May

31

As of July 1st, 2007, the interest rates on student loans are scheduled to increase. Although less than one percent, the resulting repayment amount can rise significantly over the life of the loan. So, college graduates can definitely use information on how to make student loan repayment less painful financially.

First, and most importantly, consolidate. Interest rates are locked in, once all student loans have been combined and assigned to one lender. So, graduates need to apply for consolidation before the deadline.

Unfortunately, while student loan interest rates are locked in at the lower level, the grace period is forfeited. Normally, the monthly repayment schedule does not go into effect until six months after graduation. So, an individual completing college in May does have to start making payments until November of that same year.

However, if a loan is consolidated before July 1st, chances are, the first payment will be due in August. Yet, a person may still have additional options to reduce the amount owed each month.

First, select the lender carefully. Even after consolidation, and the repayment process have begun, an individual will be inundated with offers from other lenders to consolidate with their company, and receive a better deal. Most will be junk mail, if the borrower has done his/her last homework assignment.

For instance, a lender may offer consolidation at the lower interest rates with added incentives, if the borrower is a good credit risk. From personal experience, a bank may offer a further reduction in the interest rate, after three years of regular payments. In other words, do not be even one day late in submitting a payment.

Also, some financial institutions may offer further reductions; if the payment plan is set up to automatically deduct a given amount each month. So, say the interest rate is currently 3%. The borrower sets up the student loan payments to be automatically deducted on the 15th of each month from his/her checking or savings account. Now, the interest rate has been reduced to 2.75%. Then, after three years of making regular payments, the lender may reduce the loan to 2.5%, or lower.

Only the borrower can determine which bank, and what incentives are right for him/her. Certain variables have to be taken into consideration. First, what is the total amount of the loan to be repaid? Second, is the loan going to be stretched longer than the standard ten year period, or will the borrower need fifteen or twenty years to eradicate the debt?

The best advice: even though a loan has been initially picked up by one lender, or several, during the course of a person’s education, he/she is not obligated to stay with that particular financial institution after graduation. Many lenders will be vying for the loan, because it is good business. A lot of students are in the same boat, with a lot of potential interest to pay the winning lender.

The mail from financial institutions will be frustrating for a while, as each tries to convince a student their repayment plan is the best deal around. Thus, students must do one last bit of financial homework. Signing on with the first lender’s offer can result in paying hundreds, if not thousands, more than is really necessary.

Also, every time the interest rates are scheduled to change, like this year, the mailbox will again be inundated with offers to switch lenders, and save lots of money for the balance of a student loan. Chances are, since the interest rates are increasing, not declining, the best option is to stay put with the current repayment plan.

If a better deal seems plausible, do the math. Despite the sales pitch, lenders are not out to do the borrowers any favors. Financial institutions make a lot of money from former college students repaying federal loans. Especially at the end of every school year, the push is on to get graduates to sign on the dotted line.

One HUGE warning: DO NOT default on the loan. All bets are off, if the borrower fails to make a scheduled payment. If an individual feels he/she may qualify for a hardship deferment, go through the proper channels and apply.

Bankruptcy is almost never granted on a student loan, and lenders can garnish wages and be the first to receive any monies from an income tax refund. Plus, the amount taken from the paycheck will probably be substantially more than the monthly scheduled amount. Lenders will take as much as the law will allow, and recoup the amount of the loan as quickly as possible.

So, before interest rates go up on July 1st, take the time to do a personal homework assignment. If at all possible, lock in the lower interest rates, so the burden of student loan repayments can be reduced. Remember, ever individual has the right to choose the best lender, and plan, for his/her circumstances. The rest is junk mail.

Erol Orderland knows first hand how Student Debt can affect ones life. For more information visit Federal Loan Consolidation or find out about Consolidation of Debt.

