaired.

4. It can protect your finances

Maybe you’re saving for a down payment on a house, or you’ve worked hard to get out of debt and build an emergency fund. The last thing you need is a lawsuit wiping out everything you have.

“Let’s say you go golfing … [and] you hit someone in the head and they turn around and sue you,” Okita says. If a court deems you responsible, your renters liability insurance will typically cover costs up to the limit you’ve purchased, even if the incident takes place away from home.

This coverage can also come in handy if your dog bites someone at the park, your child breaks a valuable heirloom at a friend’s house or a guest slips and falls inside your apartment.

5. It covers belongings away from home

Many renters policies provide some coverage for your stuff even when it’s not at home. “If your laptop was swiped at the neighborhood cafe, or your phone stolen on the subway, your policy could cover you,” Wissner-Levy said. (Keep in mind that it would make sense to file a claim only if the lost item were worth more than your deductible.)

You may also have coverage for items in a storage unit, Okita says.

6. The cost may be less than you expect

One common reason to avoid renters insurance is the cost. “A lot of people are not looking for added expenses these days,” Schneider says.

The average cost of renters insurance is $168 a year, or about $14 a month, according to NerdWallet’s rate analysis. But if you have a car, you could pay less by bundling your renters policy with your auto insurance, thanks to multipolicy discounts offered by many carriers.

For example, Okita notes, a 5% bundling discount on a $3,000 auto policy would be $150, which would nearly pay for the average renters policy premium.

You may also be eligible for discounts if your apartment has smoke detectors, burglar alarms or other safety and security devices.

If the worst happens, you’ll likely be glad you paid for the coverage. “Renters insurance is the best defense against things in life you have no control over,” Wissner-Levy said. “Once covered, most people see the benefits.”

Sarah Schlichter writes for NerdWallet. Email: sschlichter@nerdwallet.com.

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Smart Tactics for Millennials Flocking to Buy Life Insurance

Life insurance applications for Americans have jumped in 2020 as the COVID-19 pandemic has made us more aware of our own mortality.

No one has been more interested in their own life insurance gaps than the under-45 crowd. Application activity has grown almost twice as fast this year for Americans 44 and younger as for those 45-59, according to research through September from MIB Group, a data-sharing service for insurance companies.

Younger buyers are often first-time applicants, digging into the details to understand how life insurance works. If you’re looking for a policy, here’s how to ease your way through the application process and get the most out of your new coverage.

Plan for tomorrow, not today

Many young Americans are still near the beginning of their financial journeys. Jobs, homes, cities and relationships will likely change over the next decade, which means needs and dependencies may change too.

“The question of who needs life insurance is very personal, but an easy way to know if you need life insurance is to consider if someone would suffer financially if you were to pass away,” Faisa Stafford, president and CEO of industry group Life Happens, said in an email. “If the answer is yes, then you should consider life insurance.”

She recommends focusing on two main issues: replacing your income and repaying your debts if you die. That means thinking ahead to cover your growing financial commitments as your life changes.

For example, a new homeowner can skip mortgage protection insurance, which pays off your loan if you die, and choose a term life policy instead, suggests Roslyn Lash, a financial educator in North Carolina and author of “The 7 Fruits of Budgeting.” Your mortgage debt will shrink over time, but your life insurance benefit stays the same — so if you die, some of the money could be used for other priorities, such as sending a child to college.

Skip the medical exam while you can

Life insurance applications are notoriously frustrating. You might expect to fill out forms, explain medications and take a life insurance medical exam just to find out if you’re approved.

While this process is still out there, simpler options are now available. “The use of e-signature, no blood or urine tests, and online applications all have made life insurance more accessible to more people,” Stafford said.

In a growing practice called “accelerated underwriting,” many insurers now rely on your prescription drug use, data about you from MIB Group and electronic health records to speed the process, according to the Society of Actuaries.

Accelerated applications can cut approval times down from weeks to hours, according to the National Association of Insurance Commissioners, with no medical exam required. Young buyers are often the most likely to be approved, and there’s almost no downside. Most insurers will simply have you take a medical exam if you aren’t approved without one.

Don’t assume life insurance is expensive

Buying now rather than later can help you save money on life insurance, which makes sense: The older you get, the more risk you pose to your life insurance company. The result is that a policy for a 25-year-old is likely to be much less expensive than the same coverage for a 45-year-old.

Many millennials may not realize the value of buying life insurance while they’re young and healthy. Research by the life insurance trade group LIMRA shows that half of millennials overestimate the cost of coverage. Only 52% own life insurance, even though 80% recognize they need it, according to LIMRA.

But the 2020 pandemic is providing new motivation. In October, nearly 1 in 3 millennials said they feel an increased need for life insurance due to COVID-19, according to consumer research from LIMRA.

To get started, all you have to figure out is how much you need and for how long you need it. Think about the people who depend on you. How much money would they need to pay off the house? How long would they need to finish school or find a job?

