Embrace Home Loans Wraps Up Remarkable Year of Giving Back PRNewswire
Source: prnewswire.com
Embrace Home Loans Wraps Up Remarkable Year of Giving Back PRNewswire
Source: prnewswire.com
Granite State Credit Union (GSCU) provides members with a variety of mortgage products across the state of New Hampshire.
Year Founded | 1945 |
Coverage Area | New Hampshire |
HQ Address | 1415 Elm Street, Manchester, New Hampshire 03101 |
Phone Number | 1-800-645-4728 |
Granite State Credit Union provides a variety of mortgage products to individuals across the state of New Hampshire. It offers traditional loans, such as fixed- and adjustable-rate mortgages, as well as government-assisted loans and options for individuals who cannot put 20 percent down on a new home.
Granite State Credit Union provides a variety of mortgage products to individuals across the state of New Hampshire. It offers traditional loans, such as fixed- and adjustable-rate mortgages, as well as government-assisted loans and options for individuals who cannot put 20 percent down on a new home.
Granite State Credit Union provides a variety of home mortgage products. Its offerings consist of traditional mortgages and government-assisted loans, as well as programs for first-time home-buyers and affordable home refinances.
Fixed-rate loans are the best choice for homebuyers who plan on staying in their home for an extended period. With fixed-rate loans, buyers can expect their principal and interest rates to remain the same throughout the loanâs lifetime. GSCU offers fixed-rate mortgages for lengths of 10, 15, 20, and 30 years.
An adjustable-rate mortgage (ARM) provides borrowers with an interest rate that may vary throughout the loan term. Typically, these mortgages have a lower initial rate than fixed-rate loans, giving potential customers more financial freedom when looking for a new home.
After the initial period, the rates and payments associated with these mortgages may rise or fall to adjust to market prices. Typically, these costs will fluctuate on an annual basis.
Many companies, including GSCU, provide a cap that prevents these costs from getting too high from one year to the next. GSCU recommends these types of mortgages for home-buyers who do not plan on staying in the house for the loanâs full term. GSCU offers 1/1, 3/1, 5/1, and 7/1 ARMs.
GSCU offers excellent deals on mortgages for first-time buyers. The credit union gives borrowers the flexibility to choose a fixed- or adjustable-rate mortgage and even provides no and low down payment options to first-time buyers. The No Down Payment mortgage allows borrowers to take out a 5/1 ARM and pay zero percent down on the home.
The Low Down Payment Adjustable loan offers a 3 percent down payment with a 3/3 ARM and the option to refinance into a fixed mortgage if so desired. The Low Down Payment Fixed loan offers a 3 percent down payment and a 30-year fixed-rate mortgage. For Low Down Payment Adjustable and Fixed mortgages, borrowers can use gifted funds for the down payments and closing costs on their homes.
Unlike some other credit unions, GSCU offers FHA loans to home-buyers who do not qualify for other loan programs. Borrowers may have a high debt-to-income ratio, low credit score, or the inability to put 20 percent down on the home. The Federal Housing Administration (FHA) created these types of home loans to grant buyers the opportunity to invest in property. GSCU allows 100 percent of the closing costs to be gifted.
GSCU allows veterans, military members, and their spouses to apply for VA loans. These types of mortgages are backed by the U.S. Department of Veterans Affairs (VA). Qualified individuals can make a low down payment on the home and keep up with affordable monthly payments.
The Federal Housing Finance Agency (FHFA) introduced the Home Affordable Refinance Program (HARP) as part of their Making Home Affordable⢠initiative. HARP allows eligible homeowners to refinance their mortgages into a lower interest rate to keep their finances secure. HARP provides this opportunity for individuals who otherwise may not qualify for refinancing due to their declining home value.
Granite State Credit Union offers a variety of online resources that help current and prospective borrowers research home loan options. GSCU’s website contains several mortgage calculators, which assist home-buyers in determining how much they can take out on a home loan.
It also provides information about their different mortgage products, which helps borrowers figure out what type of home loan is right for them. GSCU has a Refer-a-Loan option, which incentivizes borrowers who refer a New Hampshire resident or business owner to procure a loan with the credit union.
In exchange for this referral, both parties can receive $25 for consumer loans or $50 for the mortgage and home equity loans.
