debt management for student borrowers nancy faucett and mike smith student loan guarantee foundation...
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Debt Management for Student Borrowers
Nancy Faucett and Mike Smith Student Loan Guarantee Foundation of Arkansas
High Debt StatisticsAverage credit card debt for undergraduate students
is $2748One third of undergraduate students carry four or
more credit cardsNearly 10% of undergraduate students report credit
card debt of $7000 or moreA credit card debt of $1400 with 18% interest rate
and paid at minimum monthly payment would take eight years to repay, with interest costing the borrower $2607
Last year approximately 461,000 Americans under age 35 filed for bankruptcy
Managing Your Credit Card Debt
Use only one credit cardChoose a credit card without an annual feeChoose a credit card with the lowest rate
availableUse credit cards for emergencies onlyKeep receipts of all charges, keep total of
amount owedPay off charges in full each month
Managing Your Credit Card Debt
Do not purchase on impulse with credit card
Do not charge more than you can afford to pay off the next month
Know when your credit card payments are due
Do not live a lifestyle you can not afford
Save Money and Live Within Your Budget
Private ScholarshipsCookLive with roommatesTuition reimbursementShare class materialsDepartmental grantsResearch assistantshipsWork for the schoolLoans
Debt Management Strategies
Realize credit cards are issued to students, even if the student has no credit history and no income
Involve parents in discussing credit card use Stress importance of good credit historyEncourage families to obtain a debit card for
college bound teenagers instead of a credit cardDiscourage credit card solicitation on campus
Debt Management StrategiesRealize reasons college students fall into debt
Peer pressure to spend moneyExtensions of credit limitsHigher education-related expensesBelief that well paying job will pay off credit card
debtUtilize Gradfree.com to help students reduce college
loan debtEnsure borrower’s debt does not exceed 8% of
income
10 Greatest Myths about Credit and Debt
Myth 1: If I don’t use credit, I will never be able to buy anything
Myth 2: Credit is badMyth 3: I’m a failure because I’m in financial troubleMyth 4: If my debt is too much, I will file for
bankruptcyMyth 5: The credit card companies would not send
me applications if I could not afford it
10 Greatest Myths about Credit and Debt
Myth 6: I will be okay if I make my minimum monthly payment
Myth 7: I can pay off my credit card debt with a home equity loan
Myth 8: I can take a cash advance to keep me from falling behind on my payments
Myth 9: If I cosign a loan, the lender will not charge me with the liability
Myth 10: My financial condition is so bad it is hopeless
Educate students about personal finance
Help in determining financial fitnessGive advice on using credit wiselyTips on avoiding loan defaults
PURPOSE
BorrowerSchoolLender/servicer/holderGuaranty agency (Guarantor)U.S. Department of Education (USDE)
Learn about your role and the role of others
Step One
Damage to your credit ratingWithheld federal treasury payments, including
tax refunds Garnishment of wagesLawsuits, collection costs, legal expensesNo additional financial aidProfessional licenses could be in jeopardy
Step TwoConsequences
How do you take control?Make a budget and stick to itOpen checking and savings accountsGet the best deal on a credit cardUse credit cards responsibly
Control Your Finances
Step Three
Make loan payments on timePay monthly services promptlyReview credit reportSeek help if things get out of hand
Control Your Finances
Step Three
1. Compare statement to daily register
2. Check off register items that appear on statement
3. Add all deposits together from register and compare to statement
Balance Your Checkbook
Step Four
4. Add all deductions together and compare to statement
5. Update your statement information
6. Do it EVERY month
Balance Your Checkbook
Step Four
List the things that are most important to you
Set some goalsDetermine your incomeDetermine your expensesCreate a “spending plan”
Establish a Budget
Step Five
Pay yourself firstWatch using the “plastic”Keep track of expensesRe-think your spending plan periodically
Establish a Budget
Step Five
Pay yourself first
Establish a savings account
Learn about your investment options
Pay Yourself and Invest
Step Six
How to Establish a Savings Account
On paydays, make a check out to yourself and deposit it in your savings account
Use payroll direct deposit and have money deposited in your savings account automatically
If you save $100 a month beginning at age 22, you will have saved $100,000 by age 55
Use Credit Cards Wisely1.You are borrowing money when you use a
credit card
2.You will pay a finance charge if you do not pay your balance in full each month
3.Shop around for the credit card that suits your budget and repayment habits
4. Use your credit cards wisely to help you establish a solid credit rating and avoid financial problems
Step Seven
Selecting a Credit Card
1. A low annual percentage interest rate
2. The interest calculation method: low or no annual fees
3. All other charges: late fees, transaction fees, over the limit fees
4. A grace period
5. Credit limit: start off small
6. Wide acceptance
Who can access your credit report?
