Who Do You Owe?

The student loan program is actually a federally-backed funding of money to students who could not otherwise afford the costs of college.  The actual loan, however, is given through a private financial institution, and, like any normal debt, must be paid back in full or in the form of monthly payments.  The beauty of these loans is that interest is not charged on them until the individual is no longer a full-time student, either through graduation or dropping out of college prior to graduation.   And, the interest rates on these loans are typically much lower than a conventional personal loan.  If you have student loans, you must make arrangements for repayment upon leaving college.  If you have huge debt, however, you may want to explore options for repayment that will be less painful.

Paying Now

Certainly, if an individual has secured great employment and the student loan debt is not exorbitant, it would be wise to set up payment arrangements right away and to begin to chip away at that debt.  This debt does appear on one’s credit report, and regular payments will be reported just as with any other debt.  So, if payments are beginning immediately, it is important to make them on time in order to maintain a good credit score.

If the debt is substantial and there is still the desire to begin repayment, some individuals consider a consolidation loan.  This wraps all student loan debt into one large loan, and the payment is typically lower than the individual loan payments would have been.  A word of caution here:  the new interest rate is likely to be higher, so the debt will end up costing more.

Paying Later

Almost anyone can obtain a deferment on student loans.  Deferments mean that, for a period of time, no payments will have to be made, and, in most instances, interest will be suspended.  Deferments are automatic for those who enter military service or who go on to graduate school.  For other types of deferments, there will be more justification needed, but, in most all cases, they are granted.  Be certain to complete the proper forms, for no deferment will be granted without the correct application for it.

The reasoning for obtaining deferment is pretty sound.  It is anticipated that, as an individual progresses in his/her career, income will steadily increase, and the repayment will become much less painful.  If an individual enters a career with a relatively low initial salary but anticipates that advancement will occur quickly, deferring loans is probably a wise course.  Doctors, for example, enter their profession as interns and then residents.  Income is typically tiny compared to the anticipated income once these first career phases are over.  It makes sense to defer loan payments in this instance.

A word of caution:  A deferred student loan still appears on the credit report.  While there is no payment indicated, the total amount borrowed is shown.  In the past, potential lenders did not look at deferred student loans when analyzing an individual’s total debt, but this is no longer true.  It may be difficult to qualify for a mortgage loan, therefore, if the student loan debt pushes the total debt amount beyond what a lender will allow.

Share This

The Holiday Temptation

With all of the monthly expenses throughout the year, it is difficult to set aside the extra money that is most assuredly required for Christmas.  And when family giving is rather extravagant, it is difficult to be the one who has to “cut back” and do less than others.  With all of the holiday hype, however, including new products, glamorous options, and the bombardment of catalogues and internet advertising, it is easy to sit on the telephone or the computer and rack up credit card debt, buying expensive gifts for everyone on one’s list.  Visiting the mall can be just as dangerous, because the holiday spirit catches on and the atmosphere is spent, spent, and spent.

Here Come The Bills

In January, the bills come in, and there is the shock of exactly how much debt has been accumulated and how long it will take to pay it off making the minimum payments on each of several credit cards.  And all of this must be done before next Christmas, because the spending will have to occur all over.  Thus the cycle begins of debt for one’s entire lifetime

Paying the Piper

Paying off the Christmas debt needs to be a matter or both organization and self-discipline.  It is time now to write down each credit card amount total.  Divide each of the totals by the minimum payment required, and you will get a number of months.  Begin with the smallest number of months, and put as much onto that bill as possible while be certain to make the minimum payments on the others.  Once the first card is paid off, take that payment and add it to the minimum payment you have been making on the second one.  Continuing this pattern, you will pay off the cards with as little interest as possible given the circumstances.  Any income tax refund or “windfall” of money must be spent on these bills and not on any luxury or unnecessary items you may want right now. 

