Is Buy Now, Pay Later Really Better for Me Than a Credit Card?

For many consumers, the ease and flexibility of spreading payments over a longer period of time makes “buy now, pay later,” or BNPL, plans appealing.

Add in the possibility for lower interest rates, and BNPL is becoming an increasingly popular alternative to using a credit card. According to a 2021 study by C+R Research, 56% of BNPL users surveyed said they prefer using BNPL over credit cards for these and other reasons.

BNPL definitely has advantages over credit cards for some consumers in some situations. But credit cards have advantages in others. Which option makes the most sense for you depends on several factors, including how much you’re spending, how much it will cost to carry the debt and how quickly you can pay it down.

Ask yourself these questions to determine which option, if either, is right for you.

How much can I afford to pay upfront?

Most buy now, pay later options require you to pay a portion of the total purchase upfront, while the rest is broken up into equal installments that are due over a set period of time — usually six weeks. This popular “Pay in 4” model is offered by most of the largest BNPL services, like Afterpay and Klarna.

Having to pay upfront for smaller purchases might not affect your immediate cash flow, but for larger purchases, it can be difficult to manage. For example, if you make a $2,000 purchase with a buy now, pay later loan, you’ll have to pay $500 immediately upfront. And the higher the total amount of your purchase, the steeper the required amount due at checkout will be.

Plus, if you take out multiple such loans at once, you might end up shelling out more cash than you can afford. (Four $1,000 loans around the same time requires $1,000 upfront in total, for instance.) According to a Barclays UK 2021 study, 36% of BNPL users surveyed admitted to using the loans to spend more than they can afford, and an equal number of users said they did not fully understand the ramifications of missing repayments.

Like BNPL loans, credit cards can also help consumers make purchases they don’t have the immediate cash for. But one main differentiator is that when you make a purchase with a credit card, you won’t be required to pay anything upfront. So if you charge a $2,000 purchase on a credit card, that amount will be added to your card balance — a portion of which will be owed at the end of the monthly billing cycle. (More on this below.) Because you don’t have to pay any amount upfront when you make your purchase, paying with a credit card can lessen the initial financial burden of repayment.

How much time do I need to pay off my purchases?

If you make your BNPL payments on time and pay them in full, you won’t incur any interest or late fees. But if you miss your payments, there can be late fees charged and your debt could be sent to collections.

Similar penalties apply for missed credit card payments: Late payments can incur interest and late fees, and can negatively impact your credit score. However, an important distinction between the two financing options is that while you’ll only have a set period of time to pay off a BNPL loan, you can roll debt over on a credit card from month to month.

Credit card considerations

While it’s advisable to pay your balance in full every month to avoid incurring interest, larger purchases on credit cards might necessitate carrying a balance and paying it down monthly. But unlike most buy now, pay later loans, there’s no set time frame within which you’re required to pay off your total purchase. Rather, at the end of each monthly billing cycle, you’ll have a balance, of which you’ll be required to pay a monthly minimum, plus interest. This minimum will vary based on how much you owe and on your interest rate — typically 2% to 4% of your total balance, or a fixed amount anywhere between $25 to $35 if your balance is low.

Remember, however, that when you roll over your credit card balance and don’t pay in full, you’ll be charged interest — which can be high depending on your creditworthiness and how much debt you’re carrying. Plus, failing to pay the minimum monthly payment due can lead to a penalty APR, which is a hiked interest rate, and can also negatively impact your credit.

Note: If your purchase is particularly large and will take some time to pay down, consider a 0% APR credit card. Such options come with promotional periods, typically ranging from 12 to 18 months, during which you won’t be charged any interest. This can potentially be a better option than taking on debt from a buy now, pay later loan. Note, though, that 0% APR cards typically require good to excellent credit scores to apply. And once the interest-free period ends, you’ll be responsible for paying the card’s ongoing interest rate on new purchases, as well as any remaining balance left from the promotional period.

BNPL considerations

With a typical “Pay in 4” buy now, pay later model, borrowers have to pay 25% of the purchase upfront, and then the remaining 75% in three payments over the course of six weeks. Such short repayment periods can not only make it easier to default on the loan, but it also means you’ll have to pay larger sums. A minimum monthly payment on a credit card could make more sense if you can’t afford to shell out a large amount of money at once. For example, a $1,000 purchase on a credit card that you don’t pay in full right away, or roll over, might mean that you’ll pay at least $20 each month, not including your interest rate and assuming it’s the only purchase on your credit card. But a $1,000 purchase with a buy now, pay later loan will cost you $250 per installment. And if you miss one of those required payments, you’ll be penalized.

While some of the most popular “Pay in 4” BNPL services don’t charge interest, there are still varying fees associated with delinquency. Zip (formerly Quadpay) users, for example, are charged a late fee of $5, $7 or $10, depending on which state they live in. And in addition to being temporarily prohibited from using the service, if you miss an Afterpay payment, you’ll be charged a capped late fee starting at $10 and no more than 25% of the initial purchase price.

Additionally, there are longer-term buy now, pay later services that do charge interest, and these rates are often high. For example, Affirm can charge up to 30% APR depending on the store you’re making a purchase from and on your credit score. This is significantly higher than the average APR charged for cards that incur interest.