1. Creditors (banks, finance companies, credit card companies, etc)
2. Landlords
3. Employers
4. Government licensing agencies
What does your credit report tell creditors?
1. How promptly you pay your bills
2. How many credit cards you own
3. What is the total amount of credit extended
4. How much you actually owe on all your accounts
What is on your credit report?
1. Personal identifying information
2. Credit account information
3. Public record information
4. Inquiries
Negative information stays on your credit report for seven to 10 years, positive information indefinitely, and inquires six months to 12 years
How do you request a credit report?
1. Call, write, or request online
2. Review once a year
3. If you find an error, contact the credit reporting company immediately
4. Credit Reporting Agencies:Equifax www.equifax.comTrans Union www.transunion.comExperian – formerly TRW www.experian.com
Tips to Clean up your Credit
Pay off your past-due accounts
Bring past due accounts up-to-date and keep them that way
Wait until the bad ratings are removed from your credit report before applying for more credit
Write a brief explanation for your poor credit rating (such as unemployment) to be included on future credit reports
What to do if you are in serious financial difficulty
Contact your creditors Find a debt counseling serviceConsumer Credit Counseling Service 800-388-2227 Consider loan consolidation Use bankruptcy as a last resort
There are no quick fixes to fix damaged credit. It takes time, sacrifice, and good money management.
BANKRUPTCYYou are asking a federal court to declare that you are unable to pay your debts
Your debts will be reduced or eliminated
Collection activities such as foreclosure, repossession, phone calls and letters from creditors, wage garnishment or disconnection of utilities will stop
The Cons of BankruptcyRemains on your credit for up to 10 years
If you can get additional credit, you may get less than you ask for, pay a higher interest rate, or make a larger down payment
May affect your ability to get a job
Cause feeling of guilt and embarrassment due to the stigma associated with an inability to control your finances
Student loans generally are not discharged through bankruptcy
Personal Bankruptcy
Chapter 7 - no steady income and few assets, debts are cancelled, assets are converted to cash and used to repay part of your debts
Chapter 13 - you have a steady income, are placed under a court approved repayment plan where they pay some or all of your debts in three to five years, and assets are not sold to pay creditors
Other Internet Resources•Career guidance / job search•Educational institutions•Financial aid estimators•Government agencies•Other valuable resources•Scholarships, grants, fellowships•Sites with information on financial fitness•Standardized tests / admissions.
Step Ten
Mapping Your Future
Paying for School Online Student Loan Counseling Ten Steps to Financial Fitness Loan Locator Deferment Navigator Budget Calculator Frequently Asked Questions Loan Calculator Additional Resources
Special Features
Additional Resources
Chat Nights Careership Scholarship resources Conducting job search techniques Other Internet resources More special features
Careership Six different career regions
Multiple career fields
Frequently asked questions Gives the most frequently-asked questions
for that field, along with the answers
Conducting Job Search Techniques
Assesses skills and interestHelps determine career goals Links to The Occupational Handbook
Assists with resumes Gives sample resume Interview information
Links to Other Internet Resources
Career guidance/job search Educational institutions Financial aid estimatorsGovernment agencies Scholarships, grants, fellowships Information on financial fitness Standardized tests/ admissions