Founded in 1945, Granite State Credit Union has provided affordable mortgage rates to New Hampshire residents for over 70 years. Its Nationwide Mortgage Licensing System ID number is 477276.
Since the credit union only services the states of New Hampshire, it does not have many online customer reviews. It is not accredited by the Better Business Bureau, and has no reviews on the site, but maintains an A+ rating.
Although GSCU has flexible mortgage qualifications for individuals taking out FHA loans, its qualification requirements for individuals requesting other home loans are similar to mortgage industry standards.
First and foremost, the credit union prioritizes credit score when approving someone for a loan or for calculating their rates. FICO reports that the industry-standard credit score is 740. However, those with credit scores above 760 can expect the best mortgage rates.
Credit score | Quality | Ease of approval |
760+ | Excellent | Easy |
700-759 | Good | Somewhat easy |
621-699 | Fair | Moderate |
620 and below | Poor | Somewhat difficult |
No credit score | n/a | Difficult |
Buyers should typically expect to put 20 percent down on the home, unless they qualify for a government-assisted loan. In some cases, buyers can anticipate paying as little as zero to three percent on their mortgage down payment.
With certain types of loans, such as first-time home-buyer, FHA, and VA loans, GSCU allows borrowers to use gifted funds to make down payments and pay closing costs. However, those taking out a traditional fixed- or adjustable-rate mortgage should anticipate paying these costs on their own.
Granite State Credit Union (GSCU) was founded in 1945 in Manchester, New Hampshire. Founder John Edward Grace, who previously worked as a city bus driver, put down an initial deposit of $15.
With the work put forth by John and his wife, Betty, GSCU achieved notability and success before merging, in late 2003, with the Acorn Credit Union. GSCU is currently a member of the New Hampshire Credit Union League (NHCUL) and Credit Union National Association (CUNA). It offers a selection of home loan products, including fixed- and adjustable-rate, VA, FHA, HARP, and first-time home-buyer loans.
If you live in New Hampshire, GSCU may be a great fit for you! With a variety of mortgage products, GSCU has something to offer for everyone. For more information, visit their website.
The post GSCU Mortgage Rates Reviews: Today’s Best Analysis appeared first on Good Financial Cents®.
Source: goodfinancialcents.com
Change has to start somewhere, and for many people that change is easier to make if the starting point has some meaning. It can be a birthday, an anniversary, or any other date with some symbolic weight. Most commonly, people choose the beginning of the new year.
If you’re looking for some New Year’s resolutions that will truly change your life, consider adjusting your financial strategy. Here are five things you can do in 2021 to take your money game to the next level.
Interest rates are at near-historic lows, which makes this the perfect time to refinance your debt. Refinancing means switching your loans from your current lender to a new lender in order to take advantage of a lower interest rate. Refinancing can save you thousands of dollars, depending on the original interest rate and total balance.
 For example, letâs say you have a $200,000 30-year mortgage with a 5% interest rate, and you refinance to a 3% interest rate. Your monthly payment will be $244 lower, and youâll save $31,173 in total interest over the life of the loan.Â
You can refinance auto loans, personal loans, and even student loans. However, if you have federal student loans, you may want to hold off on refinancing. Refinancing a federal student loan converts it into a private student loan. This means youâll give up extra perks and benefits like income-driven repayment plans and deferment and forbearance options.
If you have credit card debt, you can pay less interest by transferring the balance to a new card with 0% APR on balance transfers. These special discounts usually last between 12 to 18 months, during which time you wonât be charged interest on the credit card balance.
For instance, letâs say you have a $5,000 balance on a card with a 17% APR. If you only make the minimum payments, youâll pay $1,223.61 in total interest. If you transfer that balance to a card with 0% APR for 12 months and repay the balance in that time, you wonât pay any interest.
There is often a small fee associated with balance transfers, around 3% of balance transfers. For example, if you transfer $5,000, youâll pay a $150 fee. That still leaves a net savings of $1,073.61 in the scenario outlined above.
One of the best things to do for your budget in 2021 is to decrease fixed expenses like your car insurance, internet, cable, and cell phone. Call those providers and try to negotiate a lower rate.