If you pay your loan off in the allotted six weeks, you’re off the hook and you won’t be charged any interest or fees. But because such short repayment periods can make it easier to default, consider whether you can afford to pay off your purchase within the fixed repayment time before opting for a buy now, pay later option. If you think you’ll need more time, you’re better off making your purchase with a credit card instead.

Note: In February, one of the three major credit bureaus, Equifax, announced that it would be the first to include buy now, pay later repayments on its credit reports. According to Equifax research, inclusion of on-time BNPL payments could increase credit scores. But late payments, on the other hand, could have a negative effect.

Which option am I eligible for?

When you apply for a credit card, the issuer performs a hard pull: It takes a survey of your credit history and scores, which indicates how risky of a borrower you are. When you apply for a BNPL loan, however, there isn’t a hard credit check performed to determine your eligibility to get one, and your score isn’t affected. This makes it easier for those with no credit or poor credit to be approved for a loan.

To this end, if you are unable to qualify for a credit card due to a poor credit score and you have to make a necessary purchase but can’t afford to pay for it in full upfront, BNPL can offer access to flexibility that a credit card might not. But in such cases, it’s important to look for a servicer that charges no interest, like Afterpay and Klarna, and to make a plan for repayment.

Note that because BNPL servicers are not performing hard pulls, it means that applicants are not screened based on their ability to carry or repay a new loan. So even if you are juggling multiple BNPL loans, you’ll usually still have access to opening additional loans. That makes it easier for users to take on more than they can handle and can lead to a cycle of debt.

It’s important to survey your finances before opting for a loan. And if you’re already carrying multiple loans, avoid taking on more debt by applying for a new BNPL plan.

Funto Omojola writes for NerdWallet. Email:

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8 Tactics to Break the Credit Card Debt Cycle

Upon paying off between $12,000 and $15,000 in credit card debt in 2019, Yamiesha Bell, a special education teacher in New York, didn’t break up with her credit cards.

With goals to buy a car and a house, Bell hoped to preserve her credit history by keeping her cards open and active.

“I needed to sustain my credit in order to get the interest rates I wanted in the future,” she says.

While credit cards aren’t ideal for everyone, they can aid your credit journey if used responsibly. When reconciling with credit cards, you need a personalized stay-out-of-debt plan. Here are a few strategies to consider.

1. Reflect on spending habits

Maybe you ditched debt, but history can repeat if you don’t unpack the motivations that contributed to it. A get-out-of-debt plan that works in the short term may not be sustainable over the long term if it doesn’t align with your priorities, according to Julia Kramer, a financial behavior and leadership consultant at Signature Financial Planning in Pennsylvania.

Kramer suggests tracking transactions dating back a week or more. Add a plus sign next to those purchases you’re willing to repeat and a minus sign next to those you’re not. For obligatory purchases like gas and groceries, add an equal sign.

Note the date, the item purchased, the amount and the need the purchase met. Those frequent lattes or meals out with friends may be more about the personal connection experienced, or something else, as opposed to the gratification provided by the item, according to Kramer.

This information is key to identifying areas in your budget that are negotiable. For example, you may be more willing to choose budget-friendly food in order to keep a facial that meets an internal need for self-care and connection, Kramer says.

If your spending strays upon experiencing feelings like anxiousness or boredom, make a plan for those occasions. It might mean budgeting extra money or employing tricks like using a credit card lock feature to prevent spending.

2. Use cash for certain categories

If you want to reel in spending on categories like dining out or entertainment, for example, set aside physical cash to stay within budget. Money in hand can lead to more mindful spending, according to Kramer.

3. Track spending

Create a tracking system that works for you. Setting up spending alerts on a credit card account can notify you if purchases exceed a certain amount. Tracking spending with a spreadsheet, bullet journal or budgeting app, for instance, can also help with mental accounting.

“I would not open up credit cards if you do not have a system in place where you track spending every month,” Kramer says. “It has to be something that appeals to you that you know you’re going to do.”

For Bell, a cash envelope tracking system helps her manage spending in different categories, including her credit card bill payment.

“When you look in a cash envelope and you see you only have $50, it’s very clear that once that money runs out there’s nothing else I can do,” she says.

4. Use credit cards for planning purchases only

Ease your way back into credit cards with small planned purchases, like a subscription service payment.

After paying off debt, Bell only uses credit cards for in-budget purchases, and she pays them off in full each month to avoid interest charges. Initially, she left her credit card at home to avoid relying on it.

5. Have an emergency fund to fall back on

An emergency fund of even $500 for a car or home repair may keep debt off of your credit cards. Start small and aim, eventually, to cast a wider safety net over time — ideally, three to six months of living expenses stowed in a high-yield savings account.

If you previously got used to budgeting a certain amount each month to pay creditors, keep that momentum going, but direct funds toward savings instead.

6. Don’t store credit card info on websites or apps

Convenient payment options can sometimes lead to mindless spending. By entering payment information into forms for every online purchase, you’ll have more time to think through a purchase.

7. Get an accountability partner

A nonjudgmental partner or trusted loved one can offer input on a purchase or a stay-out-of-debt plan. An accountability partner can be a sounding board that lets you listen out loud to your own justifications for financial decisions.

