Student Loans Menace, But Grads Can Learn to Deal

It’s a topic described by some analysts as yet another bubble, ready to burst and further complicate the already complicated-enough personal finance picture. We’re talking about student loan debt, and in a world of exploding college tuition costs and a job market that isn’t exactly keeping pace, the issue has recently morphed from a latent financial dilemma to an immediate political flash-fire. With the average student saddled with existent loan obligations approaching $25,000 and interest rates on undergraduate loans set to balloon to 6.8 percent this July, everyone acknowledge something must be done before that bubble turns into a full-blown economic embolism for 7 million Americans—nearly all of voting age.

Naturally, as with any problem of national significance, both political parties are engaged in the standard practices of gamesmanship and public relations wrangling, but for those facing the increasingly daunting challenge of paying down these debts and moving on with life, the question arises: What can I do about it myself?

There was a time, of course, when the answer to ‘how should I pay off my student loan obligations?’ was relatively cut and dry: use the education you’ve borrowed money to fund to land a decent-paying job, then apportion some reasonable amount of your income to the cause of ridding yourself of the debt over time. In fact, it wasn’t even so long ago that student loan debt was rosily considered “good” debt. But in economic times such as these, it’s increasingly difficult to view any debt as “good”. That said, good or bad, the debt exists and while paying them off may have become more difficult, there are strategies for doing so. Besides the more obvious remedies for a cash crunch (reducing spending on big ticket items, doing away with creature comforts and smart budgeting), here are a few handy tips:

Mind Your Credit: On this front, we at Quizzle are happy to help. Credit scores can be crucial in determining whether or not you’re able to finance that car payment or home mortgage…or even get that job. Maintain older lines of credit to help enrich your credit history and try not to use more than 30 to 50 percent of any one particular line of credit at a given time. Know your credit score, obtain a credit report card, and don’t let what’s out of sight become out of mind.

Utilize Retirement Accounts: Stay positive—you will find work! It may take longer than you anticipated or pay less than you had hoped, but when (not if) you find a job, be sure to contribute a healthy amount to your retirement account. Many companies will offer you matching funds at a certain level of investment; take full advantage of this as it amounts to “free” money. Also, look into Roth IRAs; they’re particularly helpful both for savings and in the event of an emergency. The sum of your contributions can be withdrawn tax/penalty-free for any reason at any time, while earnings can be withdrawn without penalty after five years and after you’ve reached age 59.5.

Prioritize Debt Payments: All debts were not created equal. While you’re worrying about paying off that student loan behemoth, you may really be getting slammed by credit card debt. A recent Sallie Mae study found 9-in-10 college students toting around at least one credit card and by the time those students graduated, cardholders held, on average, $4,000 in debt, paying interest rates upwards of 17 percent. Pay these down early and often; don’t turn your back on the credit card ocean.

Know All Your Options: You may not be as tightly bound to your loan debt as you think. For instance, federal student loans, guaranteed or direct, can often qualify for graduated, extended, or income-adjusted payment plans. This can provide some necessary breathing room if your cash flow isn’t meeting the bill at the moment.

Consider Loan Consolidation: Alert: This is time sensitive! You have until the end of June to sign up for a program offered through the U.S. Department of Education, which allows you to consolidate your loans at a 0.25 percent lower interest rate (and another -0.25 percent if you enroll in automatic payments). Now, if you’re eligible, you probably should’ve heard from an Education Department loan servicer, but if they missed you somehow in the bureaucracy, contact current lenders or call the Department of Education at 800-433-3243 for details.

Do Good. Pay Less: If you’re entering a particular field devoted to public service, such as the Peace Corps or Americorps and you make 120 on-time payments over 10 years, your outstanding balance, including interest payments, may be forgiven outright via the Public Service Loan Forgiveness Program (PSLF). Also, Perkins’ loan balances can be reduced by 70 percent for 2 years in the Peace Corps and a full 100 percent for service in the United States military.

Don’t Default: You can’t fight City Hall, which in this case has been federalized. Unlike certain debt that you may be able to evade or escape, government loans follow you. The Feds can confiscate tax refunds, benefits like Social Security and disability payments, even garnish wages up to 15 percent of disposable income. There’s also no time limit for them to sue. With student loans, you can run but you can’t hide.

When You Can’t Pay, Defer: If you’ve suffered from poor health or other unforeseen personal problems, you may qualify for forbearance accommodations even if you’re already in some stage of default. This means you make no payments to your lender for up to one year at a time. However, interest continues to accrue, so consider this more a stay of execution than a full pardon.

