52 ways save on cc and loans

8/2/2019 52 Ways Save on CC and Loans

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F E D E R A L D E P O S I T I N S U R A N C E C O R P O R A T I O N

SPECIAL EDITION

51 Ways to Save Hundredson Loans and Credit CardsSimple strategies for cutting costsany time, plus special tips just for

Credit Cards

Home Loans

Auto Loans

Small Emergency Loans

Student Loans

Small Business Loans


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5 1 W a y s t o S a v e H u n d r e d s o n L o a n s a n d C r e d i t C a r d s

Summer 2007FDICConsumer News

2.Dont have too many creditcards.There are good reasons to

have at least two credit cards, butsome people collect a stack of cards,including those from stores and oilcompanies, several of which they rarelyuse. One problem with having a lotof credit cards is that lenders look atthe ones with no existing balance or avery low balance and conclude that youhave the potentialto use them and getinto debt. Even if youve proven in thepast to be a responsible user of credit,these extra cards could come back tohaunt you the next time you apply for

a mortgage or other loan.There is a cost to having too muchcredit, said Suzy Gardner, an FDICbank examination specialist and anexpert in consumer credit issues.Although individual circumstancesvary, having more credit available thanwhat you can reasonably use, need orafford can hurt you in the long run.

Example: You have several credit cardsand the combined outstanding balanceon them is $15,000 below your creditlimit. Then you apply for a home loan.The mortgage lender may questionyour ability to repay both a mortgageand$15,000 worth of new purchaseson your credit cards. And, your overallcredit score can suffer, resulting in thelender charging you a higher interestrate or denying the loan altogether.

One solution is to cancel the creditcards you rarely or never use,preferably well before you apply foranother loan. Start by closing yournewer credit card accounts thats

because your credit score can belowered if your credit history appearsshorter than it really is. Another optionis to ask your card issuers to reduceyour credit limit.

3.Check your credit report foraccuracy. Something as simple ascorrecting incomplete or erroneousinformation in your credit record maybe enough to qualify you for a better

Loans and credit cards provide greatconsumer benefits, but as with any

form of borrowed money, youve gotto be careful about how you managecredit. Here are tips for saving moneyon credit products in your basicfinancial affairs, when shopping fornew credit, and when using loans andcredit cards.

Getting a Grip on Credit

1.Pay your bills on time to maintaina good credit record and qualify

for low rates. Dont wait until thelast minute to pay your monthly bills.

Not only will you incur late-paymentfees (see Page 4), but perhaps moreimportantly you risk triggering higherinterest costs. Thats because yourpayment history on your debts andbills is one of the biggest factors inyour credit report and credit score.

A credit report is a compilation of howyou pay your credit card bill, loans,rent, and selected other debts and bills.A credit score is a number that is basedon your credit report and reflects yourfinancial responsibility. Both are part

of your overall credit history, whichcan determine your chances for a low-cost loan or a lower interest rate on acredit card.

While one or two late paymentsover a long period of time may notsignificantly damage your credithistory, if at all, making a habit ofmissing payments can result in ahigher interest rate, higher fees orboth when you apply for any type ofloan or credit card. Lenders put moreemphasis on your recentpayment

history, so be particularly careful withpayments in the months before youapply for a loan.

Consumers who pay their credit cardbill late may face a major hike in theirinterest rate often to between 9and 35 percent. Late payments on thatcard also can trigger rate increases onothercards or loans, especially if yourcredit record shows other signs of risk.

Cutting Your Costs: Simple Strategies forSaving Money on Loans and Credit Cards

interest rate on a loan or credit cardand save you hundreds of dollars eachyear in interest payments. For example,if you always pay your loans on time,but your credit report shows late

payments, youll want to correct that.By federal law, you are entitled toone free copy of your credit reportevery year from each of the threenationwide credit bureaus Equifax,Experian and TransUnion. Eachcompany issues its own report, soits smart to check each one. Goto www.AnnualCreditReport.comor call toll-free 1-877-3-88 to

A Message to Readers

You probably think of loans andcredit cards as services as waysto borrow money and buy things.

And of course, youre right aboutthat. But given the astounding arrayof credit-related services availabletoday, with their varying degrees ofcomplexity and costs, its smart tothink of mortgages, credit cards andauto loans asproducts tangibleitems that you should research andcompare before you buy, and thenuse with care.

The Federal Deposit InsuranceCorporation wants to help youreap the benefits of loans and credit

cards at the lowest possible costs.Thats why this special edition ofour quarterlyFDIC ConsumerNewsis a collection of 51 simple,practical tips and other guidancethat can help you save hundreds, ifnot thousands, of dollars.

