Debt Archives - Page 3 of 5

Student Loans: Federal Vs. Private

One of the realities of attending college right now is that it costs quite a bit. Most students need to borrow money in order to pay for the rising tuition costs. It's not just tuition, either. There are costs associated with housing, food, student fees, and books.

With the cost of college rising, student loans are more and more prominent. However, not all student loans are the same. You generally have two different options when it comes to student loans: federal and private.

Federal Student Loans

student loan federal vs private You can borrow money directly from the federal government to help you pay for school. Direct Loans provide you with low-interest loans to qualifying schools. You might receive one of two types of loans:

Subsidized: If you meet the income requirements, you might qualify for a subsidized loan. With this type of loan, your interest is paid on your behalf while you are in school. You don't start paying interest until you are done with school and you start making payments on your loan.
Unsubsidized: You might qualify for a federal student loan, but make too much to be considered for a subsidized loan. In these cases, you have an unsubsidized loan. You are charged interest as soon as the loan is issued. You can choose to pay the interest while you attend school (but you don't have to make principal payments), or you can choose to defer paying interest. The interest is still charged, and added to the loan total, but you can wait to pay it.

Federal student loans generally have competitive interest rates. The payment terms are usually easier as well. When you are finished, you can participate in a program that bases your payment on your income level, and there are other programs that can ease the burden of paying off your student loan debt.

Private Student Loans

Some students find that they don't have enough from federal aid to cover the cost of an education. In order to close that funding gap, they turn to private student loans. Some private lenders will allow you to wait to begin repaying your loan until after you graduate, but some require payments sooner.

Additionally, private student loans often have higher interest rates than federal loans. Private loans also don't come with the same pay off programs. You have to work something out with your lender in a way that works for the lender, similarly to how you would handle any other loan.

Interestingly, P2P lending is becoming an increasingly popular choice for school loans. There are web sites like Tuition U that match up students with lenders, and in some cases students are finding that even more traditional P2P sites can help close the college funding gap.

It is best to try for scholarships and grants, and save up money with a 529 Plan, before deciding to borrow for college. After all, borrowing — no matter where you get the money — means that you have to pay interest as well, and that can be quite expensive over time.

Rebuilding And Starting From Scratch

By Contributor 1 Comment

One of the most frightening prospects in the world is starting from nothing and having to rebuild. Even when the situation is not as bad as you think, life can feel like it's crumbling around you. If you've been laid off from your job, watched your stocks drop or retirement plan tank, or gone deeply into debt because of a car accident, divorce, or medical bill you know that life can often make it feel as if you have to start completely over and build from the ground up.

While most people would view this as a curse, you may be better served by viewing it as a blessing. Sometimes it's good to clean house and start over. After all, it can be difficult to know what needs repair before it breaks.

Here are a few tips on how to recover from a financial calamity and start from scratch:

Stop The Blood Loss

If you have investments that are tanking, your best bet may be to just sell off and reinvest, or do better at diversifying your portfolio. Yes, you may lose some money, but if you don't act and act quickly your stubborn denial of reality may lose you a lot more and preclude yourself a chance to recover in the process. Often times the best use of old, stagnant investments is reinvesting in new growth industries.

Same scenario with a mortgage that you're thinking about refinancing. Instead of blowing your money on a new kitchen or building a home theater you may be better off refinancing the mortgage, lowering your payment and improving your financial situation.

Network With Your Contacts

You may have a rolodex of hundreds of professional contacts, but if you never communicate with them or update them on your situation, how will you ever attain any leverage from these connections? If you're out of work, instead of cowering indoors get out and network.

These days, social media allows you to streamline this process. Online communities and networking sites like LinkedIn and, to a certain extent Facebook and Twitter, allow you cultivate a rich support group of professionals who may be looking for just your skill set. Thousands of individuals have found vibrant new careers by engaging with social media.

Get Professional Advice

If your situation is particularly grim, do yourself a favor and enlist the help of a financial advisement and management service. Companies like World Financial Group can help you to appraise your investments, reevaluate your strategy, manage your current assets, and project into the future.