Avoid the cycle

Though it may be difficult, it is important to develop some type of savings plan for Christmas.  Open a savings account specifically for Christmas and nothing else.  Throughout the year, put something into this account each month. The more cash you have for next Christmas, the less you will have to put on a credit card.  As well, it would not be unseemly to suggest to family and friend that everyone cut down on the gift giving in future years.  After all, many of them may be doing just as you are and regretting it later.  Christmas can be just as fun with small gifts or with name-drawing among adult family members and reserving the larger expenditures for one’s children or immediate family.

Share This

The Debt Cycle

Reaching adulthood involves becoming financially responsible for oneself.  If adequate training and practice has occurred, an individual moves into adult life with the concepts of work, earning a salary and paying bills.  If training has been inadequate or the individual has an impulsive behavior pattern, the concepts get a bit twisted, and the result can be overwhelming debt.

Causes of Debt

The following are typical causes of excess personal debt:

1. Inability to defer gratification.  Society bombards individuals with the trappings of the good life.  New cars, beautiful homes, the latest technology, fashionable clothes, luxury dining and vacations are all touted as being indicative of the individual who knows how to “live.”  It is difficult to admit to oneself and to others that you cannot afford these things, and so credit is used to buy, buy, buy.
2. Failure to establish a budget.  It is incredible how many people go from payday to payday without thought to how and where the money is spent.  When they run out, credit is used to “make it” until the next payday.  The result is debt that rarely gets paid off, and minimum payments become a fact of life forever.
3. Sometimes, circumstances put otherwise responsible people into debt, usually major health problems or loss of career late in life.  In these instances, credit sometimes has to be used just for necessities.

Breaking the Cycle

There are some very basic steps which must be taken when someone falls into categories 1 or 2 listed above.

1. Get some budget and debt counseling.  There are a number of non-profit organizations that will assist debtors with establishing a livable budget and developing a plan for eliminating debt in an organized, progressive manner.  Debt consolidation may be an option, but it should be considered carefully and only used when the credit cards are cut up and the accounts closed.
2. Establish your own plan for eliminating the debt.  This will involve not only setting a strict budget but, as well, a progressive plan for paying off the current debt.  Begin with the smallest debt and pour as much on it as possible until it is gone.  Go on to the next, adding all of the money used to pay off the first debt to the regular payment on this one.  Progress through each debt in this manner and commit to no more debt until everything is paid off.  This plan is not fun and may take a few years, but the rewards will be nightly sleep and no more stress in personal lives.
3. Consider a second part-time job.  While this is not always possible, if one has the energy and the additional few hours a day or on weekends, the entire amount from this additional job can be used directly toward debt elimination.  

Share This

What Qualifies as Debt

A debt is any obligation of an individual to pay another individual or entity for loaned money, or for the purchase of goods or services.  The most common types of debt are mortgages, car loans, credit card or other revolving debt (e.g., personal loans), medical bills, and student loans.  The wise consumer looks carefully at all of the details of a debt contract before entering into the agreement.  The difference between good debt and bad debt involves several factors.

Amount of Debt

Before entering into any debt, be certain that the amount being borrowed or the credit limit on a credit card is a total with which you can live.  If you make $45,000.00 a year, incurring $30,000.00 in non-mortgage debt is not responsible.  Payments will be far greater than you can afford, even if they are stretched out over a prolonged period of time.  Be certain that the amount of non-mortgage annual debt is no more than 20% of your total income.  Too much debt is bad debt.

Interest Rate

Interest rates vary greatly and are usually dependent upon the borrower’s credit score and income.  The greater the risk, the higher the interest rate is likely to be.  Further, an individual with poor credit usually cannot obtain credit from reputable, established traditional sources.  Often, loans will have to be obtained from finance/loan companies which work only with poor credit risks.  Interest rates are likely to be exorbitant.  If your credit is poor and you must seek non-traditional sources for loans, that is, other than established credit card companies or banking institutions, then your debt is bad debt.  You will be paying terribly high interest rates.

Penalties

A thorough understanding of any penalties involved in the repayment process is critical.  A traditional, reputable creditor will usually have penalties involved for late payments and, in the case of mortgages, a pre-payment penalty.  There may also be provisions that if payments are late, a higher interest rate will be charged from that point forward.  With less traditional loan sources, late payments may be treated in a predatory manner, that is, there may be severe penalties and an extremely large increase in interest rate.  Any debt that has severe late payment penalties and exorbitant interest rate increases is a bad debt.

