MONEY The Economy

The 2015 State of the Union Address In Under 2 Minutes

President Barack Obama highlighted the recovering economy as well as proposals for free community college, increasing trade with Cuba, and building more infrastructure.

MONEY College

The Problem With Obama’s “Free Community College” Proposal

US President Barack Obama speaks on new proposals for higher education accessibility at Pellissippi State Community College in Knoxville, Tennessee on January 9, 2015. Looking on are US Vice President Joe Biden and his wife Jill Biden.
Mandel Ngan—AFP/Getty Images US President Barack Obama speaks on new proposals for higher education accessibility at Pellissippi State Community College in Knoxville, Tennessee on January 9, 2015. Looking on are US Vice President Joe Biden and his wife Jill Biden.

President Obama's free college plan won't actually raise the number of college graduates without improvements in the way community colleges help students succeed, say two education researchers.

President Obama’s ambitious proposal to make community college tuition free would certainly make enrolling in college more affordable. It may also induce students to stay there longer.

However, reducing costs for students on its own is unlikely to significantly increase the number of students who finish degrees. Consider: Of all of the students who enrolled in public community college for the first time in the fall of 2003, only one-quarter earned any kind of certificate or associate’s degree within six years. Another 12% earned a bachelor’s degree within that six-year period.

If we want to significantly improve educational outcomes, we need to both make college more affordable so more students can enroll, and make the reforms needed to ensure community college students can succeed in their courses, complete their programs, and graduate within a reasonable amount of time.

President Obama’s plan would certainly make community college more affordable. Even for the 40% of community college students whose tuition is already covered by federal and state aid, other expenses (food, transportation, books, etc.) often present insurmountable hurdles. If grants are awarded to eligible students on top of free tuition, as President Obama proposes, then many of these affordability issues would be addressed.

But the Tennessee and Chicago free tuition policies that inspired President Obama also address the broader barriers to success. The affordability improvements in those communities are one part of larger reforms designed to dramatically boost the success of community college students by providing close monitoring of student progress, careful alignment of courses to transfer and job requirements, clearer and more coherent programs of study, and help for students to make better choices about what to study.

Such reforms, many features of which have also been enacted in the City University of New York’s Accelerated Studies in Associate Programs (ASAP), have doubled the graduation rate for participants. But at a cost: ASAP costs 60% more per student than the standard CUNY program.

Laudably, President Obama’s proposal does try to address quality. It includes requirements that community colleges “adopt promising and evidence-based institutional reforms to improve student outcomes.” But his plan does not provide colleges with additional resources to help them in these efforts.

In fact, it is possible that his plan could reduce the money community colleges are able to spend on improving outcomes.

The White House estimates that the free tuition program would cost $6 billion a year. But that money would simply replace the tuition students were already paying, not increase colleges’ revenue. States would be required to pay for one-quarter of this tuition subsidy. Some may raise that money by decreasing the direct subsidies they give colleges now, which currently cover approximately two-thirds of the cost of educating each student.

Despite these obstacles, the president’s proposal opens the door to a broader discussion of a comprehensive strategy for community colleges that emphasizes both affordability and performance.

Community colleges are the launchpad for opportunity for all Americans, enrolling almost half of the nation’s undergraduates. They are especially crucial for those who have, traditionally, been excluded from other kinds of higher education.

For these millions of students seeking brighter futures at community colleges, we need bold and transformative change and renewed public investment to ensure they have college options that are both affordable and of high quality.

Thomas Bailey is director of the Community College Research Center at Teachers College, Columbia University and co-author of the forthcoming Redesigning America’s Community Colleges (Harvard University Press, 2015).

Judith Scott-Clayton is a senior research associate at the Community College Research Center at Teachers College, Columbia University.

TIME Innovation

Five Best Ideas of the Day: January 20

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. Is America willing to do the hard work to mend its racial divide?

By Eric Liu in CNN

2. The first new antibiotic developed in 30 years could turn the tide against the rising resistance of many diseases.

By Brian Handwerk in Smithsonian Magazine

3. Adapting to climate change will buy time, but rising sea levels are a major threat to low-lying cities.

By Laura Parker in National Geographic

4. Is four years too much? More college students are jumpstarting careers by graduating early.

By Rachel Rosenbaum in USA Today College

5. The cargo ship of the future will have a hull that acts as a giant sail, slashing fuel consumption and carbon emissions.