 Go through your transactions for the past few months and write down all the recurring subscriptions like Netflix, Amazon Prime, and DoorDash. Then, group them into categories like âfrequently use,â âsporadically useâ and ârarely useâ. Consider canceling anything you rarely use.
 See if you can get a better deal on your most popular subscriptions. For example, if you and your significant other both pay for Spotify Premium, get a Spotify Duo account instead, and save yourself $83.88 a year.
Most people are missing out on an easy way to earn money through your bank account. You could be leaving hundreds of dollars on the table if you still have a traditional savings account.
According to the FDIC, the current average interest rate on a savings account is 0.05%. Many high-yield savings accounts offer rates between .40% and .60%.Â
Letâs say you have $10,000 in a savings account with .05% interest. After one year, youâll have earned $5.04 in interest. If you moved that amount to a high-yield savings account with .5% interest, you would earn $49.92 in interest over that same time period.
If you’re not investing for retirement yet, this might be the most important financial resolution you can make. Thanks to the power of compound interest, you can start investing now and see huge growth by the time youâre ready to retire.
IRAs and 401(k)s are the two main retirement accounts. Anyone can open an IRA, while only those who have access to an employer-sponsored 401(k) can open one.
 If you’re not sure how to invest in your retirement account, consider hiring a qualified financial planner through the National Association of Personal Financial Advisors (NAPFA).
If youâre not ready to work with a financial planner, you can use a robo advisor like Betterment or Wealthfront, which will create a portfolio based on your age, income, and expected retirement age. Robo advisors have low fees and are designed to help beginner investors.
First, start small. Pick one habit to change at a time. If you try to accomplish five goals at once, you’ll burn out quickly and give up.Â
When you decide on a resolution, break it up into smaller, more manageable tasks. For example, if your goal is to talk to a financial planner about investing, break it down into the following steps:
1) Research financial planners through NAPFA
2) Send introductory emails to three financial planners
3) Choose the one that seems like the best fit
4) Schedule a consultation
Give yourself a deadline to accomplish each of these tasks, and ask a friend to hold you accountable.
Another tip is to tie your resolutions to a bigger goal. Like dieting or starting a new exercise plan, changing your financial habits is hard. If you’re used to grabbing lunch with your co-workers every day, bringing leftovers from home instead will seem like a huge change.
The key is to imagine the future version of yourself who will benefit from the changes you make today. If your goal is to open and contribute to a retirement account, imagine yourself as a senior citizen living comfortably.
When youâre tempted to skip this monthâs retirement contribution to buy concert tickets, think about your future self, what youâd want for them and how they would appreciate your sacrifice. It can also help to remember some of the financial mistakes you’ve made in the past, and how much easier your life would be right now if you had made a different choice.
The post The 5 Best Financial New Year’s Resolutions appeared first on MintLife Blog.
Source: mint.intuit.com
Mia, 35 and her husband Luke, 36, earn a combined $200,000 per year. But after paying their mortgage and rental property loan, as well as car and student loans, child care, and other living expenses, the Los Angeles couple has a difficult time socking away money in savings.
They do have about $10,000 in a rainy day account, which could cover their expenses for about one month. But adding to the account has been proving difficult.
Luke feels confident that if they ever run into a serious financial bind, they could always take advantage of their low-interest home equity line of credit. But Mia isnât comfortable with that route. Sheâd prefer to have more cash on hand.
A bit more background on the couple and where they stand financially:
Luke recently transitioned to a new job as a government attorney, which he loves, but it also meant taking a 50% pay cut. Thatâs impacted their ability to spend and save as comfortably in recent months. It was an unexpected opportunity for which the couple wasnât financially prepared.
Mia and Luke would like an objective look at their finances to discover ways to reduce spending, increase saving and possibly find new revenue streams. âIâd love to figure out a side-hustle, so that I can eventually leave my job and spend more time with the kiddos,â says Mia, who works in marketing. Other goals including affording a new car in a couple of years and remodeling their primary residence.
Hereâs a closer look at their finances:
Income:
Debt:
Retirement:
Emergency Savings: $10,000
College Savings: The couple has 529 college savings funds for both of their children. They allocate their cash back rewards from credit cards towards these accounts. Currently they have about $10,000 saved for their 4-year old and $5,000 saved for their 1-year old child.