Especially if you've been hit with a triple whammy of employment trouble, sour investments, and mortgage or insurance problems, you need experienced professionals who can evaluate your overall situation. Part of starting from scratch is getting a new pair of eyeballs on your accounts, looking at them with a fresh perspective.

This isn't a blueprint for financial success. Few of those exist, and the ones that do are usually proprietary. You have to create your own blueprint for success. But that's hard to do if you're buried in debt or struggling to reinvent yourself. That's why sometimes the best thing to do is to start from scratch, rebuild your portfolio, and look at your life from a new angle. You may find that things weren't as bad as you thought, or you may find an ingenious new path into the future.

Are Your Finances Over-Leveraged?

By Miranda Marquit 2 Comments

One of the realities of the financial world is that it's possible to use leverage to get more than what you would normally be able to afford. In simple terms, leverage is using debt to buy what you want. You leverage the capital you have right now as a down payment to allow you to borrow the rest.

For the most part, leverage is used to describe how you can increase the return on your investment by putting in a little capital and then borrowing the rest. The hope is that the return will be great enough to offset the cost of borrowing. When you are talking about your household finances, this return on investment is often about more than just the money. It often includes the emotional or sentimental value you get out of something, as well as the satisfaction that comes from instant gratification.

I recently bought a new car. I put a down payment on it, and financed the rest. I leveraged what I had in hand in order to borrow to get a more expensive car than I could buy right now with cash. I decided that getting the exact car I wanted, as well as getting it now (with dealer incentives so good and prices so low) instead of waiting another two years, was worth the cost of the interest I will be paying. I don't sell my cars; the car this is replacing was one we had for nearly 10 years before sending it to my in-laws. To me, the return on investment is worth it, even though I probably won't sell the car for money.

Consumer Leverage, and Drowning in Debt

The concept of leverage applies to a number of consumer purchases right now. When you use your credit card to buy things you don't have the money for, you are using leverage. On a larger scale, you use leverage when you get a mortgage payment. Many people use leverage to purchase an even bigger home than they expected. No matter the asset — or the liability — it's important to consider how leveraged you are. And whether or not you might actually be over-leveraged.

When you are over-leveraged, it means that you have borrowed beyond the point of your ability to repay the debt. In this situation, you aren't receiving enough of a return to justify how much you have borrowed, and how much you still owe. Pretty soon, your payments and interest begin eating up your available income. We sometimes refer to this as drowning in debt. You can't meet your obligations, and even the emotional returns you might have received from your overspending are fading. This becomes a serious problem, and it can lead to financial collapse.

Take a look at your financial situation, and consider your debt levels. Are you over-leveraged? Have you borrowed beyond the point that it makes sense? Will you be able to repay the loan — and still feel as though you have received a good ROI? You might be over-leveraged, and if this is the case, it's time to get serious about paying down your debts, and reconsider the ways you use debt to get what you want.

Here’s Why You Should Shred Those Credit Card Convenience Checks

By Contributor 3 Comments

They're called convenience checks for a reason. You open up your mailbox and there sits an envelope from your credit card company telling you that you have to open it right away. There's an exciting offer is inside!

When you open the envelope you find a bunch of blank checks with a well written letter telling you that this special offer allows you to write a check for purchases instead of using your credit card.

But that’s where the convenience ends. It’s easy but using those checks is not in your best financial interest for a number of reasons. Let’s take a look at why those credit card convenience checks need to take a one way trip to your shredder.

why to avoid convenience checks

High Interest Rate

There’s a reason that you both love and hate your credit card and that’s because of the interest rate. Your credit card may act as the bridge between paychecks but at sometimes more than 20% interest, you’re flushing more money down the drain than you realize.

If you thought the interest rate on your credit card was bad, take a look at what you’ll pay for those convenience checks. Convenience checks have the same interest rate as a cash advance on your card and it’s often quite a bit higher than your normal rate.