In this special edition youll findideas and information on topicssuch as how to: get the bestpossible interest rates on loansand credit cards avoid payingunnecessary fees; find emergency

loans at affordable prices; and steerclear of credit-related rip-offs andscams.

At the FDIC, we not only helpkeep your money safe in insuredbank accounts, we also want to helpyou keep more of your money.


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3Summer 2007FDICConsumer News

order free credit reports or for moreinformation. Although you can askto receive copies from all three creditbureaus at the same time, you also canspread out your requests throughoutthe year to check for major changes or

inconsistencies.Identity theft is another reason toregularly review your credit reports.Make sure an ID thief hasnt openedcredit cards or other accounts in yourname to commit fraud (see Page 5).

4.Periodically review your existingloans and credit cards with an eyetoward saving money. Talk to acustomer service representative at yourbank to make sure youre signed up forthe accounts and features that best fit

your needs, especially if your financialsituation has changed recently, saidJanet Kincaid, FDIC Senior ConsumerAffairs Officer. For example, if youtend to carry a balance on your creditcard, find out if you qualify for a creditcard with a lower interest rate or otherfeatures that can cut your costs.

For tips on refinancing an existing loanor credit card, see Page 5.

Shopping Tips

5.Compare the products offered byyour bank and a few competitorsand then negotiate the best deal.Dont hesitate to let lenders knowthat you are shopping around forthe best possible terms and that youare not afraid to negotiate, Kincaidstressed. Competition can be a goodthing.

One of your most important shoppingaids for a loan or credit card is theAPR the Annual Percentage Rate.This required disclosure shows thetotal cost, including interest charges

and other fees, expressed as a yearlyrate. When youre comparing loansfrom different lenders, make sure youuse the same dollar amount and timeframe so you can compare the APRs.That way theres no confusion aboutwhich loan will cost less. For a goodexample of how the APR can help youshop for credit, see the discussion ofpayday loans on Page 9.

6.Focus on the long-term costof the loan, not the monthlypayment. Many car dealers oreven mortgage lenders will enticeborrowers by asking how much theycan afford to pay each month, added

Kincaid. It may be better to payslightly more money each month,but for a shorter time period, if itmeans you will be paying less in totalinterest.

She also said that some people lookso much at the monthly paymentthat they dont notice certain feesor service charges that are imposed.Youve got to look at the full picturebefore signing a loan agreement,including the APR and provisionsof the loan that can increase fees,

Kincaid said.

You can also avoid unnecessaryinterest charges if you pay for certaincosts out of your own pocket insteadof borrowing that money, too. Letssay youre getting a new mortgageand youre offered the chance to addthe closing costs to the loan instead ofpaying them upfront. Sounds good onthe surface, but remember that yourenot getting out of paying the closingcosts theyre added to the loanbalance, so your monthly payments

will increase and youll be payinginterest on the closing costs.

7.Take advantage of the Internet.Not only can you research creditproducts and comparison shop amonghundreds of lenders over the Internet,but you can also apply for a loan orcredit card online from those samelenders.

The Internet is, without question,the fastest and easiest way forconsumers to find out about and

compare the various types of loansand credit cards offered by banksaround the country, observedMichael Jackson, Associate Directorof the FDICs Division of Supervisionand Consumer Protection. He addedthat if you find an interesting offerfrom a far-away bank or an Internet-only lender, in most cases you canapply for and finalize the loan online;

continued on next page

you dont have to pass up a good dealjust because the institution doesnthave an office in your area.

However, Jackson also warned thatbecause con artists use the Internetto trick consumers into divulgingpersonal financial information, youshould never respond to unsolicitede-mails or to Web sites offeringproducts or services that appeartoo good to be true. For guidanceon whether a bank is legitimate, callthe FDIC at 1-877-75-334 or useBank Find, our online directory ofinsured institutions, at www.fdic.gov/idasp/main_bankfind.asp. (See moreabout frauds on Page 5.)

8.Read the fine print before signingup for any loan or credit card.For example, realize that if you geta new credit card promoting zero-percent interest on new purchases andyou dont pay off the entire balance bythe due date (typically after six to18 months), you may be chargedinterest on all your original purchaseamounts not just on the remainingbalance retroactive to the originalpurchase date. The costs could bemore than if you had used a cardwithout a zero-percent offer. With amortgage loan, find out when your

payments will or could change andhow much higher the payments wouldbe under different scenarios. What youdont read and dont know can cost youa lot of money.