Top Monthly Spending Categories:
From my point of view, I think the biggest hole in Mia and Lukeâs finances is their rainy day savings bucket. Relying on a HELOC to cover an unexpected cost is not really an ideal plan. In theory, the money can be used to cover expenses and the interest rate would probably be far lower than the rate on a credit card. But in reality, tapping a HELOC means falling further into debt. They do have $10,000 saved, which is good. But itâs not great.
If not for an emergency, the savings can allow them to achieve other goals. The couple mentioned wanting to buy a car in a couple years. This will probably require a down payment. Having cash can also assist with renovating their home.
Here are my top three recommendations:
Their previous residence is now a rental property. It nets them about $500 per month. The couple is using this money to pad their living expenses. Can they, instead, move this into their savings account for the next few years? The way I see it, they should have a proper six month cushion in savings to tide them over in an emergency and/or if they need money to address their goals. This rental income isnât going to get them to this 6-month reserve too quickly, but itâs a start.
While I donât have a detailed breakdown of all of the familyâs monthly expenses, I can bet that they can pare their expenses to save an additional $300 to $500. A few dinners out, some unplanned purchases at the grocery store (because you took the kids) and a couple monthly subscription plans can easily add up to $500 in one month. Whenever I want to save more, I schedule money to transfer out of my checking and into savings at the top of the month. I do this automatically and only spend whatever money I have left. Iâd suggest doing this for the first month and seeing how it feels. Do you really notice the money is gone? If yes, revisit some of your recurring costs and decide on trade-offs. If Lukeâs salary has decreased by 50% then the couple needs to make some modifications to their spending. The math, otherwise, wonât add up.
Mia is interested in a side hustle, too, to bring in extra income (which I highly recommend). Sites like tutor.com, care.com, taskrabbit.com and others can help you find quick work within her preferred time frame. In the meantime, can she and her husband find ways to adjust their work hours or commute, which saves gas, time and money?
Miaâs commute to work is one hour each way. Thatâs ten hours per week stuck in a car. And my guess is that while Miaâs driving, sheâs paying for daycare, for at least some of those hours. Could she work from home one or two days per week to reduce her time in traffic, as well as her child care costs?
Bottom line: When Lukeâs income dropped by 50%, the couple didnât adjust spending. It may help to take pen to paper and imagine they were building their budget for the first time. Take all of their expenses off the table and rebuild the budget and lifestyle to better align with their adjusted income. Start with the absolute needs first: housing, insurance, food. And really scrutinize all other expenditures. Unless itâs an absolute need that they can easily afford it, consider shutting it off until theyâve reached a 6-month savings pad.
The post We Earn $200,000 and Canât Save. Help! appeared first on MintLife Blog.
Source: mint.intuit.com
Debt comes in all shapes and sizes. You can owe money to utility companies, banks, credit card providers, and the government. Thereâs student loan debt, credit card debt, mortgage debt, and much more. But what are the official categories of debt and how do the payoff strategies for these debts differ?
Categories of Debt
Debt is generally categorized into two simple forms: Secured and Unsecured. The former is secured against an asset, such as a car or loan, and means the lender can seize the asset if you fail to meet your obligations. Unsecured is not secured against anything, reducing the creditorâs control and limiting their options if the repayment terms are not met.
A secured debt provides the lender with some assurances and collateral, which means they are often prepared to provide better interest rates and terms. This is one of the reasons youâre charged astronomical rates for credit cards and short-term loans but are generally offered very favorable rates for home loans and car loans.
If the debtor fails to make payments on an unsecured debt, such as a credit card, then the debtor may file a judgment with the courts or sell it to a collection agency. In the first instance, itâs a lot of hassle without any guarantee. In the second, theyâre selling the debts for cents on the dollar and losing a lot of money. In either case, itâs not ideal, and to offset this they charge much higher interest rates and these rates climb for debtors with a poorer track record.
There is also something known as revolving debt, which can be both unsecured and secured. Revolving debt is anything that offers a continuous cycle of credit and repayment, such as a credit card or a home equity line of credit.Â
Mortgages and federal student loans may also be grouped into separate debts. In the case of mortgages, these are substantial secured loans that use the purchase as collateral. As for federal student loans, they are provided by the government to fund education. They are unsecured and there are many forgiveness programs and options to clear them before the repayment date.