No Grace Period

What grace period? With your credit card, you have a grace period where you aren’t charged interest providing you pay the balance in full when the statement arrives. After that, interest starts to add up. With convenience checks, the interest kicks in as soon as you use the check. No grace period here which means there is no sound financial reason to use these checks.

Fees For Using Them

If the lack of grace period and high interest rate wasn’t enough, you’re probably going to be charged a three to four percent fee for using them. The credit card company will call it a convenience fee but it’s actually the normal fee that a merchant would pay if you used your card.

Identity Theft

If you thought it was easy for thieves to get a hold of your credit card, those convenience checks that come in the mail are even easier. Before you even know they came in the mail, thieves can take them and use them leaving you with a mess that will take a lot of time to clean up.

Refused For Any Reason

Another little known fact is that the credit card company can often refuse to honor the convenience check for any reason. Take for example this story of a gentleman who used the check to put a $1000 down payment on a Toyota Prius. The credit card company refused the check shortly thereafter simply because they felt he was overutilizing his credit.

Conclusion

Although the arguments might be flimsy, using a credit card, in some cases, makes financial sense. If you are the type of person who can pay the full balance at the end of every month, you can build up some healthy rewards points. With credit card convenience checks, however, there is no responsible reason to use them unless a true financial emergency exists.

When you get these checks in the mail, take them directly to the shredder or tear them up in to small pieces before throwing them away. Remember that convenience checks are everything but convenient.

Have you ever used convenience checks?

Grandparent Scam Strikes Again

By Contributor 2 Comments

Put yourself in the shoes of a caring Grandmother. Let’s say one day you receive a call from your grandson telling you they’ve been in an accident and are being held in jail in the Dominican Republic. They want you to keep their little debacle a secret but they need you to wire money to them ASAP to get them out of jail.

What would you do?

Claudia Beach of Jacksonville, Florida recently faced this exact scenario recently and in a worried, emotional state, sent the money straight away to her needy “grandson”. Her “grandson” first called asking for $3,400 for bail out of the Dominican Republic jail he was stuck in.

“My emotions went wild. I couldn’t think. All I could think was he was in jail in a foreign country”.

Grandparent Scam

She rushed to her nearest Publix and wired the money immediately via Western Union.

Keeping her “grandson”s secret she apparently didn’t discus this matter with the boy’s parents. The very next day she received another call from him. This time he said they were making him pay his medical expenses of $2,400.

To Western Union!

Later that very afternoon the phone rang again. This time sonny-boy was asking for $1,800 to pay for the medical expenses of the lady he hit.

She says that the employees at Western Union questioned her each time if she was sure if this was her grandson. When he called the first time he told her that he didn’t sound like himself since he had been in the accident and had stitches in his lips. In a concerned state, she bought this story.

The money was wired each time to a lawyer by the name of Angel Rosario. Money that Claudia Beach will never see again. A total of $8,300. She has since filed a complaint with the Federal Trade Commission and the local police. Beach has come forward with this story to bring awareness to others that might be at risk for this scam.

To protect yourself:

Do not disclose any information before you have confirmed it really is your grandchild.
If you’re not sure ask the caller for their middle name or the elementary school he or she attended.
Do not respond with a name but instead let the caller explain who he or she is.

What breaks my heart about this scam is that it preys on love. If you are a caring Grandparent be wary if you receive a call like this that tugs on your heart strings. If you receive a distress call from a family member in another country I would recommend first, verifying that they are in fact in another country. Using the bullet pointed suggestions above or maybe calling their cell phone? Or their parents to ask how they are doing and what they are up to? I understand there will be different cases for different family dynamics but before you pay up you need to verify an identity!

Video about Grandparent Scam Strikes Again by @GetOutOfDebtGuy from GetOutOfDebt.org

This guest post was submitted by Steve Rhode who is a consumer debt expert and helps learn about getting out of debt and avoid scams.

What Are Some Reasons That You Overspend? Addressing The Root Causes Of Our Debt

By Mr. Money 6 Comments

We live in a consumer culture where we're constantly bombarded with advertising and marketing messages that have been carefully crafted to get us to spend money. Those sending out the marketing don't care if you have the money or not. They just want you to buy, even if it means going on a payment plan.