With national student loan debt eclipsing credit card debt, Washington has taken notice of the problem, rhetorically pledged to address it, and promptly commenced to partisan fisticuffs. For college graduates, however, the problem isn’t political but intensely personal. While politicians bicker over how best to help you, help yourself by knowing the facts, making a plan, and taking control of your situation. If you have questions, leave them here and we will answer.

A WEALTH OF KNOWLEDGE? was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

The Associated Press reports U.S. borrowers held an average credit card debt of $4,962 in the period spanning from January to March of this year, down 4.7 percent from the previous quarter. The decrease is attributable to payments made on holiday season purchases, part of a natural credit cycle that analysts say don’t indicate real trend. Looking back a year ago at the same time, credit card balances are actually up 6.1 percent.

The general consensus amongst some experts is that rising credit card purchases reflect growing consumer confidence, but the Quizzologists aren’t convinced quite yet. The European debt crisis still looms, storm clouds gather over the Iranian nuclear program, and U.S. growth rates and jobs numbers remain anemic. We’re not out of the woods yet. This week, the Quizzle blog took an in-depth look at the state of America’s plastic. Here are some choice cuts:

• Does Canceling My Credit Cards Boost My Credit Score?
• Warning! Close Your Credit Card Accounts with Care
• 10 Credit Score Facts and Fictions
• Are You Getting Caught by these Balance Transfer Traps?
• Five Things to Know If You’ve Missed a Credit Card Payment
• Don’t let Decreasing Gas Prices Increase Your Spending

Quizzle Weekly Money Tips: Credit Cards was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

Happy to relate, this full-contact lifelong sport, while tough, also has rules. One of the cardinal rules, if you want to build your credit, is to avoid credit card debt. Here are five important things to know if one (or more) of your credit card payments somehow gets “intercepted” on the way to its intended target:

Made a mistake? Keep playing—it’s a long game. Any good personal finance blog will tell you it’s important to get your free credit score, but it’s also important not to fixate on the day-to-day number or beat yourself up for being human. In fact, unless your payment comes in a full 30 days behind, it cannot be reported to the credit bureaus and thus won’t appear on your credit score. If you’re one or two months late, one time, then the damage should be minimal. When striving for credit improvement, the most important thing is establishing solid fundamentals. If you’ve missed a payment don’t panic but make a point not to repeat the mistake. Building credit is about demonstrating your payment discipline to lenders over time. If possible, setting up automatic payments is a good way to avoid human error. If not, find an effective means of reminding yourself what’s due to whom and when.

Once my payment is officially late, what happens? After 30 days, your creditor will do the following: First, likely charge a late fee (often in the $15-35 range). These fees continue each month payment is overdue. Second, they’ll report your late payment(s) to the three credit bureaus which record that fact on your credit report where it stays for seven years. This then results in a lowering of your credit score. Third, after a full 60 days delinquency, your interest rate can be raised, which increases the burden of your balance. With your balances growing and with payment history accounting for 35% of your credit score, you can see the dangers posed by missing payments.

The collateral damage isn’t quite as bad as it used to be. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 (CARD Act) banned what’s known as “universal default”. Before 2009, Credit Card ‘X’ could hike your interest rate if you were late in paying Credit Card ‘Y’. To return to the metaphor, universal default was similar to a coach making the whole team run wind-sprints to punish them collectively for the mistakes of a single guy. Thankfully, this is no longer allowed, which helps mitigate the consequences of a good-faith error or a lapse in payment.

If you’ve made a mistake or two, you may be forgiven. If you’re a repeat-offender, this tip probably won’t be of much utility. However, if you’ve legitimately missed just one or two deadlines over a long business relationship, politely asking for some understanding from your creditor may result in the waiving of fees or other penalties. It’s certainly worth a try. Remember: you’re still the customer even if you’re not always right.

Stay in touch with creditors and pay them ASAP. When you miss a payment or fall further behind on your balance, don’t compound your errors by running from the problem. As stated before, the credit score game goes on, whether or not you’re playing. Ignoring the problem won’t make it go away. You may be able to minimize damage and harassment by turning the tables and calling creditors first. Explain your situation to them and resolve to make the payment as fast as you can.

Don’t throw good money after bad simply because you feel overwhelmed or intimidated by answering your phone. Instead, proactively work on building credit, checking your credit score regularly, and dealing with problems you encounter along the way. Do those simple things and you can focus on a much more enjoyable game: the one on TV.