What is a Collection Account?
As discussed above, if payments are missed for several months then the account may be sold to a debt collection agency. This agency will then assume control of the debt, contacting the debtor to try and settle for as much as they can. At this point, the debt can often be settled for a fraction of the amount, as the collection agency likely bought it very cheaply and will make a profit even if it is sold for 30% of its original balance.
Debt collectors are persistent as thatâs their job. They will do everything in their power to collect, whether that means contacting you at work or contacting your family. There are cases when they are not allowed to do this, but in the first instance, they can, especially if theyâre using these methods to track you down and they donât discuss your debts with anyone else.
No one wants the debt collectors after them, but generally, you have more power than they do and unless they sue you, thereâs very little they can do. If this happens to you, we recommend discussing the debts with them and trying to come to an arrangement. Assuming, that is, the debt has not passed the statute of limitations. If it has, then negotiating with them could invalidate that and make you legally responsible for the debt all over again.
Take a look at our guide to the statute of limitations in your state to learn more.
As scary as it can be to have an account in collections, itâs also common. A few years ago, a study found that there are over 70 million accounts in collections, with an average balance of just over $5,000.
Can Bankruptcy Discharge all Debts?
Bankruptcy can help you if you have more debts than you can repay. But itâs not as all-encompassing as many debtors believe.
Chapter 7 bankruptcy will discharge most of your debts, but it wonât touch child support, alimony or tax debt. It also wonât help you with secured debts as the lender will simply repossess or foreclose, taking back their money by cashing in the collateral. Chapter 13 bankruptcy works a little differently and is geared towards repayment as opposed to discharge. You get to keep more of your assets and in exchange you agree to a payment plan that repays your creditors over 3 to 5 years.
However, as with Chapter 7, you canât clear tax debts and you will still need to pay child support and alimony. Most debts, including private student loans, credit card debt, and unsecured loan debt will be discharged with bankruptcy.
Bankruptcy can seriously reduce your credit score in the short term and can remain on your credit report for up to 10 years, so itâs not something to be taken lightly. Your case will also be dismissed if you canât show that you have exhausted all other options.
Differences in Reducing Each Type of Debt
The United States has some of the highest consumer debt in the world. It has become a common part of modern life, but at the same time, we have better options for credit and debt relief, which helps to balance things out a little. Some of the debt relief options at your disposal have been discussed below in relation to each particular type of long-term debt.
The Best Methods for Reducing Loans
If youâre struggling with high-interest loans, debt consolidation can help. A debt consolidation company will provide you with a loan large enough to cover all your debts and in return, they will give you a single long-term debt. This will often have a smaller interest rate and a lower monthly payment, but the term will be much longer, which means youâll pay much more interest overall.
Debt management works in a similar way, only you work directly with a credit union or credit counseling agency and they do all the work for you, before accepting your money and then distributing it to your creditors.
Both forms of debt relief can also help with other unsecured debts. They bring down your debt-to-income ratio, leave you with more disposable income, and allow you to restructure your finances and get your life back on track.
The Best Methods for Reducing Credit Cards
Debt settlement is the ultimate debt relief option and can help you clear all unsecured debt, with many companies specializing in credit card debt.Â
Debt settlement works best when you have lots of derogatory marks and collections, as this is when creditors are more likely to settle. They can negotiate with your creditors for you and clear your debts by an average of 40% to 60%. You just need to pay the full settlement amount and the debt will clear, with the debt settlement company not taking their cut until the entire process has been finalized.
A balance transfer can also help with credit card debt. A balance transfer credit card gives you a 0% APR on all transfers for between 6 and 18 months. Simply move all of your credit card balances into a new balance transfer card and then every cent of your monthly payment will go towards the principal.
The Best Methods for Reducing Secured Debts
Secured debt is a different beast, as your lender can seize the asset if they want to. This makes them much less susceptible to settlement offers and refinancing. However, they will still be keen to avoid the costly foreclosure/repossession process, so contact them as soon as youâre struggling and see if they can offer you anything by way of a grace period or reduced payment.
Most lenders have some form of hardship program and are willing to be flexible if it increases their chances of being repaid in full.