8. Update your strategy

As motivations and priorities change, your stay-out-of-debt plan should follow. Continue revisiting credit card statements to identify the needs that are being met by purchases and which are most important.

If in this process you continue having frequent run-ins with debt, consider closing credit card accounts even if it can negatively impact credit scores.

“A big thing about this is knowing yourself and knowing what your challenge areas are and finding ways that work around them,” Bell says. “Five years from now it might look different, but for right now that’s what works.”

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

Melissa Lambarena writes for NerdWallet. Email: Twitter: @LissaLambarena.

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How to Handle Mixed-Income Friendships

Finally, as the country reopens, you’re likely seeing more of your friends. Out with the video chatting and in with the high-fiving, hugging and, well, spending.

For every dinner, there’s a check to pay; for every wedding, a gift to buy; and for every concert, a ticket to score.

You may notice that you and your reunited friends handle these kinds of expenses differently. Maybe one of you sees an $80 night out as chump change, while the other feels like a chump for desperately needing that cash for rent.

Here’s how to reenter the world of socializing and spending while keeping friendships and finances intact.

If you’re the friend with less money

Reflect on your finances and priorities, as well as how they may have changed during the pandemic.

“This is an opportunity for everyone to be more mindful about where they want to spend their time, money and resources,” says Kathleen Burns Kingsbury, a Waitsfield, Vermont-based wealth psychology expert and host of the “Breaking Money Silence” podcast.

Consider what’s important to you, she says, as well as the experiences you want to invest in and those you’d rather skip to save money. “Then you can decline invitations a little easier because you feel more solid in your decision,” she says.

Say you realize that during quarantine you didn’t mind PB&J for most meals, but you craved live music. Skip the fancy dinner plans and, if your finances allow, buy the concert ticket.

Or make your own plans if you’re simply longing to catch up with friends. Host a potluck, movie night, bike ride or another more affordable hangout.

With this kind of intention, you’re empowering yourself to make strategic financial decisions. Doesn’t that sound better than bailing because money is tight?

As Kingsbury puts it: “Instead of saying, ‘I can’t, I can’t, I can’t,’ it’s more about saying, ‘This is what I’m going to do.’”

As you reflect on financial priorities, consider creating a budget to match them, says New York-based financial therapist Aja Evans.

A budget is a plan for your incoming and outgoing money — though you can call it something else if the B-word wigs you out. (Evans calls her family budget their “killing-it plan.”)

The key word is “plan.” No need to resort to a shrug or stress-fest when you’re invited to a destination wedding or pricey brunch. With a budget, you already have an idea of how much you can (or can’t) spend on those activities.

If you can’t swing the event, trust that your friends will understand. “I would imagine that, after COVID, people really understand financial stress no matter their level of income or assets,” Kingsbury says.

If you’re the friend with more money

If you can afford the dinners and concerts, then live it up, Evans says. But try to understand that your friends can’t always join you.

Be “empathetic and compassionate and — here’s the hard part — not judgmental,” Kingsbury says.

You may not know your friend’s circumstances. Many people don’t share when they’re financially stressed, Kingsbury says, “because there’s that judgment and shame.” So give your friend the benefit of the doubt when she declines an invite.

And give your friend something else: time. As soon as you plan an outing or learn about a pricey event, tell them so they can try to plan for it, Evans says.

Even with that time, “be prepared that some people might not be able to make it work,” Evans says. Allow friends to opt out or even participate in an alternative plan.

So if you invite friends to a destination wedding, for example, explain that you know it’s an expensive request and understand if they can’t join. Maybe you and your friends who can’t make the trip go out to dinner locally to celebrate instead.

How to talk about money with friends

These spending situations become easier when you and your friends can talk openly about money. If your buddy already knows you’re saving for a down payment or supporting your parents, for example, she’s more likely to understand when you pass on a winery trip.

And if you discuss finances with friends, you may be able to motivate and help each other. Maybe your friend knows of a first-time homebuyer program that could help you with that down payment.

But, of course, money can be a loaded subject. To keep the conversation casual, avoid having it while you’re already out spending money, Evans says. (Or while you’re drinking.)

As for what to say, start with “I” statements, she says, as in “I’ve been looking at my finances and noticed …” With this phrasing, your friend is less likely to feel defensive or pressured to share.

Or start with a more general, less personal chat. Share an article, Kingsbury says, or bring up the financial aspect of a news event or even celebrity gossip.

“Once people start to talk about money in general, then the conversation over time evolves,” she says. And friends “become more vulnerable and willing to share.”

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

Laura McMullen writes for NerdWallet. Email: Twitter: @lauraemcmullen.

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8 Rules for Saving, Borrowing and Spending Money

This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies.

The best personal finance advice is tailored to your individual situation. That said, a few rules of thumb can cut through the confusion that often surrounds money decisions and help you build a solid financial foundation.

The following guidelines for saving, borrowing, spending and protecting your money are culled from nearly three decades of writing about personal finance.

1. Prioritize saving for retirement

In an ideal world, you’d start saving with your first paycheck and keep going until you’re ready to retire. You also wouldn’t touch that money until retirement. Even if you can’t save 15% of your pre-tax income for retirement, as recommended by Fidelity and other financial services firms, anything you put aside can help give you a more comfortable future. Aim to take full advantage of any company match you get from a 401(k) at work — that’s free money — and borrow against or cash out retirement funds only as a last resort.