Stafford suggested starting with a general guide to determine your coverage need: 10 times your annual salary. “But since finances are complicated, working with a financial professional can help you figure out how much coverage you need for your own personal situation,” she said.

This article was written by NerdWallet and was originally published by The Associated Press. 

Andrew Marder is a writer at NerdWallet. Email: amarder@nerdwallet.com.

The article Smart Tactics for Millennials Flocking to Buy Life Insurance originally appeared on NerdWallet.

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Financial Vital Signs to Monitor Right Now

A midyear financial review is often a good idea. This year, it’s almost essential.

With people going back to offices, travel resuming and Congress making significant changes to various laws affecting your finances, consider taking some time to check in on your money. You might be able to make some smart moves to reflect the new realities.


See where your money is going now. Using a budgeting app or taking a close look at recent bank and credit card statements can help. Then think about expenses you may face in the near future.

If you’re using your car more, for example, you might already be paying more for gas and insurance, but you also could face higher costs for maintenance or repairs. If you have kids, you might plan for back-to-school costs, sports equipment and activity fees. Vacations, travel, weddings and other celebrations may need to be budgeted for, as well.

It can make sense to trim some costs so you can afford these resurgent expenses. One possibility: Rotate your streaming services and other subscriptions. These may have sustained you during lockdowns, but you could put some on pause now to save money while you continue to enjoy others.

Perhaps you have more income: You’re back to work after being unemployed, or you’re a parent about to get the first of six monthly child tax credit checks from the IRS. (These payments will be up to $300 per eligible child starting July 15). Making a plan for this income can ensure it goes where you want, rather than dribbling away in unplanned purchases.

Debt forbearance

Forbearance on federal student loans is scheduled to end this fall, with monthly payments resuming in October. If those payments would be a hardship, contact your lenders to see if income-driven repayment plans or other measures would help.

If you requested forbearance on your mortgage payment or other debt, that has an expiration date, as well. Debt that’s in forbearance isn’t forgiven, so you’ll typically need to plan to make up the payments you missed. Check with your lender about your options.

Flexible savings accounts

Congress more than doubled how much employees can contribute to flexible spending accounts for child care in 2021. Workers can put in a maximum of $10,500, up from $5,000 in 2020. The limit for health care FSAs remains $2,750.

This year, you’re also allowed to make midyear changes to your contributions to either account, something that normally requires a change in life circumstances such as marriage or having a child.

Your employer must opt in to these changes, but if it has and you can increase your contributions, you could save significantly on taxes.

Frequent traveler programs

Last year airline, hotel and rental car companies softened the rules for their loyalty programs to reflect pandemic travel restrictions. Many extended the expiration deadlines for points, miles and free hotel night certificates. But the pause on expirations won’t last forever. Check your rewards programs and make plans to use your rewards before they disappear.

Similarly, you may have credits from canceled travel that also will expire if you don’t use them. If you can’t use those in time, request an extension.

Health insurance

If you buy your own insurance, you may get a better deal on the Affordable Care Act exchanges now that Congress has expanded the subsidies, reducing costs for most people. If you don’t already have ACA coverage, there’s currently a special enrollment period that ends Aug. 15. If you get unemployment benefits at any point during 2021, you can qualify for a zero-premium comprehensive policy. COBRA coverage to extend an employer health insurance plan is also free from April to September.

Retirement planning

Companies with 401(k)s are now required to let part-time workers contribute if they have worked more than 1,000 hours in one year or 500 hours over three consecutive years. Contact your employer for details.

Congress eliminated the age limit for making contributions to IRAs, so you can contribute past age 70 ½ as long as you have earned income such as wages, salary, commissions or self-employment income. Also, the age that typically triggers required minimum distributions from retirement accounts has been moved from 70 ½ to 72 for people born after June 30, 1949.

If you’re feeling generous, though, the age at which you can start making qualified charitable distributions from an IRA remains 70 ½. These withdrawals won’t be added to your income if the distribution is made directly to a qualified charity.

Liz Weston writes for NerdWallet. Email: lweston@nerdwallet.com. Twitter: @lizweston.

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Why (and How) to Renew Your Passport Now, Even If You’re Not Traveling Soon

Like most Americans, you might not be traveling internationally anytime soon. After all, many countries are still closed to international tourists, making travel impossible. Even if your destination is open, you must show proof of a negative COVID-19 test in order to return to the U.S., which might be a deterrent. Plus, the U.S. vaccination rate is among the highest of any country, so you might simply opt for domestic travel instead — perhaps by renting an RV for a national parks road trip.

Although an international trip is likely still a ways off, you should grab your passport and check when it expires. Now is one of the best times to renew your passport even if it doesn’t expire in 2021.

Why now is the best time to renew your passport

Application processing is slower than normal

The State Department issued a notice earlier this year that passport processing times are now 10 to 12 weeks. It also warned of delays in receiving passport applications due to unprecedented mail volume and other COVID-19 impacts on the Postal Service. Further, it has said that COVID-19 has forced its agencies and centers to offer extremely limited in-person services.