9.Dont pay for expensive insurancecoverage you probably dont need.Many lenders sell disability, lifeinsurance or other similar protectionplans which, as an example, mightcover minimum loan payments dueif the borrower becomes ill or dies.Credit protection programs may

be the best or only coverage forcertain people who want this kind ofprotection, such as some consumerswho are ill or who are concerned aboutmaking loan payments if they losetheir job. But these plans may be farmore costly or more limited in purposethan other options, such as traditionalinsurance not tied to loans.


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Preservation Foundation (1-888-995-4673 or www.995hope.org).

15.Dont be afraid to complain. Yourbanks managers probably would prefer

you bring a problem to their attentionand be given the chance to fix itrather than see you take your businesselsewhere or tell all your friends about

your bad experience. If you dont getsatisfaction from a customer servicerepresentative or another employee,consider talking to a supervisor.

If youre still having problems,consider contacting the institutionsfederal regulator. The FDIC and otherbanking regulators cannot intervenein many disputes but can help youunderstand your consumer rights.

The appropriate agency also can seekcorrective action if the institution isin violation of a law or regulation. Tofind out which government agencyregulates a particular lender, you cancontact the FDIC (see back page). Q

Borrower Beware: How to Avoid Fraudulent or Deceptive Deals

20.Steer clear of fraudulentor deceptive offers targeting

borrowers. Unscrupulousindividuals try to lure consumersinto questionable, high-cost dealsor fraudulent transactions, usuallyinvolving new loans or credit cards oroffers to help deal with debt problems.Here are examples:

Predatory loans: People from non-bank or home improvement industriesmay use false or misleading salestactics to make high-cost loans toconsumers in need of cash. Victims

who cant afford the loan may bepressured to refinance. Borrowers who

pledge their house as collateral couldlose it in a foreclosure.

Credit repair scams: Con artists maypromise to erase a bad credit historyor make easy loans to people withspotty credit histories. Most chargeexorbitant fees or never provide thepromised money. Only steady and

consistent on-time payments by aconsumer can legally repair a creditrecord.

Mortgage foreclosure frauds: Thievesmay contact homeowners at risk oflosing their home to foreclosure andpropose to help by paying yourmortgage while you temporarilyrent your home from them. Theythen trick you into signing documentsthat transfer the ownership of theproperty to the crooks. In other scams,phony companies claiming to behousing counselors offer to negotiate anew loan or perform other services for

very high upfront fees and do little or

nothing in return.Credit card fraud: Identity thieves stealpersonal information and apply fornew credit cards or make counterfeitcards. Under federal law, if a thief uses

your credit card or card number themost you are liable for is $50. Even so,ID theft in general can be costly to fix,

and it can take months to repair thedamage. Notify your card issuer aboutany problems as soon as possible tohelp limit your losses.

How can you avoid credit-relatedfraud or deception in general? Deal

with financial institutions or othercompanies you know or that youhave independently verified as beinglegitimate, explained Randall Howe,a fraud specialist at the FDIC. Whenin doubt, he said, you may contact theFDIC for guidance (see the back page)or call your state or countys consumerprotection office.

As for preventing credit card fraud,

safeguard your personal and financialinformation and monitor your creditcard statements and credit reportsfor signs that a thief has stolen youridentity.

For more specific recommendations,go to www.fdic.gov/quicklinks/consumers.html. Q

Here are ways to save money byrefinancing by paying a loan off

early with a new, better loan.16.Know when refinancing amortgage makes sense.Accordingto the Consumer Action Handbookpublished by the Federal CitizenInformation Center, Considerrefinancing your mortgage if youcan get a rate that is at least onepercentage point lower than yourexisting mortgage rate and if you planto keep the new mortgage for several

years. Also consider the extra fees forthe new mortgage.

17.Be smart about dropping onecredit card for another.Transferringan outstanding balance to anothercredit card can give you a lowerinterest rate, but find out how longthe new interest rate will last and howit will change. Also see if theres abalance transfer fee.

18.Consider refinancing anauto loan if you expect to make

payments for several more years. Itmay be harder to find a better interestrate because your car has probablydepreciated in value. But if the savingsfrom a lower interest rate more thanoffsets any closing costs, refinancingcan make sense.

19.If you have multiple studentloans, look into the potentialbenefits of consolidating theminto one new loan at a lowerinterest rate. Compare the rates,terms and costs. It may not be worthconsolidating if it means losing a good

fixed-interest rate, giving up a longgrace period before loan payments aredue, or running up other costs that

would exceed those on your existingloans, said Sam Frumkin, a SeniorPolicy Analyst in the FDICsDivision of Supervision andConsumer Protection. Q

Refinancing: Tips for Mortgages and Other Credit


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Many of our general tips starting onPage can help save you money oncredit cards. For example, we said itsimportant to pay your credit card bill

and other debts on time to avoid late-payment fees and additional interestcosts. Here are more suggestions.

