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!

Sketchers, the shoemaking guru of a new generation, has been slapped with a lawsuit resulting in a $40 million settlement to buyers who purchased their Resistance Runners, Tone-ups and Toners with the hope they could miraculously improve their health and lose weight by doing… well… nothing. It seems silly, but our “The Duke and the King” culture seems woefully susceptible to such wild claims.

Miracle solutions, magic potions and wish fulfillment are the stuff of fairy-tales. If you want anything in this life, the disappointing truth is that we all must work for it – whether it be better health, improved credit, or sexy calves.

FTC Tells Sketchers to Shape-up to the Tune of $40 million 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!

Financial adaptability is critical to the personal finance master. You need to accrue savings, understand your cash flow, debt to income ratio, general costs of living and other unforeseen costs that crop up when navigating this life. Like a manatee, you don’t have to move quickly, but be willing to adapt your lifestyle to your current fiscal reality. While you won’t need 45 million years to perfect the art of personal finance, understanding the difference between what is necessary and what is desired, then being able to make a lifestyle change to manage those differences will put you on the right path to personal finance sustainability.

There is no greater ‘go with flow’ type mammal than the Florida manatee. Unlike their brethren they have the greatest tolerance for salinity extremes. In other words, they can move freely between the saltiest and freshest of water sources.  Forced to migrate to warmer waters in cooler months, some of the Florida manatees have taken to congregating at the mouths of power plants, soaking up the warmer water and keeping drainage pipes free of unwanted vegetation. They are highly adaptable.

Personal financial health begins with two things – the first, as discussed is adaptability. The second is understanding credit. Credit, good or bad, effects where and how you live, what kind of car you may buy, if you can start a business, affording your child’s college education and much more. Credit permeates almost every area of personal finance. The Quizzologists have developed an easy to use system to help identify potential areas of improvement for your credit score. With the only truly free credit report and score on the web, Quizzle.com wants to help you evolve into the personal financial master we know you can be.

In a Quizzlewire Wildlife metaphor Tuesday, we give you manatees mingling with Florida swimmers with nary a care in the world: a moment of Zen, if you will.

Manatees – Personal Finance Experts of the Sea 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!

Suleman, who already had six young children when, with the help a fertility specialist who has since lost his medical license, gave birth to a litter of children in 2009. Yes, I said litter. The Caesarean birth of her brood required 46 medical personnel and brought the total number of her children to 14. Suleman garnered a considerable amount of attention when the public learned about her already large family and the new mom’s desire to continue having children despite being blessed with so many already.  Today in the U.S. the average family, according to the census, is 3.24 people and less than one (.94) children under the age of 18. Suleman declared boldly that she would never take public assistance and would be able to support family, but she has reportedly been collecting food stamps and last Friday filed for Chapter 7 bankruptcy in a California court with close to $1 million in debt, including $30,000 in back rent.

I’ll spare Quizzle readers my social diatribe on responsibility and parenting and leave the judgment of this obviously crazy woman up to you. Instead, this is a great opportunity to take a quick look at personal finance and bankruptcy. What I will ask is a simple question, with in-vitro fertilization costing up to $10,000 a cycle where did she get the money in the first place. When she was impregnated with the octuplets the mini-celeb was already living in a small three-bedroom house with her mother, already in foreclosure.

Children are Expensive
How many times did we hear it as children, ‘money doesn’t grow on trees’. A notion, even as a child, I thought was silly but never realized until adulthood why my parents chose to use such a ridiculous cliché to curtail my desire for new toys, video games and endless trips to the ice cream parlor on hot summer days.

To give you a little perspective, the United States Department of Agriculture (USDA) issues an annual report on the cost of child rearing. According to the USDA the cost of raising a child for an average, two parent family with two children ranges from $11,880 to $13,830 per year, or $226,920 from birth to age 17. Take into account all Octomom’s children and the total nut for raising her family comes to a little over $3.1 million! If you’re curious you can read the full USDA 2010 report here.

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Chapter 7 vs. Chapter 13 Bankruptcy
In the wake of the financial tsunami of 2008 many families and individuals lost their jobs, much of their savings, their homes and have otherwise been overwhelmed with debt. Let me first say, if you can avoid it, bankruptcy is truly the last measure anyone should take to settle his or her personal finances. Octomom, as we can see from the cost of raising children, and as a result of some of her own poor financial choices, has most likely reached the high water mark so to speak.

Chapter 7 bankruptcy, also known as ‘liquidation’ bankruptcy, is the most severe form of personal bailout. The Chapter 7 bankruptcy trustee is charged with cancelling all, or many, of your debts. Furthermore, the trustee may liquidate your current assets to pay off creditors. If you file for Chapter 7, it leaves a deep pockmark on your credit for a decade – no exceptions.

Chapter 13 is slightly different. Only marring your credit for seven years, filing Chapter 13 bankruptcy as an individual does not mean liquidating your assets. Instead, Chapter 13 is designed to give people overwhelmed by debt protection against foreclosure and wage garnishment, among other things, by allowing the filer to reorganize, reduce, consolidate, or in some cases eliminate debt.

‘Octomom’ Files for Bankruptcy 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!