Nature of the Debt

Bad debt can also be defined as debt incurred for luxury items which places the debtor into an untenable credit position.  This type of bad debt is not the fault of the creditors per se, but, rather, the lack of self-discipline on the part of the debtor.  Luxury items should never be purchased on credit but only as cash is available to pay for them.  In this way, credit will be available for emergencies and necessities when a cash crunch occurs.

Share This

Budgeting your money for a vacation

Want to start off the year feeling relaxed in the warm sun in the Caribbean? Or, how about jumping on a cruise and sailing one of the seven seas? Heading down to Florida for a week? No matter where you would like to go on vacation this winter, it’s probably not worth it if the price tag is too high. Of course, you want to go away and come back feeling better about yourself, but will that be possible if you’re coming back to a mountain of debt? In order to avoid this, think about how much money you can afford to spend on a vacation to someplace warm this winter and then find the appropriate place. It’s probably not a good idea to start planning a vacation for next week. Instead, give yourself time to adequately pick a place and find the best deal. This might even give you some extra time to save up some extra cash. This way, you can go away without worrying about how it will affect your financial situation once you come back.

Avoiding excessive spending on vacation

So, you’ve found the perfect deal on a winter vacation, paid it off in full (hopefully!) and avoided resorting to dragging your credit card more deeply in debt for the sake of getting away for a week. Nice job. But, how do you plan to pay for everything involved with taking a vacation? If you were able to secure an all-inclusive vacation, all the better! But, chances are, you’re going to need extra spending money for food, transportation, some souvenirs, etc. Before the date of your vacation even approaches, be sure to think about these aspects and carefully take into consideration that you will most likely need extra spending money for your vacation.

Creating a plan to eliminate any unnecessary debt

With all of this in mind, how can you still avoid debt before you even set sail or jump on a plane for your vacation? Have a plan! Ideally, you will have enough cash on you to handle all your vacation expenses. Many Americans tend to be more carefree on vacation and spend money without thinking about the consequences on vacation. You only get the chance to get away and let loose once in awhile, right? Well, before you start thinking like that, anticipate the money you will need and plan for it. This way, you won’t be looking back at your trip and wondering how you spent so much money. Instead, you’ll return debt-free, relaxed and ready to get back to your life—without any unnecessary hangovers from your vacation!

Share This

Finding the problem quickly

Welcome to 2008—the year you’re going to make plenty of changes in your life. Right? Well, while you’re getting ready to throw the cigarettes into the trash can and step out onto the treadmill to the future, think about this. You could try and stick out that nicotine craving or keep heading to the gym every day after work, but that would be hard. It would require effort and would mean you would need to make tons of sacrifices. But, did you know that there’s something you can do that will completely change your life without forcing you to completely change your life? Managing your debt! Sure, it seems like it might be hard, but it actually can be simple and only requires you to make some minor changes to your life. If you follow them, you could be a different person at the end of the year. So, admit that you need to make a change with concerns to your debt and set out to make that change. Let’s go!

Steps to help you manage debt easily

Do you have a budget? Do you know how much debt you currently have? Do you know how long it might take you to pay off that debt? Do you know what steps you might have to take to eliminate the debt? If you don’t know the answers to these rather simple questions, chances are you need to start thinking about your debt in a new way. How? Well, for one, sit down and make a list of the things you would like to change about your financial status. And then start doing them. Figure out how much money you make every month versus how much you spend. Could you be doing things differently to put more money in your pocket? Maybe it requires you to pack a lunch twice a week instead of buying your lunch at that fast-food joint. Second, figure out how you could use some of that extra cash to pay down your debt. If you can figure out how to save just a few dollars every month, you could be paying off more than just your minimum payments on that credit card debt that’s sill haunting you. The key is to simply sit down once and figure out where your money is going every month. You’ll be able to find new ways to allocate that money and save cash in no time at all by giving up just an hour or two to get a better hold of your situation.