21.When choosing a credit card,ask yourself if you plan to pay thebalance in full each month. Manypeople dont pay their bill eachmonth they always carry a balanceand pay interest on it. Yet many ofthese same people sign up for a cardbecause it has no annual fee, withoutconsidering the benefits of a cardwith a lower interest rate or a moregenerous grace period (before interestbegins accumulating). In the long run,a card that doesnt charge an annualfee could end up costing you far morein interest than a card that charges anannual fee.

In general, if you expect to pay yourbalance in full most months, look fora card with a full grace period and noannual fee. However, if you plan oncarrying a balance, then a card withan annual fee and low APR (AnnualPercentage Rate) may be a betterchoice.

22. Read and save the disclosuresdescribing a cards features and feesso you know how to save money.When it comes to information aboutthe terms of your credit card, be apack rat, said Janet Kincaid, FDICSenior Consumer Affairs Officer.

Key information to look for andkeep: What is the interest rate andhow can it change? Is there an annualfee? What about charges for late

payments, returned checks, balancetransfers or exceeding your creditlimit? Whats the cost of a cashadvance typically meaning youuse your credit card to get cash froman ATM or to make a purchase usingone of the blank convenience checkssent with monthly statements? Cashadvances are likely to carry sizableupfront fees, a high interest rate and

no grace period before interest beginsaccumulating. Also, stay on top of feeincreases by reading and saving thedisclosures sent in monthly statements

or other mailings.

Avoiding additional charges isntthe only reason to become an avidreader of your credit card companysliterature. Potential cost savingsbuilt into your card also are worthexploring. For example, your creditcard may automatically include, atno extra charge, extended warrantieson purchases and insurance for carrentals. Your card also may offer cashback on purchases, rewards good forairline travel or products and services,and various other extras. Also be awareof the rules governing these perksbecause limitations, fees and deadlinesmay greatly reduce their value.

23. Be especially aware of your cardissuers billing practices, which cansignificantly affect your costs. Howyour card company treats the balanceson which you are charged interestcan be critical. Here are examples ofpotentially high-cost practices thatmany people dont know about eventhough card issuers must disclosethem:

Two-cycle billing: This billing practice israre but is used by some card issuers.Practices may vary but, in general,if you pay your credit card bill infull one month but then only pay aportion of the bill the next month,your interest charges ultimately will bebased on two months of card chargesand not one. This may result in youpaying more in interest charges thanyou would under the more commonone-cycle billing method. To findout if your card is subject to two-cycle billing, review the cardholderagreement and disclosures from yourlender or call their customer servicenumber.

Payment allocation:This involves cardswith multi-tiered interest rates. Forexample, there may be a low rate ona balance transferred from another

card, a higher rate on new purchases,and an even higher rate on a cashadvance. If you pay only part of yourmonthly bill, card companies typically

will apply your payment to the balancewith the lowestinterest rate first, whilethe highest-rate balance continues torun up interest costs until you pay theentire balance.

Universal default: This happens whena card issuer increases a customersinterest rate because he or she madelate payments to otherlenders or hadan overall decline in a credit score even if that customer paid the card billin full and on time. While this once-common practice is rare, be aware that

it could be used.24. Know your credit limit and staybelow it.There are two problemswith going over your cards creditlimit. One is that your card issuer willcharge you a penalty, which can beexpensive, typically about $30 for eachinstance. Also, exceeding your creditlimit may damage your credit score,which may mean higher interest rates,now and in the future.

To be confident you are within your

credit limit, Kincaid recommends thefollowing. Periodically check yourbalance by phone or online to makesure you stay within your limit, shesaid. Also give yourself an extracushion either try not to get tooclose to your credit limit or call thecard company to get a higher limit ifyou anticipate a special need, such as avacation or major purchase. Q

Taking Charge of Your Credit CardsRead and save the

disclosures describing

a cards features and fees

so you know how to save

money. When it comes

to information about the

terms of your credit card,

be a pack rat.


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because you may be able to obtain afixed-rate mortgage with paymentscomparable to an ARM and not haveto worry about future rate increases.

If you are thinking about an ARM,make sure you know how muchand how often the interest rate andpayment could go up before you signon, and be comfortable that you canmeet those higher monthly payments,cautioned Janet Kincaid, FDIC SeniorConsumer Affairs Officer. Dont let alow teaser rate lure you in; you may besurprised later.