2. Save for a rainy day

You may have read that you need an emergency fund equal to three to six months of expenses, but it can take years to save that much. That’s too long to put off other priorities, like saving for retirement. A starter emergency fund of $500 can be your first goal, and then you can build it up. While you’re saving, try to create other sources of emergency cash, such as a Roth IRA (you can pull out your contributions at any time without taxes or penalties), space on your credit cards or an unused home equity line of credit.

3. Save for college

Got kids? Open a 529 college savings plan and contribute at least the minimum, which is typically $15 to $25 a month. Retirement savings comes first, but anything you can save will reduce how much your child may need to borrow. Also, research shows the simple act of saving for college increases the chances that a child from a low- to moderate-income family will go to college.

4. Borrow smart for college

A college degree can pay off in higher earnings, but lenders may allow you to borrow far more than you can comfortably repay. If you’re borrowing for your own education, consider limiting your total debt to what you expect to make your first year out of school. If you’re a parent borrowing for a child’s education, aim for payments that are no more than 10% of your after-tax income and that still allow you to save for retirement. If your payments are higher than 10% of your after-tax income, investigate income-driven repayment plans that could bring down your costs.

5. Use credit cards as a convenience

Credit cards offer convenience and can protect you from fraud and disputes with merchants. But credit card interest tends to be high, so don’t carry credit card balances if you can avoid it. If you routinely pay your balances in full, look for a rewards card with a sign-up bonus that returns at least 1.5% of what you spend.

6. Finance your home smartly

If you want to be a homeowner, the best time to buy your first home is when you’re financially ready and in a position to stay put for a few years. Opt for a mortgage rate that’s fixed for as long as you plan to remain in the home, and don’t make extra payments against the principal until you’ve paid off all other debt and are on track for retirement.

7. Buy used vehicles and drive them for years

Buying a car right now isn’t a great idea; supply-chain kinks and other pandemic-related issues have inflated the cost of both new and used cars. In general, though, buying a used car can save you a ton of money over your driving lifetime, as can driving your car for many years before replacing it. These days, a well-maintained car can last 200,000 miles without major issues, according to J.D. Power. This means you can get roughly 13 years of service out of your car if you drive it 15,000 miles a year. Ideally, you would pay cash for cars. If you need to borrow, try to limit the term of your loan to a maximum of five years.

8. Insure against catastrophic expenses

Use insurance to protect yourself against catastrophic expenses rather than smaller costs that you can easily pay out of pocket. If you have sufficient savings, consider raising the deductibles on your policies to save money on premiums. Be careful about high-deductible health insurance policies, though. Having a high deductible could cause you to put off medical care, and it’s better to err on the side of safety when it comes to health.

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

Liz Weston writes for NerdWallet. Email: Twitter: @lizweston.

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5 Key Numbers to Know About Savings Accounts

You don’t have to be a numbers person to have a healthy bank account. But when it comes to savings, knowing a few key figures can help you maximize your options. Here are five numbers that can help you determine if a savings account is ideal — or if it could cost you.

1. Minimum amount to open

Some banks require a minimum deposit to establish an account. The minimum requirement is typically $25 to $100, according to the Consumer Financial Protection Bureau, though there are accounts with a $1,000 or even $5,000 minimum. But if you have to save up just to open a particular savings account, that account might not be right for you. And there are plenty of savings accounts with no minimum to open.

To really benefit from savings, including having an adequate reserve for emergencies, you’ll want an account where you can easily manage the opening deposit so you can start making regular deposits and saving.

2. Interest rate

The interest rate is how much money your money earns while it sits in a savings account. For savings accounts, the interest you earn over a one-year period is often expressed as the annual percentage yield, or APY. So if you have $100 in an account and the interest rate is 1%, your money would earn $1 in interest. Over time, the interest earned in savings accounts also earns interest, something known as compound interest.

These days, many savings accounts earn low rates. According to the Federal Deposit Insurance Corp., the national average rate for savings is only 0.06%. But some of the best accounts have yields that are many times higher, with low (or no) minimum deposits.

Look for financial institutions that offer high interest rates compared with their competitors. The higher the interest rate, the faster your balance can grow.

3. Monthly fee

The monthly service fee is an important number to watch because it can work against your savings goals. Some financial institutions charge this fee, typically around $5 a month, for having a savings account open at their bank. But if you’re paying $5 a month, you’re paying $60 a year — money that you could be saving.

Some financial institutions may waive the fee for customers if they meet certain requirements, such as signing up for automatic deposits or keeping their balance above a certain amount (see #4 on this list). But many of the best savings accounts don’t charge these fees at all.

If you choose an account that has a monthly service fee, go for one whose fee you can easily waive.

4. Minimum amount to avoid a monthly fee

Many banks that charge a monthly fee will waive it if you keep a minimum balance throughout the month. A typical minimum daily balance — for a bank that has one — is $300. If you don’t want to have to keep track of a minimum daily balance, avoid the cost (and potential hassle) by simply putting your money in a savings account that does not charge a monthly fee.