By Fraunhofer Center for Maritime Logistics in Phys.org

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY College

How to Balance Saving for Retirement With Saving for Your Kids’ College Education

Parents often find themselves between a rock and a hard place when it comes to doing what's best for themselves and their children. One financial adviser offers a formula to make it easier.

It’s a uniquely Gen X personal finance dilemma: Should those of us with young children be socking away our savings in 401(k)s and IRAs to make up for Social Security’s predicted shortfall, or in 529s to meet our children’s inevitably gigantic college tuition bills? Ideally, of course, we’d contribute to both—but that would require considerable discretionary income. If you have to chose one over the other, which should you pick?

There are two distinct schools of thought on the answer. The first advocates saving for retirement over college because it’s more important to ensure your own financial health. This is sort of an extension of the put-on-your-own-oxygen-mask-first maxim, and it certainly makes some sense: Your kids can always borrow for college, but you can’t really borrow for retirement, with the exception of a reverse home mortgage, which most advisers think is a terrible idea.

The flip side of this, however, is that while you can choose when to retire and delay it if necessary, you can’t really delay when your kid goes to college. Moreover, the cost of tuition has been rising at a much faster rate than inflation, another argument for making college savings a priority. Finally, many parents don’t want to saddle their young with an enormous amount of debt when they graduate.

According to a recent survey by Sallie Mae and Ipsos, out-of-pocket parental contributions for college, whether from current income or savings, increased in 2014, while borrowing by students and parents actually dropped to the lowest level in five years, perhaps the result of an improved economy and a bull market for stocks. But clearly, parents often find themselves between a rock and a hard place when it comes to doing what’s best for themselves and their children: While 21% of families did not rely on any financial aid or borrowing at all, 7% percent withdrew money from retirement accounts.

If you’re struggling with this decision, one approach that may help is to let time guide your choices, since starting early can make such a huge difference thanks to the power of compound interest. Ideally, this would mean participating in a 401(k) starting at age 25 and contributing anywhere from 10% to 15%, as is currently recommended. Do that for a decade, and even if your income is quite low, the early saving will put you way ahead of the game and give you more leeway for the next phase, which commences when you have children (or, for the sake of my model, when you’re 35).

As soon as your first child is born, open a 529 or similar college savings account. Put in as much money as possible, reducing your retirement contributions if you have to in order to again take advantage of the early start. Meanwhile, your retirement account can continue to grow on its own from reinvested dividends and, hopefully, positive returns. Throw anything you can into the 529s—from the smallest birthday check from grandma to your annual bonus—in the first five or so years of a child’s life, because pretty soon you will have to switch back to saving for retirement again.

By the time you’re 45, you will have two decades of saving and investing under your belt and two portfolios as a result, either of which you can continue to fund depending on its size and your cost calculations for both retirement and college. You probably also now have a substantially larger income and hopefully might be able to contribute to both simultanously moving forward, or make catch-up payments with one or the other if you see major shortfalls. At this point, however, retirement should once again be the central focus for the next decade—until your child heads off to college and you have start writing checks for living expenses, dorm fees, and textbooks. Don’t worry, you still have another 10 to 15 years to earn more money for retirement, although those contributions will have less long-term impact due to the shorter time horizon.

Of course, this strategy doesn’t guarantee that your kids won’t have to apply for scholarships or take out loans, or that you won’t have to put off retiring until 75. But at least you will know that you did everything in your power to try to plan in advance.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.

 

 

 

 

 

MONEY College

Ducks vs. Buckeyes: Bettors Favor Oregon, Employers Prefer Ohio State

Jalin Marshall #17, Corey Smith #84 and Michael Thomas #3 of the Ohio State Buckeyes during Media Day for the College Football Playoff National Championship at Dallas Convention Center on January 10, 2015 in Dallas, Texas.
Ronald Martinez—Getty Images Jalin Marshall #17, Corey Smith #84 and Michael Thomas #3 of the Ohio State Buckeyes during Media Day for the College Football Playoff National Championship at Dallas Convention Center on January 10, 2015 in Dallas, Texas.