27.Mortgages that involve little orno documentation of your income

or assets may mean higher costs.While these mortgages can save youtime and are attractive if your sourceof income is unpredictable, the lendergenerally charges a higher interestrate. If you have income thats easy todocument, such as regular statementsfrom your employer or a monthlySocial Security payment, its probablynot worth paying extra over the longterm of the loan just to save a few daysduring the application period, saidMira Marshall, an FDIC Senior PolicyAnalyst on consumer issues. Be sureto ask about full documentation loansand compare the costs.

28. Look into paying off yourmortgage sooner rather than later.A mortgage with a long repaymentterm (30 or even 40 years) is veryappealing because the monthlypayments are relatively small, whichcan put a more expensive home withinreach. However, the downside of thisstrategy is that youll have a muchsmaller amount going to pay off

your loan each month, and that candramatically increase the total interestcosts.

You can save tens of thousands ofdollars in interest depending on theamount of your loan and the interestrate by choosing to reduce thelength of your mortgage. Many peoplepay off their 15- or 30-year mortgage

Buying and maintaining a house isexpensive enough, so why pay morethan you have to for a home loan?Suggestions throughout this specialedition can help keep down the costsof a mortgage or a home equity loan,but here are additional tips.

25.You can negotiate the rates andterms of a home loan.You shouldlook for a mortgage the way youdlook for a car get all the importantcost information, shop around and,yes, negotiate for the best deal. Thatsone of the key messages ofLookingfor the Best Mortgage, a free consumerbrochure published by the FDIC andother federal government agencies(online at www.fdic.gov/consumers/looking/index.html).

Many consumers arent aware thatthey can negotiate the rates, closingcosts and other terms of a mortgageor home equity loan and possibly savethousands of dollars. People oftenthink that when they get a quote ona loan from a lender or a mortgagebroker (someone who finds a lenderfor you) that the same price is beingoffered to everyone. But a lender orbroker may offer thesame loan atdifferentprices for different consumers,even if those consumers are equallyqualified for the loan. Why? Oftenthats because the loan officer orbroker is able to keep as income someor all of the difference between thelowest-price loan available and anyhigher rate the consumer agrees to pay.

26. Consider a fixed-rate loan evenif adjustable-rate mortgages (ARMs)carry a lower initial interest rate.A fixed-rate loan adds certainty and

stability to a big part of your loanpayment, which can provide peaceof mind, especially given that otherhousing costs such as real estatetaxes, insurance and home upkeep are likely to rise in the future. ARMsgenerally start with a lower interestrate, but remember that an ARM ratecan go up, sometimes significantly.It may be worth shopping around

loan faster by sending in extrapayments say, an additional $50 or$100 each month or one large paymentonce a year. If you can afford the extrapayments and dont have other usesfor the money, this is an easy way topay off the loan and save thousandsof dollars in interest charges withoutincurring the cost of refinancing, saidMarshall. There are pros and cons tothe different strategies, so you maywish to consult with a financial or taxadvisor about what is best for you.

29. Save money on insurance.Because the value of your house isbacking your mortgage, you willbe required by your lender to havehomeowners insurance to cover avariety of damages that could reducethe propertys value. Prices can varysignificantly, so shop around.

Also make sure you get the rightcoverage for your situation. Forexample, if you live in an area that isat high risk for floods or earthquakes,you should consider purchasingadditional insurance coverage if it isnot otherwise required by your lender.

Private Mortgage Insurance (PMI)

protects the lender when a borrowerfails to pay. It is usually required forloans in which the down payment isless than 0 percent of the sales price.For the typical mortgage loan, PMIcosts about $40 to $70 per month oraround $500 to $800 a year. PMIis costly and you should try to avoidit, said Luke Reynolds, an FDICCommunity Affairs Specialist. If youcant afford the large down paymentthat would save you from PMI, askthe bank if there are other options

for a smaller down payment withoutPMI. Under federal law, with certainexceptions, PMI automatically will beterminated if the borrower accumulates percent equity in the home and iscurrent on mortgage payments.

Some homebuyers inadvertently payfor PMI if they add the closing costs

Home Loans: How to Keep Costs from Going Through the Roof

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Stereos and tinted windows arent theonly options youll need to consider

when youre ready for your nextvehicle. Also look closely at yourdifferent choices for financing a newcar. For many people, an auto loan istheir second biggest monthly expenseafter their mortgage or rent. Here aresome strategies to consider.

32. Shop for a loan before you visita dealership or bid for a car over theInternet. After reviewing your creditreport to correct errors (see Page ),ask your bank and several otherlenders about their loans and costs

so you are in a better position to getthe best possible terms. If youre ahomeowner, you could also considerusing a home equity loan or line ofcredit instead of a traditional auto loan,but remember,you could lose your homeif you cant repay the loan.