5. Excess withdrawal limit

This is a fee that some banks and credit unions charge if you have too many withdrawals from your savings account each month. The transactions, known as convenient withdrawals, include online transfers, overdraft protection transfers and phone-initiated transfers.

A bank or credit union may charge a fee if you make more than six of these withdrawals in a month, typically around $5 to $10 for each excess transaction. The restriction was previously in place because of federal regulations. But in April 2020, the Federal Reserve gave institutions the ability to eliminate this limit and “allow their customers to make an unlimited number of convenient transfers and withdrawals from their savings.”

Many banks still charge this fee, however, so you’ll want to check with your financial institution about its policy.

Every saver can make the most of their savings account by staying on top of these five key numbers. They can help you minimize costs and maximize interest, so you can be well on your way to meeting your savings goals.

Margarette Burnette writes for NerdWallet. Email: Twitter: @Margarette.

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How Great Advice For Grads 2022 Has Helped Me

This month is Financial Education Month. It’s a time for people of all ages to learn new things about their finances that they can use to create a better future for themselves. Now is also an important time for young adults because in May, there will be a lot of new college grads entering the workforce and learning to manage their own finances. It’s a daunting task but it doesn’t have to be. There are so many resources out in the world that are meant to help young adults understand and manage their finances to make sure they are comfortable where they are at financially. One of these resources is Inceptia’s Great Advice for Grads 2022 free e-guide. It’s a tool that I have used a lot as I prepare to graduate from college in May. It covers a range of topics and each week I want to share my experience with the guide and how it is preparing me for graduation.

Student Loans

If I’m being completely honest, student loans are terrifying to even think about especially since they can be difficult to understand. They help you pay your way through college but unfortunately, they have to be paid back at some point. They don’t have to be difficult to understand though.

Great Advice for Grads 2022 provides a nice five-point checklist that gives you everything to consider way before you even make the first payment on your loans. The first and probably most important point is knowing who your servicer is. There are currently seven federal student loan servicers but since the pandemic started, some of them have decided they will no longer service student loans and there are a lot of loans getting moved around to new servicers which makes it even more difficult to know where your student loans even are. Luckily, the guide provides all the links you need to track down your loans and figure out what is going on with them. It also goes over options for repayment if the monthly payments are too high for you, how to make payments, it gives some things to consider before consolidating your loans, and even lays out some possible forgiveness options that you may qualify for.

Something else almost everyone will deal with at some point if they have student loans is student loan scam calls. These calls have seen a huge uptick since 2020 when federal student loan payments were put on pause due to the pandemic. This is something I hadn’t even considered happening to me until just last week when I got my first call offering me student loan “forgiveness”. Working for Inceptia, I have learned a lot about student loans but let me tell you that those scam calls can be very convincing. The caller was a real person and they sounded like they really wanted to talk to me about my student loans. They told me I may qualify for forgiveness on my loans. All I had to do was get on a special payment plan and they would forgive my loans.  Luckily, I knew not to believe that.

Great Advice for Grads 2022 has a great section devoted to student loan scams and how to avoid them. It provides expert advice on how to know it’s a scam and what to do if you have been scammed. Some of the key takeaways I got from it were: if it seems too good to be true, it probably is and, there is no one else that can help you qualify for student loan forgiveness other than your servicer. In the case of the call I got, they didn’t even say what company they were from and it all just seemed way too good to be true. I was able to apply my knowledge from Great Advice for Grads to know that it probably wasn’t real. Unfortunately, this is not the case for every student loan borrower. Student loan scams are very easy to fall for so it’s incredibly important to educate yourself on them and how to avoid them all together.

Great Advice for Grads 2022 makes student loans easier to understand and I strongly recommend that everyone checks it out whether you are a sophomore in college or are graduating in a month like me.


Saving and Budgeting

After graduation, I will be moving to a brand new city and while it isn’t too far from where I currently live, I am still nervous about paying for the move and all other costs that come with moving to a new city. Saving money and budgeting has become more important than ever for me but I didn’t know where to start. Luckily, Great Advice for Grads 2022 has some really useful tips and resources on how to save and budget that I would highly recommend using.

I’ve had a savings account for a while but as a college student, I didn’t use it a ton because of the limited income I was receiving. I did however know that I had financial goals that I wanted to reach and I needed to learn to save even a little to reach those goals. That is one of the points for saving in Great Advice for Grads. The tip that resonates with me the most is to set financial goals for something you are passionate about. Some people are passionate about buying a home so they start to set money aside to buy one. I am passionate about moving to a city that I have never lived in before, so I decided to start setting money aside to eventually move after college.

The guide also gives some advice and resources on finding a budgeting system that works best for you. This is a link in the guide that really helped me decide which budgeting system is right for me. It’s to a Nerdwallet article that gives some advice on budgeting but also suggests the popular 50/30/20 budgeting plan. This is a plan that I have known about for a while now thanks to Nerdwallet and it has helped me track my spending a lot better. How it works is for each paycheck you get, you set aside 50% of it for needs, 30% for discretionary spending and 20% for saving. This concept has really boosted how much I am saving each month and gives me a better idea of where my money should be going.