Add that all up, and it’s reasonable to start applying for your passport renewal now — even if it doesn’t expire this year. Since you likely don’t have any upcoming trips overseas anyway, the delayed processing time won’t be detrimental to travel plans.

It may not be valid for some travel — even if it hasn’t expired

Some countries require that passports be valid at least six months beyond the dates of your trip.

That means even if your passport doesn’t expire until 2022, you might not be able to travel internationally in late 2021 if it expires inside six months. In fact, some airlines won’t allow you to board with a passport that is near expiry (and hey, you probably don’t want to fly 20 hours to Dubai only to find the United Arab Emirates won’t let you into the country).

The State Department’s Country Information page provides details on which countries have such requirements.

Expedited processing fees will eat into your vacation budget

If you procrastinate, then not all is lost — except some of your vacation fund. You can pay extra to receive a passport in four to six weeks (rather than the current timeline of 10-12 weeks), but you’ll have to pay an additional $60 for expedited service. And even still, four to six weeks isn’t exactly speedy. Double or triple that cost if you have family members who need that service as well.

You could use a passport to fly domestically too (unless you have Real ID)

Even if you don’t plan to travel internationally anytime in the next few years, a passport could be necessary for domestic travel.

Beginning on Oct. 1, you’ll need Real ID-compliant identification to board domestic flights. Real ID is a state-issued driver’s license or identification card with a star. Alternatively, residents from Washington, Michigan, Minnesota, New York, and Vermont can use their Enhanced Driver’s License for Real ID purposes, according to the Department of Homeland Security. To obtain Real ID-compliant identification, you’ll typically have to visit your state’s driver’s licensing agency.

However, you can avoid a trip to the DMV for a new license by showing other acceptable identification at the airport, such as a passport or passport card. Depending on what your local DMV lines are like, it might be easier to just have a valid passport and use it for all domestic and international travel.

You actually have time and energy to deal with it now

The Centers for Disease Control and Prevention may not heartily recommend traveling right now, but there’s nothing wrong with dreaming about it. Why not complement that anticipation by filling out passport paperwork?

As you trudge through it, let your mind escape to a dreamland full of the sticky toffee pudding you’ll inhale once you finally land in London. In fact, planning a trip is actually good for you. A 2010 study by social scientists in the Netherlands found that simply planning and dreaming up a trip incites as much happiness as actually going on it.

Apply for your passport and soak in the benefits of fantasizing about your trip. When the time comes to actually go on it, you won’t have to worry about the stress of renewing your passport.

How to renew your passport

Renew by mail

In general, the easiest way to renew your passport is by mail. You can do this if all of the following apply:

  1. You have your passport in your possession (and can submit it with your application).
  2. It is undamaged (aside from normal wear and tear).
  3. You received it when you were at least 16 years old.
  4. It was issued within the past 15 years.
  5. It was either issued to your current name or you can submit documentation of your name change.

To apply by mail, you’ll need the following:

  • A filled-out DS-82 form.
  • Your most recent passport.
  • Name change documents (such as a marriage certificate), if applicable.
  • A passport photo taken in the past six months.
  • Payment via personal check or money order to the U.S. Department of State of $110 for a Passport Book, $30 for a Passport Card or $140 for both.

Mail your application and documents to the National Passport Processing Center (addresses and renewal details can be found here).

Renew in person

If one of the above five scenarios doesn’t apply to you, then you’ll need to apply in person. To apply in person, you’ll need the following:

  • A filled-out DS-11 form.
  • Evidence of U.S. citizenship, such as a U.S. birth certificate or Certificate of Naturalization, plus a photocopy of that document.
  • Valid identification, such as a driver’s license or in-state learner’s permit with photo, plus a photocopy of it.
  • A passport photo taken in the past six months.
  • Payment (typically an $110 application fee and a $35 acceptance fee).

You may need to provide additional documents for certain circumstances, such as if you’re younger than 16.

You’ll need to apply at a passport acceptance facility, which are typically post offices or city clerk offices — and most are by appointment only.

If your passport was lost or stolen

Maybe you moved during the pandemic and your passport got lost in the shuffle. Or you tossed it in a box after a year of uncertainty of when you’d ever use it again — and now you can’t fathom finding it.

You’ll need to report your lost or stolen passport to the State Department. From there, you must apply for a replacement passport, and standard fees apply.

If you’re getting a passport for the first time

If you’ve never traveled internationally before, that could change in the coming years. After all, the pandemic has inspired many travelers to cross off their bucket list trips once and for all.

If you’ve always wanted to see the Eiffel Tower and have been holding out for the right moment, apply for your first passport now. You’ll have to apply in person, provide proper documentation and pay the application fee.

Sally French writes for NerdWallet. Email: sfrench@nerdwallet.com. Twitter: @SAFmedia.

The article Why (and How) to Renew Your Passport Now, Even If You’re Not Traveling Soon originally appeared on NerdWallet.

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