Know what car dealers are offeringin terms of financing by reading theiradvertisements, making phone calls orchecking the Internet. Many dealersoffer discounted loans (such as zero-percent financing) or cash rebates, but

not both. In some situations, it maybe better to accept the dealers rebateand pass up the zero-percent financingin favor of a loan from a bank that doescharge interest, said Joni Creamean,an FDIC Senior Consumer AffairsSpecialist.

33.Think carefully about how muchcar you can afford and how much ofa loan you need.The dollar amountof your loan largely will be determinedby the sales price of the vehicle minusyour down payment, any rebates and

the value of any trade-in. Dont forget,however, the costs of auto insurance,sales taxes, annual property taxes onthe car (if any), and options you maybe inclined to buy, such as an extendedwarranty.

Also remember that every item youadd to your loan instead of payingupfront will add to the total cost of the

loan because you will pay interest onthe amount financed.

34. Consider getting pre-qualifiedby a lender for a specific loanamount. This doesnt mean youhave been approved for a loan, saidCreamean, but it will help you knowapproximately how much you canafford to spend on a car and how muchit will cost you in finance chargesbefore you get to the dealership.

Consumer advocates also suggest thatyou not tell the dealer if youve beenpre-approved elsewhere for a loan untilafter youve negotiated the best priceon a car. They say that some dealersmay be less flexible on the price of thevehicle if its clear that the dealershipwont be earning money on a loan.

35. Understand the costs and risks ofchoosing a long repayment period.A longer loan term will be temptingbecause it means a lower monthlypayment, but that also means a highertotal cost overall because you willbe paying interest longer, warnedCreamean.

For example, a $5,000 loan at a sevenpercent interest rate for three yearswill cost $77 a month. Stretchingthe term to five years will drop themonthly payment to $495 but willincrease the total cost of the loan byabout $,000.

Creamean offered another reason tobe cautious with a repayment term offive years or more: The aging vehiclesresale value may fall below what youowe on the loan if the terms are spreadout too long. In the later years of the

loan, youll still be making paymentson what is an older vehicle that mayhave a lot of repair and maintenancecosts, she said. And if you decide tosell your car, you may have to come upwith extra cash out of your own pocketjust to pay off the old loan.

For an extra tip about refinancing anauto loan, see Page 5. Q

Auto Loans: Take Control of the FinancingBefore You Take Control of the Wheel

to the loan balance, thereby reducingtheir down payment to less than 0percent of the homes value. By payingthe closing costs instead of addingthem to your loan, you can avoidpaying interest on the closing costs and

avoid paying PMI.30. Look for government incentivesfor first-time homebuyers, low- ormoderate-income families and otherborrowers. Eligible applicants cansave on the interest rate, closing costs,down payment, and other loan terms.

For example, mortgages insured by theFederal Housing Administration mayfeature low down payments and lowclosing costs (go to www.hud.gov/buying/loans.cfm or call 1-800-569-

487). For details about programsoffered by your city, county or stategovernment, call its housing agency orcheck the government Web site.

31. Borrowing money from yourhomes value can be low-cost butalso risky.Many people take outlow-cost loans based on their equityin the house. The equity refers tothe difference between what is owedthe mortgage lender and the currentmarket value of the property. If youowe $100,000 on your mortgage but

your home is worth $50,000, yourequity is $150,000.

Home equity products can be usedfor many purposes, including homeimprovements, college tuition andcar purchases. They also can be low-cost loans because the interest rate isusually lower than for credit cards, andthe interest paid is often tax deductible(check with your tax advisor).But and this is important thebig risk with home equity products,as with a mortgage loan, is thatyou

can lose your home if you cant make yourpayments. Home equity products canbe fine for many people but, becauseyou would be putting your home onthe line, these loans are not to be takenlightly, Kincaid stressed.

For guidance on where to turn for helpif you are at risk of defaulting on ahome loan, see Page 4. Q


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The cost of college has risen fasterthan the general inflation rate for

many years. So, its no surprise thatmany parents borrow to pay for highereducation and that many collegegraduates owe tens of thousands ofdollars on student loans and relateddebt. Here are strategies for keepingcollege financing costs down.

40.Make saving, not borrowing,your first choice for paying forcollege. Planning and saving forcollege should be something parentsbegin when their son or daughter isstill in diapers, said Kirk Daniels, asupervisor in the FDICs consumeraffairs section. College loans can becostly, and the easiest way to avoidthose costs is to have your own collegesavings fund.