Different Types of Debt is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
Due to financial consequences of COVID-19 â and the broader impact on our economy â now is an excellent time to consider refinancing most loans you have. This can include mortgage debt you have that may be converted to a new loan with a lower interest rate, as well as auto loans, personal loans, and more.
Refinancing student loans can also make sense if youâre willing to transition student loans you currently have into a new loan with a private lender. Make sure to take time to compare rates to see how you could save money on interest, potentially pay down student loans faster, or even both if you took the steps to refinance.
Get Started and Compare Rates Now
Still, itâs important to keep a close eye on policies and changes from the federal government that have already taken place, as well as changes that might come to fruition in the next weeks or months. Currently, all federal student loans are locked in at a 0% APR and payments are suspended during that time. This change started on March 13, 2020 and lasts for 60 days, so borrowers with federal loans can skip payments and avoid interest charges until the middle of May 2020.
Itâs hard to say what will happen after that, but itâs smart to start figuring out your next steps and determining if student loan refinancing makes sense for your situation. Note that, in addition to lower interest rates than you can get with federal student loans, many private student lenders offer signup bonuses as well. With the help of a lower rate and an initial bonus, you could end up far âaheadâ by refinancing in a financial sense.
Still, there are definitely some negatives to consider when it comes to refinancing your student loans, and weâll go over those disadvantages below.
Do you have student loan debt at a higher APR than you want to pay?
Do you have good credit or a cosigner?Â
Do you have federal student loans?
Are you willing to give up federal protections like deferment, forbearance, and income-driven repayment plans?
There are many reasons student borrowers ultimately refinance their student loans, although they can vary from person to person. Here are the main situations where it can make sense to refinance along with the benefits you can expect to receive:
While the reasons to refinance above are good ones, there are plenty of reasons you may want to pause on your refinancing plans. Here are the most common:
Before you move forward with student loan refinancing, there are some details you should know and understand. Here are our top tips and some important factors to keep in mind.
Because student loan refinancing is such a competitive industry, shopping around for loans based on their rates and terms can help you find out which lenders are offering the most lucrative refinancing options for someone with your credit profile and income.
We suggest using Credible to shop for student loan refinancing since this loan platform lets you compare offers from multiple lenders in one place. You can even get prequalified for student loan refinancing and âcheck your rateâ without a hard inquiry on your credit score.
Some student loan refinancing companies let you score a bonus of $100 to $750 just for clicking through a specific link to start the process. This money is free money if youâre able to take advantage, and you can still qualify for low rates and fair loan terms that can help you get ahead.
We definitely suggest checking with lenders that offer bonuses provided you can also score the most competitive rates and terms.
Also keep your personal eligibility in mind, including factors beyond your credit score. Most applicants who are turned down for student loan refinancing are turned away based on their debt-to-income ratio and not their credit score. Generally speaking, this means they owe too much money on all their debts when you compare their liabilities to their income.
Credible also notes that adding a creditworthy cosigner can improve your chances of prequalifying for a loan. They also state that âmany lenders offer cosigner release once borrowers have made a minimum number of on-time payments and can demonstrate they are ready to assume full responsibility for repayment of the loan on their own.â
Also, remember that you donât have to refinance all of your student loans. You can just refinance the loans at the highest interest rates, or any particular loans you believe could benefit from a different repayment term.
Once youâre ready to pull the trigger, there are four simple steps involved in refinancing your student loans.
Before you start the refinancing process, it helps to have all your loan information, including your student loan pay stubs, in one place. This can help you determine the total amount you want to refinance as well as the interest rates and payments you currently have on your loans.
From there, take the time to compare lenders in terms of the rates they can offer. You can use this tool to get the process started.
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Once youâve filled out basic information, you can choose among multiple loan offers. Make sure to check for signup bonus offers as well as interest rates, loan repayment terms, and interest rates you can qualify for.
Once you decide on a lender that offers the best rates and terms, you can move forward with your full student loan refinancing application. Your student loan company will ask for more personal information and details on your existing student loans, which they will combine into your new loan with a new repayment term and monthly payment.
Whether it makes sense to refinance your student loans is a huge question that only you can answer after careful thought and consideration. Make sure you weigh all the pros and cons, including what you may be giving up if youâre refinancing federal loans with a private lender.
Refinancing your student loans can make sense if you have a plan to pay them off, but this strategy works best if you create a debt repayment plan you can stick with for the long-term.