Sports fans think Oregon has the better football team, but Ohio state students are more likely to graduate and earn higher salaries.

Bettors are predicting the University of Oregon Ducks will win tonight’s first-ever college football championship against the Ohio State Buckeyes. But according to our research, Buckeyes are more likely to have an edge in life.

A MONEY analysis of the performance of the two colleges indicates that Ohio State students are more likely to graduate, and more likely to find higher-paying jobs, than University of Oregon undergrads:

School MONEY ranking MONEY value-added grade Graduation rate Payscale.com earnings within 5 years
University of Oregon 429 B- 67% $41,000
Ohio State University 144 B+ 83% $46,200

Of course, there are tradeoffs: Buckeyes have to spend their winters in Columbus, Ohio, where the average high temperature in January is just 36 degrees, and they can expect almost 10 inches of rain or snow.

To compare how your favorite teams match up academically, see MONEY’s full Best Colleges list, which ranked the nation’s 665 top schools on educational quality, affordability, and future earnings potential.

More from MONEY’s Best Colleges:
The 25 Best Colleges You Can Actually Get Into
The 20 Best Colleges for Merit Aid
Best 100 Best Colleges If You Need a Student Loan

 

MONEY College

5 Ways to Get Free College Education Even If (When?) Obama’s Plan Dies

Congress probably won't approve the free community college plan, but there are lots of ways you can get free or affordable college courses.

Almost as soon as President Obama floated his proposal for free community college on Thursday night, experts began explaining the political, economic, and practical reasons it was unlikely ever to become a reality.

Chances are slim, it was pointed out, that he can persuade a Republican-controlled Congress to approve and fund the expensive plan

And community college leaders worried about their ability to handle a big influx of students attracted by free courses, some noting that insufficient revenues and high demand have forced some community colleges to turn away students in recent years.

But don’t despair: Many other programs are already making college free for thousands of students. And there are other proposals to eliminate up-front tuition that could open the college gates to more students in the future.

Here are five ways you can find free or very affordable college courses right now:

1) Some states and cities already have free or low-cost community college tuition. The Tennessee Promise, which is the model for President Obama’s plan, waives tuition not covered by other aid programs for students who file a Free Application for Federal Student Aid (FAFSA), donate eight hours of community service each semester, and earn a C grade point average. Similar programs are being debated in Oregon, Texas, Mississippi, and Chicago. Community colleges in California, the most affordable in the country, charge less than $1,500 a year in tuition and fees.

2) Financial aid and tax benefits already cover most community college tuition. The average community college charges about $3,350 a year in tuition and fees. By taking advantage of the $2,500 federal tuition tax credits, as well as financial aid such as the federal Pell Grant, the average community college student gets enough aid to cover tuition and the approximately $1,000 book bill, according to research by the College Board.

3) Alternative free college proposals. Several states are considering “Pay It Forward” proposals that would allow students to attend college without paying any tuition right away and instead repaying a percentage of their income over time. And other “free college” plans have also gained traction.

4) Established free college programs: The military, work colleges, and many generous colleges offer ways to get free college educations.

5) Free online courses: There are hundreds of free Massive Open Online Courses (MOOCs). Many, for a nominal fee, will award you college credits.

TIME Education

New Liberal Rallying Cry: ‘Free Higher Ed For Everyone!’

college homework
Getty Images

President Obama announced Thursday a new proposal to cover the cost of two years of community college tuition for any and all American students who maintain good grades.

While the plan seemed radical to some—and others wondered how the U.S. government would pay for it—the idea of providing access to free higher education has gradually become a mainstream talking point among liberal and progressive intelligentsia in the last few years. Now that healthcare is off the table, the next big liberal agenda item appears to be universal higher ed.

The argument is essentially economic: there is a gaping chasm between the level of education the American workforce has versus the level it needs to qualify for the jobs of today, and of the future. That’s largely because hundreds of millions of working class Americans, who were raised in the 1960s, ’70s, ’80s and even ’90s, didn’t grow up with computers and didn’t get an advanced degree. Instead, they got manufacturing and factory jobs when they graduated from high school. But fast-forward to today and those manufacturing and factory jobs simply don’t exist anymore. The vast majority of jobs available in the current economy require at least associate’s degrees, and more often bachelor’s degrees—not to mention competency online.