Something I had not considered until reading Great Advice for Grads was using my bank accounts to budget even further. I have one checking and one savings account but I have often thought about how it would be nice to have another bank account set up to better allocate my money based on the 50/30/20 rule. This is a suggestion in Great Advice for Grads. The idea would be to have an account for discretionary spending and one for necessities while also having your savings account for your saving goals. This is an idea I am definitely going to implement into my finances so I can better keep track of my money. The guide also suggests keeping your savings account with another bank so you aren’t as tempted to dip into it when your spending cash is running low. I know this is an issue that I have where I see the money sitting in my savings account and I am tempted to take even a little out to cover the cost of something I want. If I wasn’t seeing my checking account balance right next to my savings account balance, I think I would be a lot less tempted to dip into my savings for something that I think I can’t wait for.

The last point that the guide talks about in regards to saving and budgeting is being cautious on social media, especially TikTok, when seeking money advice. A lot of people on TikTok claim to give good advice on finances when in reality it should not be taken seriously. One myth that Great Advice for Grads tackles that surprised me that this was even advice someone was giving was that we should avoid 401(k)s and IRAs. I have always heard of the benefits of these accounts and haven’t really heard about them being a bad idea and yet there are people on TikTok claiming that these accounts are not worth it. This is not true however. It is important to save for retirement and starting as early as you can is best. It may seem boring to put money away and not use is until you are in your 60s but experts tell us that it is very important to do it now to save yourself pain down the line. It just goes to show that people who claim to be experts are not always right especially on TikTok.

I would highly recommend taking a look at the “Minding Your Money” section in Great Advice for Grads 2022. There is a ton of valuable information in there and it’s very important to get educated on how you can best prepare for the future and any unexpected expenses that may come up.


Career and Life

Maintaining a lifestyle you are comfortable with can be a difficult task when you are first going out on your own. I know for me, I am getting ready for the real world and I am making my budget and preparing myself financially, but I often feel like I neglect to consider how my lifestyle plays into my spending. I am trying to avoid what is called lifestyle creep. This is when you may be over spending on things to satisfy the life you live at the expense of saving money or purchasing more necessary things.

Great Advice for Grads talks about how lifestyle creep is an easy trap to fall into especially as we earn more money throughout our careers. While splurging here and there isn’t a bad thing, constant overspending could lead to problems down the line. It could make saving for big purchases difficult. It can even have an effect on saving for retirement. That’s why it is recommended to make a financial plan and budget and try to stick to it as much as possible. Doing so will let you see how much you can afford to spend on your lifestyle and help you make any changes that need to be made.

Another part of the guide that really stuck out to me is managing money while inflation is on the rise. We are living through some economically unstable times and it can seem hard to manage a budget when prices of things are always changing. It’s recommended to make big purchases now if you can afford them because waiting could just mean the price of it going up again very soon. Cutting back on discretionary spending is something else that can help save some money. Something else I am considering doing based on advice from the guide is opening up a higher yield savings account. This would mean getting a savings account with a high interest rate so I am earning more money just from saving. Overall, it’s important to keep an eye on prices as they rise so you know how much money you need to set aside for needs and discretionary spending.

The last point that really resonated with me was managing mixed income friendships. I have friends with many different income levels and that can make it difficult to spend time together sometimes. Sometimes my friends want to do something that they can easily afford but it’s a little more of a financial burden for me. In order to keep up with my friends’ spending habits, I may need to make sacrifices to enjoy good times with them. If there is a trip they want to go on, I might look for alternative meal options on the trip so I am not eating out as much on the trip. I would also likely create a spending plan to save for the trip and to ensure I am not neglecting my budget going on the trip. It’s little things that can go a long way. If I am the friend that has the higher income, I am a lot more understanding and empathetic and willing to look for an option that works for everyone’s budget so I can still enjoy time with my friends while also minding my money and theirs.


The last point I would like to talk about from Great Advice for Grads 2022 is credit. For a lot of college students, credit is a very new concept and one that we might not see as important. I didn’t even get my first credit card until very recently so it is still very new to me. I realized that I really needed to start building a credit history so I am able to apply for loans and other things down the line. However, it was something that terrified me at first because of how little I knew about it. Luckily, Great Advice for Grads 2022 has so really useful advice when dealing with credit.

The first thing I wanted to learn about was how I actually build my credit. I knew that in order to maintain a good standing with my credit card company, I needed to at least make my monthly payments on time but I hadn’t even thought about building my credit specifically. I was able to learn from the guide that in order to increase my credit score, I need to make payments that get me below at least 30% of my credit limit but it’s best to pay off as much as you can before the payments come due. In fact, Great Advice for Grads recommends paying the balance in full each month if possible. This is a tactic I have been employing with my new credit card and it has helped to increase my score.

I’ve also learned that even though I am trying to build credit, it is still okay to use my credit card when necessary. Emergencies come up where I may not be able to pay for something out of pocket and will need to use my credit card to cover the expense and pay it back over time. While that is not ideal, it is still something I have to plan for. Even when I graduate, there will be a period of time where I will be going without a paycheck and I need to make a plan to stay afloat financially. Part of that plan factors in using my credit card to cover some expenses while I am not getting any income. As long as I spend what I know I can pay back at a later time, I will be able to use my credit responsibly.

Student Loan Pause Extended Again — Is There an End Game?

Federal student loan borrowers just got an extra four months before their payments resume.