We're told that we need to buy the newest and the best, and that if we don't we're getting left behind. We're told that the we can buy experiences or things that will make our lives better, and make us happier people.

The problem is that for the most part it's just not true. Too many of us get caught in a debt spiral of spending, trying to fill holes in our lives, and we become very good at rationalizing why we're spending.

Reasons Why We Overspend

debt and overspending

Why do we overspend? There are a million different reasons. Here are some that I've come up with off the top of my head.

Easy access to credit cards: Even after our nation's debt crisis,we still have relatively easy access to credit, allowing us to buy just about whatever we want, and worry about paying it another day.
Monthly payments make it more accessible: It used to be that if you wanted something, you had to save up and pay cash. Nowadays you can just get on a monthly payment plan for anything from a car to a couch to a vacuum cleaner.
Peer pressure or keeping up with the Joneses: We've all either been that person, or known someone who just always has to have the best of the best in order to keep up with the folks in their neighborhood, school or workplace. They buy things to be seen as successful or important.
Spending addiction or spending to feel good: Some people actually have an addiction to spending money and buying things, it gives them a high of sorts. The problem, just like with drugs, the high wears off and they need to move on to the next purchase.
Wanting to live “in the moment”: I've heard a lot of people talking about how they want to live high on the hog now, while they're still young and healthy. The result? They end up in a world of debt that they'll be paying until their old and gray.
Wanting the best for your kids: As parents we want the best for our kids. The problem is that sometimes we can get carried away, buying all the best for our kids when it isn't even necessarily what they want or need. We buy them things to fill our own ideas of what's best for them -or to fill a void from our own childhood.
Wanting things NOW: Sometimes it's just hard to have the discipline to save up for something, especially when you just want, nay, NEED, to have it now!
Wanting to have the newest and the latest: So many of us are big into new technology like to rationalize buying the newest or the best technology. Others rationalize that they need to have the latest in fashion or decor. In reality we could probably get by with something less the newest and best.
Not focused on long term goals: We overspend because we're distracted from or we have never focused on our long term savings and retirement goals.

So as you can see there are a plethora of reasons why we overspend. We're good at rationalizing and coming up with reasons why we should be spending on things we want. It's the discipline part that gets hard.

If you have other reasons that you've used for spending- good or bad, let us know what they are in the comments.

Addressing The Root Causes Of Our Overspending

So we know there are a million reasons why we overspend. The important thing to do in my opinion is to realize that you are overspending, and to then sit down and think about why it might be that you're overspending. Are you trying to compensate for hurts experienced as a child? Are you trying to appear more successful to others because of feelings of inadequacy? Do you just enjoy spending and the feeling it gives? Realizing that you have a spending problem, and trying to figure out why you overspend is a big part of starting to find a solution.

So what are we supposed to do about our overspending once we've thought about the root causes?

Analyze your spending: The first thing I would suggest is giving yourself a wake-up call by actually tracking your spending. At our house when we started tracking using a software called You Need A Budget, we were shocked to find out how much we spent on several non-essential categories. Knowing where we were overspending was half the battle.
Set up a budget, especially in problem categories: The next step is to actually set up a budget for your household. What we've found was especially important was to set spending limits on problem categories. If, for example, you struggle with spending in your dining out category, set a limit of how much you can spend on that every month, and don't go over. Try using a cash envelope system for problem categories. Get out enough cash at the beginning of the month to cover the category, and don't go over that amount.
Start living below your means: While it may sound like a simple concept to live below your means, it can sometimes be easier said than done. But if you do want to get ahead, you'll have to start living on less than you make, otherwise you'll just be treading water, or going under.
Save & Invest: Once you're living below your means and all debt is paid off, you can start saving and investing and start living!

So why do we overspend? It varies from person to person, and you need to think about why it may be happening for you. Once you've figured that out however, getting back on track is probably going to involve some pretty similar steps for everyone.

What tips do you have for addressing overspending? What have you done to cut back on unnecessary expenses?

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