Starting a college savings account,such as a state-sponsored 59 Plan,allows families to maximize growthin a tax-advantaged account and reapthe benefits of compounding smallamounts of money into a large sumwhen the child graduates from highschool. Investment advisers alsorecommend setting up an automaticinvestment plan through your bankaccount or paycheck to encouragesystematic savings.

41.Take the time to research youroptions for a loan. If you think youneed a loan, do your homework andask lots of questions before settlingon one. Among the many options arefederal government loan programs,including PLUS loans for parentsand Perkins and Stafford loans forstudents (usually with fixed interestrates and some form of defermenton repayment until after graduation).Also available are loans from privatefinancial institutions and stategovernment agencies.

Of course, youll want to knowwhether a loan is fixed- or variable-rateand what could trigger a rate increase.But student loans may have unusual

features to consider. In particular,ask about any options for delaying

payment until after graduation and anypolicies on forbearance (temporarilyreducing or postponing payments froma borrower in financial distress). Alsofind out about any rebates for on-timepayments and other incentives forgood performance.

There are often substantial differencesbetween private loans and studentloans guaranteed or insured by thegovernment, noted Luke Reynolds, anFDIC Community Affairs Specialist.A private lender likely will offerboth types of loans, so be sure to askquestions to fully understand the prosand cons of any loan product.

Your states department of educationand the colleges financial aiddepartment may be good resources.Dont depend on your school to pickthe right loan or lender, though. Somecolleges and private lenders have beenscrutinized for conflicts of interest insteering students toward preferredlenders.

42.Think twice before borrowingagainst your home or retirementaccounts. Parents who do notqualify for a tax deduction on loansfor higher education may want toconsider using a home equity loanif they qualify for a tax break on theinterest. But remember, a home loanputs your house at risk. Another optionis to borrow from your retirementsavings, but most investment advisersrecommend against that approachbecause it may reduce your futureearnings and make it tougher for youto retire when you want.

Given the many ways to borrow forcollege at competitive interest rates,ask yourself if you really want to putyour house at risk with a home equityloan or reduce your hard-earnedretirement savings just to pay tuition,Daniels said.

43. Shop for a good price on acollege, not just on the collegefinancing. For most families, theprice of tuition and room and boardshould be an important part of thedecision process, just like buyinga home, a car or any other majorpurchase, said Daniels. The costshould be considered along with theacademic programs of a school.

For many families, the comparisonshopping should include options suchas two-year community colleges andschools close to home, which can helpsave on room and board, Daniels said.

44.Youth is no excuse for defaultingon a loan.At some point, perhapsafter graduation, the loan paymentswill begin. How a young personmanages student debt can be crucial.Other loans, such as credit cards,and high living expenses can make ittough for a student or graduate to payoff college loans, Daniels cautioned.The non-payment of a student loan isa bad way to start your career becauseyour credit report will be damaged

and the ability to obtain new credit oreven qualify for certain jobs may bejeopardized.

To help stay out of trouble, herecommends getting a job, settingand sticking to a budget that includesmoney for loan payments, andbuilding an emergency savings fund(see Page 9). But what if your goodintentions fail and you have no wayof making a payment? Contact thelender immediately. Many lenderswould rather work out some modified

payment plan than have the borrowerstop making payments completely,Daniels said.

For more information, start atwww.students.gov, a comprehensiveWeb site with information from theU.S. government and other sources ontopics such as paying for college. Q

Paying for College the Smart WayLoans for higher education can be costly so take the time to research your options


11/12



FDICConsumer News

Published by the Federal DepositInsurance Corporation

Sheila C. Bair, Chairman

Andrew Gray, Director,Office of Public Affairs (OPA)

Elizabeth Ford,Assistant Director, OPA

Jay Rosenstein, Senior Writer-Editor, OPA

Mitchell Crawley, Graphic Design

FDIC Consumer Newsis producedquarterly by the FDIC Office ofPublic Affairs in cooperation withother Divisions and Offices. It isintended to present information in anontechnical way and is not intendedto be a legal interpretation of FDICor other government regulations andpolicies. Mention of a product, serviceor company does not constitute anendorsement.

This newsletter may be reprinted inwhole or in part. Please creditFDICConsumer News.

Send your story ideas, comments,and other suggestions orquestions to: Jay Rosenstein, Editor,

FDIC Consumer News, 550 17thStreet, NW, Washington, DC [email protected]

Find current and past issues ofFDIC Consumer Newsat:www.fdic.gov/consumernews. Refer tothat same index to locate issues that arespecially formatted for being reprintedin any quantity.