The post Should You Refinance Your Student Loans? appeared first on Good Financial Cents®.
Source: goodfinancialcents.com
Austerity policies are nothing new. But talk about them in the news has recently escalated. In response to its ongoing debt crisis, the Greek government is preparing to implement austerity measures aimed at helping the country regain its financial footing. If you didnât major in economics or you have no clue what austerity means, read on to find out how this fiscal program works.
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Austerity: A Definition
Trust us, austerity isnât as complicated as it sounds. Austerity is a type of economic policy that governments use to deal with budget deficits. A country faces a deficit whenever itâs using more money than itâs earning from tax dollars.
By taking on an austerity package, a government hopes to reign in its spending, improve the status of its economy and avoid defaulting on its unpaid debt. Governments usually take on austerity measures in order to appease their creditors. In exchange, these lenders agree to bail out countries and allow them to borrow more money.
If you look up the word austere in the dictionary, youâll see that it means severe, grave, hard, solemn and serious. Indeed, austerity is nothing to joke about.
Austerity Measures
Austerity plans normally involve increases in different taxes, (property taxes, income taxes, etc.) budget cuts or a push to incorporate both. Government workers could lose their jobs or see their wages and benefits either decline or become stagnant. Hiking up interest rates, adding travel bans and keeping prices at a fixed level could be other strategies put in place to reduce spending.
Naturally, austerity measures typically arenât viewed in the best light because they mean that there might be fewer government programs available to the public. Aid for veterans and low-income families, healthcare coverage and pensions are some of the benefits that normally take a hit when a countryâs using an austerity package. Government services that arenât eliminated might not be as comprehensive or as beneficial as they once were.
As you can see, in an austere environment, conditions are tighter overall. Historically, austerity has been implemented in the US during tough times including World War I, World War II and the Great Recession of 2008.
Greeceâs new austerity package â which government lawmakers finally accepted in July 2015 â will feature less government funding, higher taxes and cuts to pension plans. As a result of this deal, the country was allowed to begin talks with its creditors about a third bailout.
Related Article: All About the Greek Debt Crisis
The Problems With Government Austerity
Experts on the economy tend to go back and forth about how effective austerity can be. Some believe that instead of turning to austerity, the government should pump out more money and borrow as much as possible if an economy is on the rocks.
From a political standpoint, austerity is often controversial and results in riots and demonstrations. Anti-austerity protests erupted in Greece, where quite a few folks say that past austerity programs have only made social and economic conditions worse.
Beyond slowing down the economy, an austerity bill can cause a country to remain in its debt crisis, particularly if itâs in the midst of a recession. As fiscal austerity decreases spending, GDP can go down while unemployment goes up. Consumers can get nervous and stop spending and investing their own money.
In short, austerity policies can make life even more difficult for people who are already struggling. Thatâs why governments tend to turn to them as a last resort if other strategies arenât working.
Why Austerity Might Not Be So Bad
Notable European creditors have argued that austerity can be beneficial to a countryâs long-term economic state. For instance, the International Monetary Fund (IMF) has previously reported that austerity has done more damage than anticipated. But the European Central Bank released a paper saying that austerity has been helpful, at least for some of the weaker eurozone countries.
In fact, austerity has helped strengthen the economies in European countries like Latvia and Iceland. Although Spainâs unemployment remains high, its economy is in better shape overall. Ireland has made considerable progress as well toward rebuilding its economy.
Proponents of austerity policies say that they can make investors feel more optimistic when a country is being run more responsibly. Austerity has the potential to bring a shrinking economy back to life as everyday citizens invest in the private sector instead of relying on support from the federal government.
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The US used austerity measures between 2010 and 2014. Not only were our policies harsher than those employed by the governments in the UK and other European nations, but our economy fared better than theirs.
The Takeaway
The point of austerity is to tighten the governmentâs belt, bring a countryâs debt back down to a more manageable level and stimulate an economy that has stopped growing. Countries generally try to meet these goals by cutting spending and raising taxes.
The debate over whether austerity works continues but one common theme has emerged. Timing matters. Some critics suggest that cutting too much too quickly during a recession can be painful. When introduced more slowly, however, (or when the economy is doing very well,) austerity measures can turn things around.
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