Seeing positive results before 2009

The best part about reducing your debt for the New Year is seeing results. Like any New Year’s resolution, you’ll want to see them to keep going, right? Well, it might take you months to see the results of running on the treadmill or doing extra crunches. It might take you years to see the results after you quit smoking. But by changing your mindset and attacking your debt, you could see positive results in just weeks. You’ll feel better about yourself and you’ll feel better about your life. And isn’t that the point of a New Year’s resolution?

Share This

Write down the deadline and take action

Admit it: You just found that “2007 New Year’s Resolutions” sheet that you filled out back in 2006. Get more exercise? Quit smoking? Contribute to your IRA? If you’re like most Americans, you joined the gym on January 2…and made your last visit of the year there sometime later that month. You quit smoking shortly after the New Year…but then found yourself so stressed out that you couldn’t bear to put the pack down. You wanted to throw some extra cash into your IRA…but then spent the money on that new car you’ve had your eye on for a couple of years now. Well, there’s no way to go back in time and put in the extra time on the treadmill. And there’s no way to not smoke those packs of cigarettes that you did last year. But you can change your ways, scrape together some extra cash and make a contribution to your IRA for 2007 now. It’s not too late!

Find the IRA that will help you

That’s right. If you still want to make good on your promise and contribute to your IRA for 2007, you can do it now—and you’ve got until April 15 to do it. Write it down on your calendar now and don’t forget to do it. That being said, do you know where to look to set up your IRA if you don’t have one yet? Well, it’s not hard! Simply find the financial institution out there that suits you best. Your bank may even offer one. Typically, all it takes is a phone call to find the company that will help you to set aside a little bit every paycheck to contribute to your IRA. Or, you can go ahead and make larger payments to the IRA at the time that suits you best. Whatever you choose, it is not too late! Think about it.

Beat the clock and benefit now!

So, what do you say? Are you willing to let your New Year’s resolutions from last year go by the wayside as you move into the New Year? It’s too late to go back in time and attack many of the resolutions you made, but it’s not too late to do this. An IRA is a great way to save money for retirement and increase your chances of living a more successful life once your working days are over. It’s not too late! Do it now and start living your life the way you want to do it.

Share This

Establishing a budget for yourself

Chances are, if you’ve found yourself in debt after Christmas, you either failed to stick to a budget or failed to create a budget at all. How could a budget have helped you? Well, first, it would have forced you to sit down and think about how much you realistically could spend on your Christmas shopping without falling into debt. It’s a helpful solution to preventing debt and something you should think about for next year. However, if you have not budgeted properly and find yourself in debt today, don’t worry! You can still use budgeting to help yourself out now and to work your way out of debt. Simply sit down and start analyzing the money you spend and take in every month. How much do you have coming into your bank account every month? How much do you typically spend on rent/mortgage, food, clothing, etc.? How much extra do you have to throw towards reducing debt? Find a figure you are comfortable with right away and start applying it to your debt, credit card or otherwise. You will see immediate results and will stop yourself from falling deeper into debt.

Making minimum payments on time

So, you’ve made the decision to budget your money and start eliminating your debt today? Great! But, that is just the start. It’s one thing to say it and an entirely different thing to start doing it. But it’s not always hard and it requires taking some simple steps at first. To start, make certain that you always make your minimum payments ON TIME. This is vital to eliminating your debt because it will help you to avoid any unnecessary charges and will help you to maintain stability on your credit report. So, if you’re trying to make a dent in that post-holiday debt? Make sure you’re equipped to do so in a timely fashion.

Looking into credit card consolidation

Maybe you’re having trouble keeping up with payments or maybe you just want to look into a better option to pay off your credit card debt. Well, there are other ways to avoid debt and eliminate it all together, depending on how much debt you have amassed over time. How, you ask? Well, for those suffering from a mountain of debt that seems impossible to pay back, credit card consolidation might be the answer. Credit card consolidation, offered through a variety of financial institutions (always be sure to use someone you trust!), will take all your debt, lump it all together and then, most likely, offer you a better interest rate than you currently have. It will save you both time and money, setting a goal for you to pay off your debt in a timely fashion. This is typically only useful when you’re looking to pay off large amounts of debt but it’s worth looking into no matter how much debt you’re suffering from! Try it today and get relief now.