It’s that economic reality that has lead people like Robert Shapiro, a former economic advisor for both Clinton and Obama, to suggest that community colleges should offer free, voluntary and regular Internet and information technology classes at night “to any adult in America” who wants it.

“There is a social responsibility and and a large aggregate economic benefit to upgrade all those skills,” Shapiro told TIME in an interview late last year. “And these are not skills for a particular profession; they are general purpose skills. And you could do it easily for under a billion dollars a year because the investment is already there. You’ve already got the computer labs, you’ve already got the computers. This a a traditional mission of the community colleges.”

William Galston, a fellow at the Brookings Institution and a former domestic policy advisor to Bill Clinton, has suggested that the U.S. government should come right out and create a nationwide online public university—the National Online University, he calls it—where anyone could get a degree, in their own time, for free.

Even conservative economists such as Douglas Holtz-Eakin, who served as John McCain’s chief economic policy adviser in 2008 and is now the head of the right-leaning think tank, American Action Forum, have argued that access to higher education (although not free) and reformed skills-trainings to Americans would be a boon for the economy.

The problems, he says, are twofold. One, who’s going to pay for all this free education? And two, how do you explain to lawmakers and taxpayers today that they’re not going to see the immediate effects of this investment?

“The big disconnect between the politics and the policy is the time scale,” he told TIME last year. “You go and talk to [policy] people and they say, ‘We gotta fix the K-12 education system, the higher education system…we have to create lifelong learning and genuine retraining programs.’ And that’s all true. But it won’t affect this core troubling economic phenomenon today.” Programs that provide 20-year-olds the skills they need to compete in the global marketplace are important, he said, “but you’re not going to see the effects of that until 2036.”

Obama’s announcement Thursday fell under immediate criticism from Congressional Republicans. Speaker of the House John Boehner’s spokesman dismissed it as “more like a talking point than a plan,” while Sen. Lamar Alexander, who chairs the Senate committee on education, decried creating a “new federal program.” Alexander suggested instead streamlining existing state programs.

“[I]nstead of creating a new federal program, the federal government can help in two ways. First, reduce federal paperwork for the ridiculous 108-question student aid application form which discourages 2 million Americans from applying for federal Pell grants that are already available to help pay community college tuition,” Alexander wrote in a statement. And second, pay for the millions of new Pell grants that will be awarded if states are able to “reduce federal paperwork” and therefore allow “students to use Pell grants year-round.”

On Thursday, the White House statement said its new plan would save the average community-college student $3,800 annually and benefit 9 million if fully realized.

TIME

Morning Must Reads: January 9

Capitol
Mark Wilson—Getty Images The early morning sun rises behind the US Capitol Building in Washington, DC.

Paris Terror Suspects Cornered

The prime suspects in Wednesday’s attack at the offices of satirical newspaper Charlie Hebdo fired shots at French police as the massive dragnet closed on them in a factory northeast of Paris, close to Charles de Gaulle Airport, with at least one hostage. They have told negotiators they want to die as martyrs

See If You’re Likely to Get the Flu

It’s not enough to know if your state is a flu hot zone. Now you can find out if the street you live on is teeming with flu cases, with these apps and websites

Obama’s Community College Plan

The President announced a proposal Thursday to provide two years of free community college tuition to students who maintain good grades

Game of Thrones Returns April 12

HBO announced Thursday that the fifth season of Game of Thrones will premiere on Sunday, April 12 at 9 p.m. E.T. Veep and Silicon Valley will both return that day as well, providing some much-needed comic relief after the bloody show

Signals Detected From AirAsia Black Boxes

Indonesia says it has detected signals from the black-box recorders of downed AirAsia Flight 8501 and is racing to recover them. “A ship detected the pings. The divers are trying to reach it,” S.B. Supriyadi, search-operations director, told media

Apple App Store Has Its Biggest Day Ever

Apple revealed that over the first week of January, customers spent nearly $500 million on iOS apps, a new record for the company. Apple said app sales rose 50 percent year-over-year and the company paid out $10 billion to developers in 2014