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May

1

Most people live in a 2-income household, just to make ends meet.  Whether paying rent or signed up for a 30-year mortgage, simply keeping a roof overhead can be a challenge.  Add the rising costs of food, clothing, utilities, and fuel, and the budget is pretty tight.
Now, include the additional expenses related to having children and pets, and the majority of people are one paycheck away for imminent disaster. Unfortunately, a growing population has first-hand knowledge of pay now, or really pay later.  Bad credit permeates life at the personal, professional, and economical levels.

Bad credit can adversely affect personal relationships. Today, the divorce rate in North America is at least 50%.  When the going gets tough, lots of people pack up and leave.  Bad credit is definitely tough. Money issues are the source of many domestic squabbles. Unless a couple has the same economic goals, and a mutual plan of achievement, relationships suffer.

For example, one partner may be a penny pincher and have no trouble cutting the budget to avoid bad credit.  Conversely, the other person has trouble keeping cash in the pocket, paying the bills first, and saying “no” to wants, even though the financial obligations have not been met.

The penny pincher is worried about losing good credit standing; the free spender has adopted the philosophy of “don’t worry; be happy!” Nevertheless, bad credit is only a paycheck away.

When bill collectors start calling, disconnect notices come in the mail, and the personal credit score is in the toilet, the disagreements begin; the stress level escalates; and, personal life matches the plummeting financial situation. Many people will actually separate or get divorced over bad credit problems.

Individuals with bad credit often suffer professionally, as well as personally.  For example, contractors, by necessity, need a line of credit at the local lumberyard or hardware store.

When the job is complete, and the customer pays, the bills for the materials are settled.  However, if the contractor has a bad credit standing with other local businesses, he/she will not have the necessary funds to buy the necessary supplies for a project.

Likewise, a business may have difficulty getting a loan for renovations or expansion. Instead of having the money to help the business grow and become more competitive, opportunities for increasing profits will slide by and go to a competitor, simply because bad credit negatively influences requests for the necessary funds.

Generally, businesspersons with bad credit will soon become unemployed.  To be a successful entrepreneur, knowing how to manage money and maximize potential is extremely important.   Without the ability to spend and save wisely, the profit margin will be slimmer, with little resources for improving economic stability.

Economic stability is essential for a happy and productive existence.  People caught in the cycle of bad credit are under constant stress and a cloud of discouragement. No, a person does not have to have a 6-figure income be free of financial stress, although the money would be nice.

However, knowing the bills can be paid every month, and building a nest egg for the future is a comforting. Conversely, bad credit, for many families, means they are one house payment away from foreclosure.   Utility deposits are usually higher, and retained longer, to offset the strong possibility an individual with questionable financial stability will fail to pay a bill. Also, unpaid loans (credit card bills) frequently have penalties or exceedingly high interest added, only making financial difficulties increasingly miserable.

Bad credit is much like dominoes.  Consider the contests to see who can build the most intricate maze or picture, using upright dominos.  After hours of intense concentration and hard work, the lead domino is tapped to fall into the adjacent game piece.  If the individual displayed the creation correctly, the dominos should fall in one continuous string, until all the little blocks are flattened and the basic design can still be detected.

So, how are the two similar? The first domino is like the first incident of bad credit. Unless an individual can keep the troubling economic situation from getting worse, one problem will lead to another, then another, and before one really knows what is happening, loans are impossible to obtain, forget buying on credit, writing checks may even be taboo for many purchases, lenders are threatening to foreclose, and the car is liable to be towed out of the driveway. Ouch!

In summary, risking bad credit is not worth the ultimate price an individual will have to pay.  If one does not pay now, the cost may be the loss of personal relationships, the inability to succeed professionally and financially, and the economic restrictions prohibiting the purchase and retention of the basic necessities of life. Simply put: pay now, or really pay later.
Erol Orderland writes about various topics including credit card debt. Learn about Credit Repair, Credit card debt or Loan Consolidations.