Share This

Identifying the problem

When Congress stepped in to help both lenders and borrowers involved with subprime mortgages, they were tackling one of the biggest financial problems in the country. A “subprime mortgage,” as they are known, often offers borrowers teaser rates or rates that start off extremely low, sometimes as low as just one percent, but often increase dramatically after a set amount of time. This leaves many borrowers searching for a way to keep up with payments and many lenders hunting down missing money. After analyzing the situation, Congress suggested that lenders must now speak to borrowers beforehand and spell out all the details of subprime mortgages, explaining exactly how the mortgage will increase terms later and affect the borrower.

Establishing new mortgage standards

So, aside from alerting borrowers how the increases in the interest rate will affect them, what else did Congress suggest to borrowers and lenders to help subprime mortgages become less of an issue in America? Well, for one, Congress analyzed why so many borrowers were being approved for subprime mortgages and what they found was astounding. Many lenders were approving mortgages to people with bad credit. However, they were doing so only after finding out if they would qualify to pay off the mortgage at the teaser rate. In other words, many of the borrowers being approved for mortgages could make payments when the low-end rate was applied to their mortgage but could not afford to do so once the rate went up eventually. That said, many of these people would not normally qualify for a mortgage but were able to do so and subsequently found themselves in massive amounts of debt. Congress encouraged lenders to approve only those who qualified at the adjusted interest rate as well as the teaser rate. This would help both the lenders and the borrowers at the same time.

Seeing consumer results

By making these suggestions, Congress was able to address a very important issue in this country: Stopping lenders from approving mortgages for those who are not necessarily equipped to make mortgage payments after a year or two. Subprime mortgages, contrary to popular belief, affect both the lender and the borrower. Sure, it may not seem like a big deal to a lender when he or she is owed thousands of dollars by a borrower. They will see their money eventually, right? Unfortunately, many borrowers are being forced to declare bankruptcy as a result of subprime mortgages. By establishing these new standards, Congress is hoping to stop this trend immediately and to help both the lenders and the borrowers to stay out of debt as they both move forward.

Share This

Lots and lots of debt consolidation options!

If you’re in the market for a debt consolidation, you’re inevitably going to see one thing: More options than you can handle! With the growth of the Internet, it seems like anyone with a dial-up connection and a web site can and has started a debt consolidation firm. While that may be a bit extreme, be careful when you’re looking for a debt consolidator. Do you know someone who has consolidated before and could recommend a good company? Do you have a credit counselor who could help you out with the process? Do your home work before you start and find out which companies are out there that will work for you. Don’t get tested by the many scams that exist and don’t run into more trouble than you can handle. At the end of the day, you’re trying to improve your situation, not make it worse. So be sure to research all your options and find a safe and reliable company.

Providing your credit history

Before you start the debt consolidation process, gather all your facts and go in prepared. Organize yourself, crunch some numbers and find out how much you owe in debt. Have a plan mapped out in your head. It’s better to approach a debt consolidator with all the facts and your expectations than to have them decide how you’re going to repay your debt. It is your debt after all! Once you have that prepared and you’ve selected a reliable company, they will help you map out your income versus your debt, some solid repayment options and a light at the end of the tunnel. Ask lots and lots of questions throughout the process so that you are crystal-clear on what to expect from the consolidation. The company should be in touch with your frequently and should be revealing everything they are doing to help your situation.

You need results!

You’re not consolidating your debts just to avoid a financial headache. You’re doing it to eliminate the potential for any headache at all! Make sure you are comfortable with the situation. At the end of the day, you’re going to be paying some sort of fee for the consolidation process—usually some sort of monthly service fee—so the company isn’t really all that concerned about you actually eliminating your debt. They’ll get paid either way. So stay on them to see that they are doing all they can do to help you stay out of debt and to eliminate the debt you already have. You’ll thank yourself for being so involved in the whole process.

Share This