Keystone Pipeline Is Overrated by Both Sides

For the past several years, Republicans and Democrats have used the Keystone XL pipeline to prove their economic or environmental bona fides. The debate burns so brightly that it distracts from more illuminating subjects, like how much it really matters

Angelina Jolie Meets Pope Francis

Angelina Jolie, who was in Rome this week for a screening of her film Unbroken, met privately with Pope Francis at the Vatican on Thursday. The actress met other high-profile figures last year, including Queen Elizabeth, who named her an honorary dame

Ohio Switches Up Lethal-Injection Drugs

Ohio announced on Thursday it would drop a controversial two-drug combination used last year in the prolonged execution of Dennis McGuire. The state said it will revert back to a previously used drug, but it’s unclear how the state will obtain it

Ka-Boom! 2 Black Holes Get Ready to Collide

For cosmic drama, nothing should beat a supermassive black hole. It turns out that something does beat a giant black hole: two giant black holes, especially ones circling each other like wary Sumo wrestlers getting ready to grapple

NFL Didn’t See Ray Rice Tape Before Its Release

An investigation led by former FBI Director Robert S. Mueller III found no evidence that the NFL received the video of Baltimore Ravens star Ray Rice striking his then fiancée in a casino elevator before it was released in September

Andrae Crouch, Legendary Gospel Figure, Dies at 72

Andrae Crouch, a legendary gospel performer, songwriter and choir director, has died. Crouch died on Thursday at Northridge Hospital Medical Center, where he had been admitted on Saturday after suffering a heart attack

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MONEY Ask the Expert

Why You Might Want to Take Student Loans Before Using Up College Savings

Ask the Expert - Family Finance illustration
Robert A. Di Ieso, Jr.

Q: “My daughter will be starting college this fall. I’m estimating the tuition will be about $25,000 each year. I’ve got about $45,000 put aside in a 529 for her. When should I tap that money?” —Henry Winkler, Colorado

A: The first thing you and your daughter should do is fill out a FAFSA, the federal financial aid application. Even if you think your household income will be too great to qualify for aid, it’s worth applying just to be certain, says Mark Kantrowitz, publisher of Edvisors.com, a website that helps people plan and pay for college. “I have seen many cases where families assume they won’t receive any aid, but actually do qualify based on the number of children they have currently attending college or because the high costs of the tuition resulted in a lower than expected family contribution amount.”

Don’t worry that the savings you currently have in your 529 will hurt her chances for aid either. Federal aid will be reduced by no more than 5.64% of the value of the account and account distributions are not considered income, Kantrowitz says.

Next, she should apply for the most available in federal direct student loans. In her first year, she can borrow $5,500. In her second year, $6,500, and any of the years following up to $7,500. Because you only get to borrow a certain amount in these direct federal student loans—which have much lower interest rates than Parent PLUS loans or private loans—it’s worth borrowing the max each year and accruing that interest rather than waiting and trying to borrow the full cost of college her third or fourth year, says Kantrowitz.

If you have other savings accounts you can draw from, Kantrowitz recommends setting aside $4,000 a year from such an account for your daughter’s college education so that you can take advantage of the American Opportunity Tax Credit.

With this credit, you get 100% of the first $2,000 you spend on tuition, fees and course materials paid during the year, plus 25% of the next $2,000. The credit is worth $2,500 off your tax bill. Also, 40% of the credit (up to $1,000) is refundable, which means you can get it even if you owe no tax.

The caveat: You will need to have a modified adjusted gross income of $80,000 or less, or $160,000 or less for married couples, a year to get the full benefit. If you earn more than $90,000 or $180,000 for joint filers, you cannot claim the credit.

You cannot use any of the funds from your 529 to qualify for the tax credit since that plan is already a form of tax-free educational assistance. If you do not have an additional $4,000 a year to put toward her education, you can also qualify for the credit by using the student loan amount she received—but just know that you may not be also able to claim the student loan deduction on that amount since you’ve already received a tax break on it, says Kantrowitz. (Right now you can claim both, but Kantrowitz says that could change in the future.)

After deducting any grant aid, her student loan sum, and the $4,000 from another savings account, pay the remaining education expenses with funds from the 529 plan.

“Under this plan it is likely your 529 will be exhausted after her third year of college, or sooner if you don’t put aside that additional $4,000 for the tax credit each year,” says Kantrowitz.

