Beating Broke

Personal Finance from the Broke Perspective

Paying Down Student Loans with Smarterbank

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There’s little question that student loans can be one of the more difficult debt burdens that a person can have.  The cost of tuition is rising each year, and the rates seem to be following suit.  Many college graduates are finding themselves with a degree that cost as much as their first house is likely to.  It goes to reason, then, that finding any means available to help pay that debt off is probably a good idea.

What is Smarterbank?

I was recently introduced to a product offering called Smarterbank.  It’s an online checking account that’s run by The Bancorp Bank.  It’s fully FDIC insured to $250,000 and, for most purposes, operates just like any other online checking account.  Much like some other online banks, Smarterbank has some perks attached to their accounts.

In the case of Smarterbank, they give a “cashback” that goes directly to your student loans.  For purchases under $100, they apply .5% of the purchase to your Smarterbucks account.  For purchases over $100, the first $100 gets you the same .5%, and everything over $100 gets you 1%.

Smarterbank Fees

One of the nice perks of Smarterbank is that it’s a relatively fee free account.  There’s a monthly “inactivity” fee if you don’t use the account at least once in a month of $4.50, otherwise, if you’re a smart user, you’ll never hit a fee.  And, by smart user, I mean you don’t overdraft, or do something else silly.  They’ve got fees that are associated with things like statement research, etc, but those are pretty standard and you’re pretty unlikely to ever use those services.  You also get access to over 40,000 ATMs in the STAR ATM network.

The Smarterbucks Program

As I mentioned above, the “cashback” goes into your Smarterbucks account.  So, you’re probably wondering what the heck that is.  Smarterbucks is a rewards program.  Not unlike programs like Swagbucks, it rewards you for certain actions.  Things like shopping through their portal (“Smarterbucks Marketplace”) earn you cash back that is credited to your account.  You can also ask others to contribute to your account.  That option could be pretty cool to use as an alternative for people to give to you for birthdays, Christmas, or special events.

Once your Smarterbucks account reaches $15, they send a payment for that amount to your student loan.  At first, that might not seem like much, and, really, it isn’t.  But, every little bit helps.  And every $1 you pay off early is $1 that you aren’t accruing interest on for the life of the loan.  And that can add up in a hurry.

Would you switch to an account like Smarterbank for an offer like this?  Is the offer strong enough to make it worth the time?  What other offers have you seen that help with student loan payback?

See all the details on Smarterbank.

Living on What We Earn: A Learning Process

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For the last three years, my husband and I have had a very low income, well under the median income level of the average American family.  This was a result of my decision to launch a freelance writing career and my husband finishing his Ph.D.

We live in the suburbs of Chicago, so living expenses aren’t low.  Simply put, we couldn’t live on what we earned the last three years, which is why we incurred credit card and student loan debt and went through our $12,000 emergency fund.

Things Should Be Looking Up, But. . .

Now, however, the tide is changing, and our income is increasing.  My husband has a post-doc position, and my freelance business is growing.

We now are almost at the median income level of the American family in 2009, which was $60,088 according to the U.S. Census Bureau.  While this should afford us some comfort financially, it doesn’t because we are still cleaning up the financial mess from the past.

Preet Banerjee, author of the website, Where Does All My Money Go, in a recent speaking engagement, classified the ability to incur debt as the bank allowing you to borrow money from your future self.  As he says, “One day you will be your future self, and you won’t be happy.”

This is where we are at.  Three years ago when we took on student loan debt and credit card debt, we were borrowing from our future selves.  The selves we are now, and as Banerjee says, we aren’t happy.

Avoiding Mistakes of the Past

My husband and I both feel that we are in an important phase of our financial life.  If we can get through this period of paying down debt and growing our income without incurring any more debt, we should be in a comfortable financial position a few years from now, ideally debt free and with an even greater income.

However, that means a few more years of struggling now.

For instance, we are facing $2,000 in car repairs, and we just don’t have the money now.  A few years ago we would have put the expense on our credit card, but we refuse to go that route anymore.  Instead, we are scrimping and saving for the repairs, and meanwhile, I’m trying to walk rather than drive to buy us more time until we need to make the repairs.

I find it a bit humorous that credit card use allows people to fool themselves into thinking they have more money than they do.

Using credit cards now would help us float through for another year or so until our income increases greatly, but we won’t do that again.  We are living on what we earn and paying down debt even though it isn’t a comfortable process.  We are done borrowing from our future selves.

Banerjee puts it succinctly when he says, ” Think of borrowing money today as negotiating a pay cut with your future self.”  He also asks, “How much money do you want to pay to spend your earnings earlier?” i.e. pay interest on borrowed money?

Our answer is clear.  We aren’t going to negotiate any pay cuts with our future selves.  We are struggling now, so our future selves can have a more comfortable life.

 

Are You Tracking Your Debt?

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I think we can all agree that most debt is bad.  Some of us might even agree that all debt is bad.  Nearly all of us will also agree that nearly all of us have debt.  It’s not a comfortable thing to have usually, and, since you’re reading this, I can only assume that you’re dedicated to paying it off like I am.

Like the debt conquistadors before us, we’ve learned that knowing your debt is key to besting your debt.  You can’t win a race without knowing where it starts and where it ends.  But, somehow, you’ve also got to be able to track yourself along the way.  You’ve got to track your debt, and track your progress in paying it off.

Many of my indebted blogging friends have gone so far as to track their debt on their blog.  Many of them have even gone so far as to create a nice progress bar that we can easily see how far they’ve made it.  I don’t do that.  Not because I’m embarrassed by the debt, or the progress we’ve made, but because I decided years ago that I wanted to keep it private.  You don’t need to know how much debt I have any more than I need to know how much you have.  We aren’t in a race against each other, and I surely don’t want anyone feeling badly about how much debt I have and trying to catch up. 😉

debt line graphNo matter how you go about it, keeping track of your progress as you pay off your debt is important.  If you’ve been reading Beating Broke for long, you’ve probably gathered that I’m a fan of budgets. I think they’re a useful tool to help people like me keep track of what they spend and where they spend it.  Budgets have helped me get control of my finances and move them in the right direction.  So, it’s only natural that I use my budgeting software (YNAB) to keep track of how much I owe and where.

There are tools all over the place to help you track your debt.  One of the sponsors of the Debt Movement, Ready for Zero, is a great tool to not only help you keep track of what you owe, but to also help you plan how you’ll pay it off.  Tools like Mint also do a really good job of giving you an online tool to track your debt (and other accounts).  I don’t use any of them.  Mostly because I haven’t come across one that actually connects to all of my accounts.  My local accounts at a credit union that is small enough to not be fully integrated (I guess) with the services that those sites and apps use to update accounts.

If you want to go really frugal, a simple spreadsheet can do the trick.  Just list out all of your accounts, how much you owe on them and then update it as you make payments.  Want to make it fancier?  Track them monthly, then make a colorful line graph of your progress.

It doesn’t matter what tool you use.  The point is that you track your debt.  Know where you started with your debt, and then track your progress as you make your payments and pay it down.  Even if you aren’t paying off accounts every month, it helps with motivation to keep going.

How do you track your debt?

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