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Apr

25

Bad credit. Two little words. One BIG problem. Today, with companies downsizing and the increasingly high cost of living, most Americans are one paycheck away from financial disaster. An unexpected hospital bill, or the car breaks down, and many people are scrambling to figure out how to pay the mortgage or put food on the table.

Then, begins the economic shuffle. One month the rent is paid, the next only a partial payment to keep from being evicted. The next month, the rent is caught up, but the car payment slides. The downhill spiral begins. Like an airplane, economic recovery is possible; unfortunately many people crash and burn, not knowing how to survive money troubles.

For a fortunate few, a financial crisis does not lead to bad credit. Should the car break down, unexpected medical bills threaten the budget, or innumerable other reasons for financial stress, most companies are willing to work with the consumer.

Payment plans can be arranged, until the bills are caught up. Companies generally hate resorting to bill collections, repossessions or disconnections. The process is actually an added expenditure for them. Therefore, if the customer calls and explains the situation, most businesses are more than willing to come up with a feasible plan for easing financial woes.

Similar to a pilot unable to pull up and stabilize a flight in a downward spin, if an individual fails to make payment arrangements with creditors, the end of economic freedom is near. An individual labeled by bad credit will first experience the frustration of having the utilities disconnected.

After a letter of notice, a service provider can even turn off the source of heat, as long as the city is not suffering a life-threatening freeze. In addition, reestablishing service is very costly. The consumer will likely be required to pay the previous bill in full, pay any applicable fees related to the disruption of service, and he/she will generally have to pay a generous deposit, to ensure payment in the future.

Essentially, the consumer will be out even more money, eliciting even further financial stress. Chances are, a cosigner will be necessary to guarantee payment, and the individual will have to find a good friend or family member to loan the funds necessary to satisfy the bad credit debt.

Oftentimes, if an individual is suffering an economic crisis severe enough to require cessation of services, he/she also experiences repossession proceedings. If bills go unpaid for items bought on credit, like an automobile, the lender can come collect the purchase, and try reselling the item to recover the amount owed and the subsequent costs incurred. One of the first items to be repossessed is often the family vehicle.

Without transportation, an individual has even further difficulties establishing resources to get back into financial good standing. Also, a person may be required to sell off personal property to cover the cost of a bad credit debt.

Economically speaking, the crash is bad and the financial plane is burning out of control. Not only has the car been taken away and the utilities been shut off, the stores have black balled an individual with bad credit. Yes, the person may still purchase items, but on a cash only basis. If credit cards have been used in the past, the plastic money has been cut up into little pieces. Checks are now simply a piece of paper.

With bad credit, a business cannot be sure the amount will be honored, when the check is deposited. Even out-of-town creditors will request a money order, to ensure payment. Unfortunately, getting a money order can be difficult, especially with no car. Plus, a person will have to pay for the privilege of obtaining the money order.

So the financial aircraft is burning out of control. Not having money is actually costing additional dollars, and there seems to be no light at the end of the tunnel. As a way out, many people opt to file for bankruptcy, due to bad credit.

However, bankruptcy should only be a LAST resort. The decision to file means at least seven years of bad credit. Meaning, getting loans for a vehicle, a house, or any other necessity is practically impossible, even if financial hardship is in the distant past. Also, if the economic woes continue, the one way out cannot be used a second time. Two bankruptcies at one time are not possible.

Seven years of financial hardship is a long time; so, filing bankruptcy, to alleviate bad credit, should be the final recourse. If services have been discontinued, or items been repossessed, further financials dealings will be on a cash only basis.

Therefore, before financial flying goes into an unrecoverable tailspin, contact creditors in an emergency. During times of hardships most companies are willing to work with the consumer, and help him/her pull out of financial despair, and avoid the crash of bad debt.

About The Author

Erol Orderland writes about various topics including credit card debt. Learn about Bad Credit Repair, Credit card debt, Federal Loan Consolidation or Bad Credit Repair.

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