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3 Tips for Young Entrepreneurs on the Power of Credit

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In the United States, personal credit scores can have a massive impact on entrepreneurs and their businesses. Poor credit history can eliminate the ability to qualify for small business loans and important life decisions, like purchasing a home. For many people, navigating the world of credit can be daunting. 

In recent years, it was estimated that over 26 million Americans do not have a credit score and 19 million have let their scores go stale. Unfortunately, personal finance is not something many people learn in school, but rather learn through personal journeys of trial and error. Thankfully, a new niche of savvy credit entrepreneurs has emerged on social media with a focus on educating people on the power of credit.

Related: These Credit Repair Specialists Tell 3 Steps To Repair Your Credit Score

Shawn Sharma, co-founder of Credit 101 and personal credit influencer, has dedicated the last three years of his life to helping thousands of people learn about credit, build their credit, and access the often exclusive financial services reserved for people with elite credit scores. His dedication has helped him amass nearly two million Instagram followers and, more importantly, help many aspiring entrepreneurs use credit to scale or start their businesses. 

All of this was accomplished from humble rural beginnings in Alabama. Sharma learned the hard way during his time studying at Cornell that debt and credit can either be your worst enemy or one of the most powerful tools in an entrepreneur’s toolkit. Here are three tips that Sharma shared to help entrepreneurs leverage and understand the power of credit.

1. Credit is a level playing field

One common benefit of credit is that the current credit system is largely transparent and fair. Everyone starts from the same place and can only build their credit score by being active and responsible participants in the credit system. Think of credit as a tool and a resource that can be extremely powerful for various use cases.

“It is critical that entrepreneurs educate themselves about credit and take a responsible approach to building their profiles,” Sharma says. “The current credit system rewards reliability versus starting capital, where consistent on-time payments are more important than income. This means the average American can build stronger credit and amass more limits than a millionaire who does not make on-time payments and actively build their history.” 

Most experts recommend starting with one or two credit cards that can be used to make day-to-day purchases and paid off at the end of each month. As a person’s credit history grows, their credit offers and limits will become more attractive. The most important part is becoming active in the system and having a plan to make sure credit works for you and not vice versa. 

“A great way to build credit is to build relationships with local banks and business bankers, who can often go out on a limb and help in applications and underwriting,” Sharma adds. He also emphasized credit is a long-term game and those who focus on consistent progress eventually build impressive limits.

Related: Help Build Your Credit and Savings in 2021 with This App

2. Take advantage of credit rewards 

Even if your business is successful and does not need capital, an ingenuitive benefit of credit is the rewards system. American credit cards offer the greatest cashback and largest airline mile signup bonuses of any other country. Business owners can leverage these credit card rewards and cashback opportunities to gain more revenue, subsidize business expenses and gain access to services otherwise unavailable for most people. 

Sharma explains, “For example, business owners that charge expenses to credit cards can quickly gain enough rewards to pay for travel, equipment, and other services. Many credit cards offer free travel and car insurance for business owners that travel often. Even just placing normal business transactions for a business that spends $100k a year on a high-end rewards credit card can lead to $1,000 to $4,000 in cash back or airline miles often worth much more.” 

New credit participants should make sure to read all of the fine print before signing up for credit cards to make sure they understand the interest rates and terms involved. Also, it is advised to spend time searching various sign up offers that typically offer enough bonus miles to use on a round-trip flight internationally. A great resource Sharma recommends for people getting started is The Points Guy. 

3. Credit can replace most traditional financing 

Entrepreneurs who have a decent credit track record can tap into various credit financing options. In many cases, using credit can help entrepreneurs remove the need of having to source external investors and offer enough runway to build and scale a profitable business. This is exactly what Sharma did starting in retail arbitrage and in his credit repair company that does over $10 million a year in sales. 

“Credit can provide a bankroll for entrepreneurs to hit the ground running,” he says. “There are many options now that offer low-interest rate capital, both in the forms of credit and cash, for entrepreneurs to leverage. In some cases, we have helped entrepreneurs with strong credit gain zero percent interest loans and lines of credit. This is what I have used in the past to retain 100% equity in my companies.”

Related: When Are Personal Loans a Good Idea?

As with any financing option, credit financing can vary from provider to provider so entrepreneurs should be diligent in their research. The important thing is to look for terms that include reasonable interest rates and payback periods, as well as secondary benefits such as compounding rewards. 

Disclaimer: The writer is a personal friend of Shawn Sharma and used this friendship to gain insights for this article. This article is educational in nature and does not represent financial advice. Please speak to your financial advisor or a credit professional before gaining access to and using credit. 

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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