To receive an e-mail notice abouteach new issue with links to stories,follow instructions posted at:www.fdic.gov/about/subscriptions/index.html.

For More Informationfrom the FDIC

Go to www.fdic.gov or call

toll-free 1-877-ASK-FDICthats

1-877-275-3342

Monday through Friday

8:00 a.m. to 8:00 p.m.,

Eastern Time.

Here are tips on borrowing to start oroperate a small enterprise.

45. Plan to borrow money with abusiness loan instead of using yourpersonal credit card. For somesmall business owners, particularlythose at startup companies, a personalcredit card may be their only or bestoption for financing expenses, saidLuke Reynolds, an FDIC CommunityAffairs Specialist. But for manyowners, a business loan will be a muchless expensive option, he said, becausethe bank loan will be secured by thebusiness property or equipment.

46. Consider an SBA-guaranteedloan. Under this program, the U.S.Small Business Administration (SBA)guarantees a portion of a loan, oftenup to 85 percent, and enables a smallbusiness owner to qualify for attractiveinterest rates and financing options.For more information, call the SBAtoll-free at 1-800-87-57 or go towww.sba.gov.

47. Research local small businessloan programs. These programsmay include loans with below-market

interest rates or no origination fees.Start by contacting your state or localdepartment of economic development.

48. Shop around for good deals andgood service for small businesses.Ask about loans as well as depositaccounts and other services for small

businesses. Some banks may specializein serving companies like yours.

49. Develop a good workingrelationship with a banker whocan help you save money. Lookfor someone who seems genuinelyinterested in your business and themarket you serve. The more thebanker understands your companyand its needs, the more likely he orshe can help you with everything fromfinancing and getting the best interestrate to referrals, Reynolds said.

50. Keep your own credit recordin good shape. If you apply for

a business loan, the lender willlikely review the personal financialstatements of the main owners of thebusiness. Concerns about the financialskills of the owners can raise theinterest rate on a business loan.

51. Learn tips on saving moneyfrom experts. Sign up for free orlow-cost workshops and confidentialcounseling for small business owners.Start with the local SBA office (forreferrals to local resources), SCORE(formerly called the Service Corps

of Retired Executives, a nonprofitSBA partner that provides freecounseling to small businesses), andvarious small business developmentcenters (generally operated byschools, nonprofit organizations andcorporations). Q

Financing a Small Business: Saving Money toHelp Your Company Grow

This FDIC Special Edition May Be Reprinted

The FDIC encourages financial institutions, government agencies, consumergroups, educators, the media and anyone else to help make the tips andinformation in this special edition ofFDIC Consumer Newswidely available tothe public.

This publication may be reprinted in whole or in part without advancepermission. In addition, the FDIC offers this special edition online in aPDF version at www.fdic.gov/consumernews that looks just like the printedpublication and can easily be reproduced in any quantity.

Space on the back page of the PDF version also was intentionally left blank sothat an organization could add its name, logo, a special message and/or mailinginformation.


12/12


The Federal Deposit InsuranceCorporationpublishes consumerinformation and has other resourcesthat can help answer questions onloans, credit cards and other financialmatters. Start at www.fdic.gov or calltoll-free 1-877-75-334. Back issuesof our quarterlyFDIC ConsumerNewsand articles referenced in thisspecial edition are available at thatsame Web site or upon request fromour Public Information Center at thesame phone number as above. To senda question to the FDIC, e-mail ususing the Customer Assistance Form atwww.fdic.gov/starsmail/index.asp orsend a letter to the FDIC, Division of

Supervision and Consumer Protection,550 17th Street, NW, Washington,DC 049-9990.

For More Help or Information on Loans and Credit Cards

Other federal agencies also publishconsumer information and respondto inquiries. A good place to startis www.mymoney.gov, the federalgovernments central Web site aboutmanaging your money. It is a service ofthe interagency Financial Literacy andEducation Commission, of which theFDIC is a partner.

The Federal Citizen InformationCenter(FCIC), perhaps best knownfor its information clearinghouse basedin Pueblo, Colorado, helps answerquestions on everyday issues. Forexample, the FCIC can direct you tothe appropriate federal governmentagency that can respond to a questionor complaint. Go to www.usa.gov ortoll-free 1-800-333-4636.

State and local government agenciesalso publish consumer informationand help answer questions on moneymatters. Go to your state or localgovernments Web site or call aconsumer protection office listed inyour phone book or other directories.

FDIC-insured banks, otherfinancial institutions andprofessional associations, consumerorganizations and the news mediapublish personal finance tips on loans,credit cards and other topics. You canfind a number of excellent sites bysearching the Internet. Q

52 ways save on cc and loans

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