If that feels like déjà vu, it’s because this is the sixth extension of the interest-free payment pause that went into effect in March 2020 under the Trump administration, at the onset of the COVID-19 pandemic. Payments had been scheduled to restart beginning May 2.

This latest extension, through Aug. 31, will put the total number of months without payments at 30. Nearly 37 million of the nation’s federal student loan borrowers haven’t had to make payments during the pause, saving them a collective $195 billion in waived payments, according to a March report from the New York Federal Reserve.

They’ve used the wiggle room in their budgets to handle essentials like food, rent and child care. Some have managed to tackle larger financial goals, like paying down credit card debt or saving up for emergencies. Some even kept paying each month.

For months, Department of Education officials have expressed concern about whether the majority of borrowers could handle payments after more than two years without them, according to a recent Government Accountability Office report.

On Wednesday, the White House said borrowers still aren’t ready. And it offered up a huge win for 5 million borrowers with loans in default: an automatic return to good standing. Borrowers in default have long faced wage garnishment, damage to their credit and substantial collections fees. Debtors have had the option to pursue rehabilitation during the pause; now it’s automatic.

It’s unclear if borrowers will be more able to cope with payments come September. At the very least, the additional reprieve provides borrowers with more time to plan.

But plan for what, exactly?

Is there an end game?

Forgive student debtors for being doubtful: The government labeled last August’s extension as “final,” but that has been followed by several more.

Employment is back to near pre-pandemic levels, COVID-19 cases are dropping and other pandemic-related relief has expired. But the Biden administration, in a White House news release, said Federal Reserve data predicted a rise in late payments and defaults if payments resumed.

Some experts are skeptical.

“This feels much more driven by politics than by public health,” says Robert Kelchen, professor and head of the department of educational leadership and policy studies at the University of Tennessee at Knoxville.

Kelchen says he thinks an additional extension this year could be likely. He also raised the question of whether the Biden administration will ever resume payments. “They’re not going to resume at the end of August to make voters repay right before the midterms,” Kelchen says. “And then, at that point, the re-election campaign starts.”

Kelchen isn’t the only one who sees the move as largely political. Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says any extension will benefit borrowers, but four months might be more palatable to voters during the midterm election, whether they support or oppose extending the payment pause.

“If they had [extended] it through the end of the year, some people might take that as, ‘he only did it to get through midterms,’” Mayotte says.

Too much? Not enough?

Extending the payment restart raises the stakes for the Biden administration to make a decision on debt cancellation, says Mike Pierce, executive director of the Student Borrower Protection Center advocacy group. “I think this is the clearest sign yet that big things are coming,” he adds.

The extension “does not make sense if you decouple it from the broader conversation around student debt cancellation and student loan reform,” says Pierce, adding that the timing of the extension’s expiration does tee up the possibility of debt cancellation weeks before voters head for the polls.

The Biden administration has repeatedly said the president would support cancellation via congressional action despite calls from Democrats in Congress, along with student borrower advocates, state attorneys general and one former Secretary of Education, to do so via executive action. Biden has questioned his unilateral ability to do so.

The amount of cancellation, if any, has also been a tug-of-war. While on the campaign trail, Biden pledged to sign off on canceling $10,000 in debt per borrower, a promise he has distanced himself from since becoming president. Some Democratic lawmakers like Sens. Chuck Schumer of New York and Elizabeth Warren of Massachusetts have called for Biden to cancel $50,000 in debt.

While broad student debt cancellation has not come to pass, more than 700,000 borrowers have seen $17 billion in loan debt forgiven via a revamped Public Service Loan Forgiveness program and other existing forgiveness programs.

Is it time to get back to normal?

Republican lawmakers, meanwhile, have criticized both the extension and their Democratic colleagues’ calls to cancel student debt. Rep. Virginia Foxx of North Carolina, who sits on the House Education Committee, called the pause extension “outrageous,” while two others, Reps. Jim Banks of Indiana and Bob Good of Virginia, had previously introduced a bill to block another extension.

Leaders in the private student lending industry are also against extending the pause since their business has taken a two-year hit from federal borrowers who chose to stick with the pause rather than refinance privately. SoFi CEO Anthony Noto wrote in a March 17 blog post that extending the pause was “at best fiscally irresponsible” and “takes from struggling families and gives to the affluent, and at worst it’s political theater.”

Student loan servicers are unlikely to be more ready to resume processing payments or offering guidance to borrowers in September than May, says Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents servicers. These private companies are contracted by the government to manage federal student loans.

Buchanan adds, “In fact, we may be less ready just because you’ve burned through a bunch of resources to get ready and now all of those are wasted.”

Who needs a plan? Borrowers

Buchanan says he’s concerned that a further delay means borrowers won’t take the restart seriously. “They’ll ignore it until they get a delinquency notice,” he says. “The more we push this out and do it at the last minute, the worse our problems become.”

What leaders from both sides of the aisle, the private lending industry and student borrower advocacy groups all seem to agree on is that the pause doesn’t fix the core issue: The student lending system is broken. And, as Pierce says, a four-month extension isn’t much time to implement meaningful reform.

Four months does give borrowers more time to, at a minimum, make a plan for payment to restart. Whenever that is.

Anna Helhoski writes for NerdWallet. Email: Twitter: @AnnaHelhoski.