Five Things to Know If You Miss a Credit Card Payment was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

It’s not entirely crazy. Once you’ve taken care of the debt, eliminate the possibility of getting into more debt by closing cards. Unfortunately, that’s not how it works in the credit world.

In fact, canceling cards can actually have the opposite effect and dramatically lower your score, making you less likely to qualify for loans when you need them. How is this possible?

It’s because your credit rating is based on the amount of money you have to spend weighed against the amount of money you already owe. Canceling cards may seem like a bright idea to simplify your life and keep you from spending, but it also removes a valuable line of potential money you could tap if you needed to.

Think about it like this. Right now you owe $20,000 in student loans and $100,000 on a mortgage. Luckily, you’re not underwater and your house is worth $120,000, but that essentially brings you back to zero. Your five credit cards give you a $50,000 combined limit, of which you use $5,000 on a monthly basis.

That leaves you with $45,000 potential dollars. Close your credit cards and you lose this money. Never mind that you didn’t actually have it in the first place and it would end up costing you an arm and a leg if you did have to use all of it – the point is (as stated above) it’s money that you could tap if you needed to.

Now, this isn’t the end-all be-all. Ultimately, you have to decide what’s best for you, and simplifying your life might take precedence over the need to keep your credit score hovering around 740.

Plus, there are ways that you can compromise and still achieve much of the same effect. Canceling that $2,000 Sears card and increasing your Visa by the same amount removes clutter and keeps you from losing any of that potential money.

Just think carefully about what you’ll lose and what you’ll gain – whichever way you decide to go. And think long and hard about your future needs. Starting and canceling a lot of accounts is not something you want to be doing if you plan on taking out a mortgage – or a loan to pay for your kid’s college education – any time in the near future.

Does Canceling My Credit Cards Boost My Credit Score? was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

If your friends are struggling financially, here are some ideas for how you can help:

Don’t give them money: If one of your friends comes to you asking for financial help, it can be tempting to give them money. But as “Eat, Pray, Love” author Elizabeth Gilbert discovered, sometimes too much financial generosity between friends can be a bad thing. Friendships can all too often be damaged when money comes into the picture. Giving money to friends can create uncomfortable feelings of obligation, resentment, or an unwelcome power imbalance in the relationship.

Don’t co-sign on a loan: Many people might be tempted to help their friends by co-signing on a loan, making it possible for the friend to borrow money to buy a car or pay off debt. This is a well meaning but all-too-common money mistake. If you co-sign on a loan, no matter how much you trust your friend and no matter how sincere they are in wanting to repay the loan, the truth is that you are taking a big risk. As a co-signer on the loan, you are responsible for paying it back if your friend cannot make the payments. You might find that co-signing on a loan leads to a lot of lost money as well as a lost friendship.

Do give them your time: Instead of giving money to your friends, give them your time, attention and support. Have your friends over for dinner. Offer ideas and encouragement. Help them find supportive resources like Consumer Credit Counseling. If your friend needs to find a new job, offer to introduce them to helpful new connections from your professional network. Help them get ideas for helpful tools to set a budget, improve their credit and create a stronger financial foundation.

Do encourage them to look for the root cause: Have a conversation with your friend about what might be causing their financial problems. Of course, if someone has lost a job, the answer is easy – but often when people have financial problems there is a deeper, underlying cause that is limiting their ability to manage their personal finances. Do they have a lack of motivation? Are they depressed? Are they spending too much because they’re trying to “keep up with the Joneses” and live a lifestyle that they can’t afford and don’t even want? Can they simplify their life and drastically cut their spending? Do they need career counseling to find a new career path that is more fulfilling and more lucrative? What is holding them back from financial success?

Often when people are having financial problems they feel isolated and ashamed. Make it clear to your friend that you care about them and you want to help. But make sure you help in the right way. When people are in financial trouble, getting a loan from friends might do more harm than good. Friends can often help most by helping get their friends connected to supportive resources, new ideas, and helping their friends come out of the financial difficulties feeling stronger and more empowered than ever.

How to Help a Friend with Financial Problems was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

Are you trying to improve your credit score? Whether you want to buy a car, qualify for a home loan or get a better interest rate on your credit cards, improving your credit score is one of the best ways to save money by borrowing more cheaply.

If you have a higher credit score, you can qualify for lower interest rates and more favorable payment terms, often saving you thousands of dollars over the course of your life as a borrower.

