Blog   Tagged ‘debt’

Watching the Forecast: Ag interest rates may soon rise

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If you are an agribusiness leader, you have many variables to consider in today’s market. Weather patterns spanning across the too wet/too dry continuum continue to baffle producers. Grain and commodity prices have started to gain strength, and both are up from recent levels but are still below the highs of the past several years. And land prices continue to hold (for now) at historically high levels in many areas of the country.

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These factors are all important, but there is one other variable that may be the most important when planning for your financial future: interest rates. With historically low rates currently being offered for operating lines of credit, as well as some floating rate term debt financing that has been put in place during the last four to five years, it’s important to remember that interest rates can change as fast and dramatically as corn prices.

As the American economy improves and the Federal Reserve Bank looks at beginning to ease its securities purchasing, the stage is set for a return to “normal” interest scenarios during the next couple of years. As that happens, producers with large floating rate exposure can expect to see their interest expense double or even triple during that same time frame. The range between fixedand floating rates will also expand, returning to levels similar to those before the financial crisis. When that happens, borrowers with only floating rates will be at the mercy of the financial markets in terms of controlling their interest expense.

Reviewing your balance sheets and future cash flows now – with an eye toward the next several years – can both produce large potential interest expense savings and protect against possible loan repayment challenges. As you look ahead, here are four steps to better financial planning:

  1. Review your current debt and forecast projected debt levels for the next four years. Include your amounts, repayments required, current rates, and most importantly, whether your rates are fixed or floating.
  2. Optimize how you use your fixed assets (land or equipment) for securing the minimum level of total debt anticipated each year. This should be done regardless of whether it is presently for revolving/working capital lines or fixed assets.
  3. Determine your available cash flow for debt service during the next four years.
  4. Structure new fixed-rate debt now by using a conservative debt service coverage ratio (1.3 to 1 or greater).

By fixing rates now, with proper use of fixed assets as collateral, and carefully forecasting future operational cash flows, you can effectively lock in today’s historically low rates, save tens of thousands of dollars or more in interest expense, and be far better prepared to manage other variables that may come into play.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Watson serves as president of the UMB Agribusiness Division. He joined UMB in August of 2005 and has also served as the president of the UMB Kansas region. Watson is a graduate of Wabash College in Crawfordsville, Indiana with a major in Psychology. He has also attended The Colorado School of Banking, The National Commercial Lending School (where he has also been an instructor), and the Stonier Graduate School of Banking.

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Simplifying your credit

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When was the last time you downloaded your credit score? If you can’t remember or you have never checked it, you should consider taking a look at it soon. But you’re not alone. Two thirds of the population have not downloaded their credit report in the past year, despite the fact that the average American owes $118,000 in debt. This includes mortgage, student loans, credit card debt, etc.

Pie Chart Downloaded Credit Report in Last 12 Months

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Why do you need to know your credit score? High debt combined with little to no information about your credit score could put you in a risky financial situation. If you have so much debt that you can’t keep up with it and your regular monthly bills, you might end up paying a bill late or forget to pay it at all. This will lead to a lower credit score. Then when you go to apply for a home or car loan, you could be either denied or receive a higher than normal interest rate based on your lowered score.

Unfortunately, this has become a very common scenario. Many people are living month-to-month and often carry over their credit card debt each month just like their regular bills. One third of working adults don’t pay bills on time in part due to the number of accounts they have. Many have trouble keeping up with monthly expenses, requiring them to dip into savings to cover regular expenses.

Pie Chart Pay Bills on Time

Did you know that there are ways to reduce your loan interest rates and monthly payments? You can also reduce the number of payments you owe and even earn money with rewards points from certain credit cards.

To simplify your credit, consider the following options:

  • Use the bill pay option with your bank

    This saves time and you can go to one place to manage all of your bills and schedule them to pay once per month.

  • Consolidate your debt

    Consolidating your debt allows you to have one payment for all your debt and you can usually obtain a lower interest rate. This can allow you to pay your debt in less time for less money.

  • Reduce the number of credit cards you use

    This is another way to help you keep track of your spending and bills. Consider using a credit card that allows you to earn rewards. When you use the card you can earn points toward purchases, helping you save money.

  • Take advantage of low interest rates

    If you refinance your current mortgage to the low rates available now, you can save on your monthly payment. This is also true of auto loan rates.

If you feel overwhelmed by debt and monthly bills, take advantage of these ways to simplify your credit to help you work on becoming debt-free. Even if you don’t have much personal debt, it’s still a good idea to consider these tips to organize your finances, save money, and monitor your credit.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Burditt serves as senior vice president of customer experience in UMB’s Consumer Division. He is responsible for developmental and strategic direction of the UMB consumer customer experience. He joined UMB in 2011. Mr. Burditt earned a Bachelor of Science degree in agricultural journalism from the University of Missouri-Columbia. He also is a graduate of the Greater Kansas City Chamber of Commerce’s Centurions program.

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Paying off student loans doesn’t have to be a life sentence

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Picture yourself graduating from college. You may have landed a great job and moved into your own apartment. Or maybe you’re getting some work experience with an unpaid internship and you’ve moved back in with your parents for a few years. You may also have close to $30,000 in student loan debt that you feel like you’ll be paying off for the rest of your life.

You’re not alone. Before you go off to college, you might want to consider alternatives to student loans. Many people realize too late that they can’t afford the debt from their college expenses. Tuition, room and board, books and other costs over four or more years add up quickly. Not to mention if you choose to pursue an advanced degree.

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Student loan delinquencies in the U.S. are rising quickly. Student loan debt is also on the rise. The average student loan debt was $17,233 in 2005. In 2012, it had climbed to $27,253, an increase of more than 58 percent in just seven years.

Student Loan Delinquencies
Information from research done by FICO Labs

This debt increase combined with a slowly recovering economy has created an unstable situation; one that’s leading many to default on their student loan payments.

You might think defaulting on a loan isn’t a big deal. But, when you default on a loan, your credit rating drops and it’s more difficult to get approval for new credit. It’s a vicious cycle and it’s only getting worse. As more people default on their student loans, more of the population has lower credit scores, less access to credit and less opportunity to help grow the economy.

But this doesn’t mean you should skip college and go straight to working full-time. Student loans aren’t the only option to help pay for education. You do need to be prepared though. Don’t wait until you’re a senior in high school to start thinking about the following options:

  • Research scholarships and grants. As opposed to loans, students don’t have to pay back these types of financial aid.
  • Once you’re accepted to a school, research the least expensive options for non-tuition expenses (used books, on-campus housing, meal plans, etc.).
  • Get involved in the process so you can learn valuable financial lessons for the future. If you’re involved in the process from the start, you will have a better understanding of how to manage your money after college.

 

When you click links marked with the “‡” symbol, you will leave UMB’s website and go to websites that are not controlled by or affiliated with UMB. We have provided these links for your convenience. However, we do not endorse or guarantee any products or services you may view on other sites. Other websites may not follow the same privacy policies and security procedures that UMB does, so please review their policies and procedures carefully.


Mr. Stone serves as vice president, financial center manager and is responsible for leading the execution of sales and client experience within the financial center. He joined UMB in 2005. Stone earned a Bachelor of Science in Management from Baker University in Baldwin, Kan.

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