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How the Student Loan Pause Has Played Out for Borrowers

Two years after the chaos of the pandemic prompted Congress to pause federal student loan payments, new data show many borrowers have used that extra room in the budget to shore up their overall finances. Some have inched closer to eligibility for student loan forgiveness.

Economists and lending experts say it’s unclear how long that stability will last when the payment pause ends, currently scheduled for May 1. Among the 26.6 million people expected to enter repayment at once, some will inevitably struggle, including unemployed borrowers and those whose wages have not kept up with rising inflation.

Evan White, executive director of the California Policy Lab at the University of California, Berkeley, says to expect an increase in delinquencies and eventually defaults when student loan repayment resumes. That echoes recent projections from a March 2022 New York Federal Reserve report and a January 2022 report from the Government Accountability Office.

Pandemic-related supports like stimulus checks and the payment pause could have been propping people up in a way that makes them look like they’re doing much better than they are, White says. “Or it may be that all of those supports build people up to a better place in a way that will have some sustainability.”

All borrowers can make a plan to manage upcoming payments by reaching out to their servicers, the companies contracted to manage federal loans. If you are at all uncertain of your ability to resume payment, an income-driven repayment plan is your best option.

Here’s how the federal student loan payment pause has affected borrowers.

Overall finances improved

A lot can happen to your finances in two years, but the pause was objectively good for federal direct student loan borrowers in several ways:

  • Borrowers, on average, experienced $210 of monthly breathing room. Since the start of the payment pause, 37 million borrowers have collectively saved an estimated $195 billion in waived payments, according to the March report from the New York Federal Reserve. Each month, borrowers saved around $210 on average, according to California Policy Lab.
  • Balances didn’t grow. No interest accrued during the pause, which means borrowers’ balances did not increase.
  • Borrowers reduced other debt. About 44% of borrowers reduced the amount of debt on their credit cards and 6% of borrowers increased payments on other loans, like an auto or mortgage loan, California Policy Lab found. White says, however, that it’s more difficult to draw a direct line to the pause being the cause of these changes.
  • Credit scores increased. “The people that saw the biggest boost to their credit are not the doctors and lawyers, it is the people who are struggling that are now the beneficiaries of this extraordinary public policy,” says Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group. Borrowers across the board saw credit score increases, with the most gains among those with the lowest scores and those with a recent delinquency, according to California Policy Lab.

Some borrowers are closer to forgiveness

Every month of the pause could count toward the total borrowers need to become eligible for loan discharge through existing programs.

For public service workers, each nonpayment month has counted toward the 120 payments needed for forgiveness through the Public Service Loan Forgiveness program. To qualify, borrowers had to be working full time for a public service employer during the pause.

Borrowers on income-driven repayment plans — aimed at keeping monthly payments manageable — also can count each nonpayment month toward the 240 or 300 months needed for loan discharge.

A borrower enrolled in these forgiveness programs since the pause began in March 2020 has been credited with at least 24 payments toward their goal. The same is not true for borrowers in more traditional repayment plans.

Borrowers who kept repaying took advantage of 0% rates

Zero percent interest meant borrowers who could afford to make payments could potentially lower their debt faster, but they had to do so by voluntarily contacting their servicers. The New York Federal Reserve report says over 18% of borrowers with direct loans continued making payments.

Among those who made payments were borrowers with a history of actively paying down their balances before the pandemic, as opposed to those whose balances were increasing due to accruing interest.

A fraction of borrowers in default grabbed opportunity

The payment pause offered defaulted student loan borrowers a rare opportunity to get their loans back in good standing — removing the default from credit reports — without having to make a single payment to do so.

Student loan rehabilitation stipulates borrowers must make nine payments at an agreed-upon amount out of 10 possible months. Months spent in forbearance count.

Data from the Education Department show some borrowers did take advantage of that: A total of 602,000 borrowers rehabilitated their loans in 2020 and 2021. But this is likely a drop in the bucket. Department data show that at the end of the first quarter of 2020, 5.7 million borrowers were in default; by the end of 2021, it was 5.1 million.

Even more disheartening, 25% of borrowers in default do not have an email on record with the Education Department, the Government Accountability Office report found. It remains unclear how those borrowers would be reached before collections resume six months after the pause lifts.

Borrowers with private loans missed out

Not all student loan borrowers saw their finances improve as a result of the pause, including private loan borrowers and Family Federal Education Loan program borrowers with commercially held loans.

Most FFEL borrowers whose loans are privately held were not placed in any forbearance and struggled with payments, according to the March New York Federal Reserve report. Some FFEL borrowers whose loans were placed in forbearance saw delinquency rates increase after the end of those periods. And FFEL borrowers also experienced 33% higher delinquency on other non-loan-related debts after forbearance ended.

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says most FFEL borrowers didn’t realize the payment pause didn’t apply to them until delinquencies hit their credit report. “I still, today, get people saying, ‘Why am I getting a bill?’” Mayotte says.

Private loan borrowers did not see their loans paused, but they also didn’t experience significant delinquency increases since the start of the pandemic, according to data from Measure One, a data and analytics firm.

Anna Helhoski writes for NerdWallet. Email: Twitter: @AnnaHelhoski.

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