Credit scores can be mysterious, and many people wonder “what is the best way to improve my credit score?” Quizzle will give you a free credit report and show you your credit score, and with our Credit Improvement Program you can be on your way to better credit and bigger savings.

Here are a few Quizzle personal finance articles about improving your credit score:

• How to build credit from no credit in 6 easy steps
• What to do if you miss a credit card payment
• Closing accounts without scarring your credit
• 6 steps to spring cleaning for your credit
• Are you getting caught by these balance transfer traps
• Will paying off debt instantly improve my credit?

Quizzle Weekend Roundup: Credit Improvement was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

But that’s not all you should be aware of. Balance transfers can be a good option to manage your credit card debt, but if you’re not careful, you could end up in worse financial condition than you were before. Here are a few credit card balance transfer traps to avoid:

High Fees

The first thing you need to know is that balance transfers cost you money. You are paying a percentage of the amount you transfer, or a minimum fee. The minimum fee is typically $5 or $10. Consider this carefully because if you are transferring thousands of dollars, you will end up paying anywhere from five to 10 percent of the balance transfer amount. To transfer a $10,000 balance, for example, a 5-10% fee would add up to $500 to $1,000. This fee adds to the new credit card balance and accrues interest, along with the rest of your balance.

Interest Rate Increases

Another pitfall you want to avoid is the interest rate trap. The way credit card companies tend to lure you into a balance transfer is with a very low or zero percent interest rate. The low interest rate only lasts for a set period, typically six to nine months. If you pay off the balance during this then you are generally saving money over the high interest rate credit you transferred from. The problem comes when you don’t pay off the balance. If you’re not quick to pay off your outstanding debts, your interest rate tends to jump up into the double digits—at times higher than you were paying before the transfer.

Racking Up New Charges

The final pitfall you should avoid is racking up new charges on the card. It is common for balance transfers to have a different interest rate than new purchases. New purchases are often charged at the regular interest rate, which is usually in the double digits. Not only does this increase the interest you are paying, but it cancels out the savings you could enjoy from the balance transfer.

You might open your mailbox today and find a balance transfer deal from an existing or new credit card company. Read the fine print first – make sure you’re aware of any fees or interest rate hikes. Second, create a budget with a solid financial plan for paying off the balance you transfer.

Before you experience any interest rate increases, make additional purchases to add to the balance on the card, or pay any fees to transfer the balance to the new credit card, you need to be aware of your options and make sure that your credit card balance transfer leaves you in better financial condition than you started.

Are You Getting Caught by these Balance Transfer Traps? was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

But take heart, because there are options available to you, whether your payment deadline has passed or you’ve realized you just can’t cover the cost right now. What can you do if you miss a credit card payment?

Eat some humble pie.

The first thing to do if you’ve missed a credit card payment is to get on the phone with your credit card company. Talking to your credit card company isn’t most people’s first choice of how to spend an afternoon, but you’d be surprised how much it can help. Explain to the customer service representative that you just made a mistake, or that things are rough right now, and see what they can do. Feel free to mention things like how long you’ve been a customer with them, how few payments you’ve missed before (hopefully none!), and just generally convey to them that you are a loyal customer who sincerely wants to pay what you owe. Apologize. Ask if they can offer any help or suggestions. Ask to talk to higher-ups (but don’t be too demanding – just say, “Would it be helpful if I talked to your supervisor, or is there someone else that you can transfer me to?”).

Do whatever you can to stay in the credit card company’s good graces. If you convince them that this is a one-time mistake and that you deserve forgiveness, you’ll be able to avoid the worst results of a missed credit card payment: for example, you might keep them from reporting your late payment to a credit agency, and also you might be able to get some extra help or favors in removing any fees or other changes and restrictions that might have happened on your account. Many credit card companies raise your APR after a missed payment so that you end up continually owing them more money!

Threaten.

This advice is the exact opposite of the above tactic, but if your creditor won’t help you out of the kindness of their hearts, it’s time to bring out the big guns: tell them that you’ll have to transfer your entire balance to another credit card. When they hear this, most creditors will cave, because they would rather keep you as a customer than deal with the potential loss of money that would mean to them.

Pay as soon as you’re able.

Once you’ve done what you can to minimize the damage to your credit rating and avoid fees, you want to make sure you get your payment in fast. If you missed a credit card payment due to an oversight, pay immediately – you might even be able to do it over the phone. If you didn’t pay because you’re broke, do it as soon as you can scrounge up some money.