To make up the difference you’ll need to secure another loan. If you own a home, consider home equity financing before PLUS loans, since the latter currently carry a 7.21% interest rate and come with an “origination” fee of about 4.3% of the principal amount you borrow.

If you must take the PLUS, you might be tempted to try to lock in current interest rates by borrowing to cover the first two years’ worth of expenses. But you’d end up having to borrow more since she’ll be getting less federal loan money those first two years, and you’d have to pay two more year’s worth of interest. Even with possible rate increases, you’re still better off taking the PLUS loans in her last two years.

RELATED:

MONEY consumer psychology

7 Reasons to Pretend You Make Less Money

Trick your brain and your wallet will follow.

We all know you can get in financial trouble by pretending to have more money than you actually do — and most of us know that you can’t make an educated guess at someone’s salary by checking out the car they drive. So you can appear to be wealthy even if you’re not. But can you get ahead by telling yourself (and intimating to others) that your paycheck is smaller than it actually is? There are some pretty compelling reasons to do it, and you could find yourself in a far better position than if your paycheck just barely covers expenses.

Here are some reasons to consider pretending your paycheck is just a bit smaller than it really is.

1. Sock Away Money in an Emergency Fund

If you don’t have an emergency fund (or even if you do), you can pretty much count on having an emergency. Car transmissions break, you need to travel unexpectedly or someone in your family ends up needing help. Experts recommend six to 12 months’ worth of expenses in your emergency fund. If you don’t yet have that, you may want to make sure you have access to credit. (You can check your free credit report summary on Credit.com to get an idea of how you would be judged by potential lenders.) But having the money saved is a better alternative.

2. Pay Down Debt Faster

If you pretend you make, say, 10% less than you actually do, you can probably cut expenses to accommodate the reduced pay. But the money you will save isn’t pretend — and you can send it to your creditors, reducing or eliminating debt much more quickly. This little fib helps keep your spending in check, which will free you to direct the money someplace else, making some other dream a reality more quickly. You can even figure out a timeline for getting out of credit card debt with this nifty calculator.

3. Save for a Down Payment or Your Kid’s College

Whether you’re looking to buy a house, educate a child or take a trip around the world, your dream is likely to require a significant chunk of change. And one way to get that is to pretend that earmarked money does not even exist. You can have it transferred into a designated account the same day you get paid so that you are not tempted to use it for the heavily discounted camping equipment that you know about because the advertisement for it popped up in your inbox. (Another money-saving hint: Most of us will spend less if we unsubscribe.)

4. Put More Money in Retirement Savings

Retirement seems a long way off when you are in your 20s, and it is. But most people’s expenses grow with time (particularly if you choose to raise children). It is not going to suddenly become easier to save more, at least not until you have far less time to do it, and the money has less time to grow. How many people have you heard complaining that they wished they hadn’t saved so much for retirement?

5. Friends Won’t Pressure You to Splurge

We’re not suggesting you do away with little luxuries altogether. You and a friend want to go get manicures? Go for it (sometimes). But think about whether all of your get-togethers need to involve a meal out, shopping or manicures. Maybe they made a resolution to move more. Walks can do double duty to help get your body and finances in better shape. And if your friends know you are on a beer budget, chances are they won’t assume you have a champagne salary.

6. Friends & Family Won’t Consider You a Human ATM

Do you often or always pick up the tab for groups because you can afford it? If you say, “my treat” too often, it’s possible you’re sending a signal that because you have more, you have an obligation to share it with your friends and family. You may feel that way as well, and if you do, you would be especially wise to pretend you have a little less money than you actually do. If you do choose to give or lend money to friends and relatives, make sure everyone is clear on what is a gift and what is a loan. Money misunderstandings have the potential to damage relationships.

7. Your Income Could Drop

It’s easy — and tempting — to think your salary will be on an upward trajectory from your first day of work until your last. (Don’t the retirement calculators assume that?) And who plans for a furlough or the loss of a big client? During hard times, it’s not unheard-of for companies to levy across-the-board salary cuts. And if you’re acting as if you make every dime that you actually do, it will be harder to adjust than if you’ve been acting as if you made less.

More from Credit.com

This article originally appeared on Credit.com.

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