Set up systems.

If you don’t have autopay set up, do it now. Make sure that all of the information is correct to avoid sending payment to the wrong person or only paying off part of the bill and accruing interest on the rest.

Is your problem that you have too little money and are overextended on your bills? There’s a system for that, too – it’s called budgeting. Most people have enough money for their living expenses. What really happens is that we don’t budget – or, even if we do, we don’t stick to it or budget well enough. If it helps, create a “Monthly Budget” account and move money into it each month to cover your cost of living. Whatever’s left, you can save or spend on anything you want.

What to Do If You Miss a Credit Card Payment was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

Economic News that Affects Your Budget:

• Student loan interest rates might be going up: The interest rate on federally subsidized student loans is due to double on July 1 (from 3.4% to 6.8%) unless Congress takes action.
• It’s getting easier to get credit cards even with less-than-perfect credit: The number of credit cards issued to people with subprime credit (credit scores less than 660) increased 41% last year.
• College prepaid cards are popular on campus: Many banks stopped offering credit cards to college students after new regulations issued in 2009. Today, many banks are issuing prepaid cards for college students that can also double as a college student ID.

Quizzle Links of the Week:

• Employers are checking credit scores: More employers are asking prospective employees (or current employees) to go through an employer credit check to help find the most trustworthy, reliable employees. Is your credit score ready to pass the test?
• Why Calvin Johnson is a financial planning role model: Calvin Johnson is a wide receiver for the NFL’s Detroit Lions. Known as “Megatron” for his impressive skills on the football field, Calvin Johnson also made headlines for his financial savvy. Find out why.
• Lessons in charitable giving from Elizabeth Gilbert: The bestselling author of “Eat, Pray, Love” learned a valuable lesson in why you should “give till it helps, not till it hurts.”
• Spring Cleaning for your Credit Score: Find out how you can improve your credit and start fresh for the rest of 2012 with six easy steps.
• Money and career management lessons from Bubba Watson: The new champion of the Masters golf tournament is unconventional in many ways, but we can all take inspiration from how he achieved his success on the golf course. Learn more about this fascinating new golf champion.

Quizzle Weekly Must-Reads – April 20, 2012 was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!

When you look at your credit report, or even your wallet, all you see is a bunch of credit card accounts. Even if you are one of the credit card holders that pay off their credit card balances each month or hardly ever use the credit cards, you are better off keeping these accounts open than you are in closing them. If you really feel compelled into closing one or more of your credit card accounts, use an easy and systematic approach in doing so to keep from scarring your credit.

Relationship Longevity Counts

The primary reason that you don’t want to go around closing your credit cards left and right is that the length of the relationship you have with these creditors helps to boost your credit score. Yes, you read that right. If you close a credit card account that you have had for the last 10 years, for example, it can actually cause your credit score to go down instead of to go up.

If you are set on closing one or more of your credit card accounts, start by looking at the year in which the accounts were established. Choose a credit card account that has been open a shorter period than the other credit cards you have.

Balances Count

Another factor that goes into calculating your credit score is the balance versus the line amount you have on the credit card. In other words, look for credit card balances that exceed 30% of the credit limit. These are the credit cards that you want to focus on paying off and closing. You might also consider transferring the balance to one or more other cards that have lower balances to decrease the balance to line amount ratio.

Timeframe Counts

Once you have a list of credit cards you want to close, according to the longevity and balances on the account, spread out closing down the accounts. Do not close all of the credit cards at the same time. Instead, close one credit card account every six to eight months. You can continue to close accounts until you have a number that you feel comfortable with managing. There is not, however, a magic number of credit cards that you should or should not have.

The best step in not scarring your credit score is not to close your credit card accounts at all. If this answer doesn’t sit well with you, then take a systematic approach in how you go about closing your credit card accounts. Start by closing the credit card accounts that you have had for the least amount of time. Then work on closing accounts with balances that exceed the balance to line ratio. Finally, spread out the closing of the accounts over time rather than closing all of the cards down at once or in a short period of time. This is really the way to keep your credit score from plummeting rather than increasing while accomplishing your goal of closing your credit card accounts.

Be sure to monitor your credit report, to stay on top of your credit score.

Closing Accounts without Scarring Your Credit was originally featured on Quizzle Wire

Quizzle.com is the easiest way to get a complete understanding of your credit. Visit Quizzle.com to get your free credit report and score. No credit card or social security number necessary!