Living Life Abundantly

HuffPost blogger, host of the Suze Orman Show on CNBC and author of 10 books on personal finance, Suze Orman has spent her career helping people manage their finances. You sent in your personal finance questions for her. Now she’s answered them.

For more Suze Orman, you can follow her on Twitter or watch her on the Suze Orman Show every Saturday at 9PM 12AM ET on CNBC .

1. From @ammm_13 on Twitter: I just grad. from law school with abt 200k in student loans. Consolidate? Or ure best advice? PLZ HELP!

Suze: You need to get on top of this pronto my friend. The $200,000 is already daunting enough, but if you fall behind in your payments the fees and penalties will explode on you, making this absolutely unbearable. And even if you were to file for bankruptcy, student loan debt is not discharged. You’re pretty much stuck with it. You didn’t tell me if you have a combination of federal and private student loans. I am praying there’s a big chunk of federal loans because with federal student loans you have some good repayment options—including consolidation. You can learn more at the Department of Education’s Loan Consolidation site. The private loans must be dealt with separately. Contact the lender and ask what all your repayment options are, and if you can in fact consolidate. Private loans typically have variable interest rates, and in the coming years I expect interest rates to rise, which would increase your loan repayment. I would do everything possible to pay off your private loans as fast as possible. That means no fancy car, no expensive vacations, and no high-end rental. Get those private loans paid off ASAP.

2. From Beth Wilkonson in the Huffington Post comments: I am a widow living on Social Security and a small pension. I had an inheritanc e which I’ve invested in high-yield ( 5-7%) stocks and am able to supplement my income with about $600 a month in dividends. Do you think this is the best use of the inheritanc e or do you know of other safe investment s that would give me a higher yield? Thank you.

Suze: I love love love dividend investing. When used properly I believe dividend investing is indeed a very smart way to generate income. But I am concerned by your characterization of dividend stocks as a “safe investment.” I just want to make sure you are clear on the fact that you are indeed investing in stocks, and stocks—even the most conservative and solid dividend payers—will go down in value from time to time when the markets hit a rough patch. That’s not as safe as keeping money in lower-yielding bank deposits such as certificates of deposit where your principal will not go down. That said, if you’re okay with the inherent volatility that all stocks have, then dividends are a great way to earn income. Even when stock prices slide, most companies keep paying their dividends. And over time—and I mean 10 years and preferably more-stocks typically rise in value. So if you can stomach the periods when stock prices fall, you should eventually get a double pay off from dividend stocks: the steady income stream, and an increase in value of your underlying investment.

3. From @suzy_enityeye on Twitter: where is the best place to invest $10,000 for this 40yo single woman with adequate retirement accounts?

Suze: You say you have adequate retirement accounts, but I just need to ask, do you have adequate emergency savings as well? If your emergency savings couldn’t cover eight months of your living expenses, that’s the first place your $10,000 should go. I also am intrigued by your use of the word “adequate.” I’d rather you told me, you we’re completely maxed out on your annual contributions to a workplace 401(k) as well as an Individual Retirement Account. In 2011 the maximum employee contribution limit to a 401(k) is $16,500 for someone younger than age 50. And you can contribute $5,000 to an IRA. If your modified adjusted gross income is below $107,000 ($169,000 for married couples filing a joint tax return) you can invest the full amount directly in a Roth IRA. If your income is between $107,000-$122,000 ($169,000-$179,000 for married couples) you can make a reduced contribution to a Roth. Otherwise, you can always contribute to a Traditional IRA and then convert to a Roth IRA. I think Roth IRAs are the way to go. In retirement your withdrawals can be 100 percent tax free if you follow some very easy rules. Your 401(k) and Traditional IRA withdrawals will be subject to ordinary income tax.

As for where to invest, given how young you are, I would encourage you to consider investing in a diversified exchange-traded fund (ETF) that focuses on dividend paying stocks.

4. From Ilko via email: I am 50 years old, and I can contribute to 403b and 457b with $38,500 all-together, but my company doesn’t match anything. Should I continue contributing the whole amount? I also contribute to my Roth IRA: $11,000.

SUZE: Because your employer does not offer a matching contribution you should absolutely make the Roth IRA your first focus. Because you are 50 you can contribute $6,000 into a Roth IRA ($1,000 more than the standard limit for everyone younger than 50 years old.) Once you have that taken care of, I would then focus on your work-place retirement savings.

One important caveat is to remember that if you decrease (or suspend) your contributions to your employer retirement plan, that money will show up as taxable income in your paycheck. Just something to plan for as it may boost you into a higher tax bracket. But that’s okay. Paying a little more tax today on that money that you can then invest in a Roth IRA that will give you tax-free income in retirement is a sound strategy. I think all our tax rates will eventually have to rise in the coming years to deal with our federal deficit. So having income that is shielded from taxes could be especially valuable.

Your ultimate goal should be to contribute to the Roth and keep investing in your company retirement plan. The more you can save over the next 15-17 years before you retire (I think 67 should be the goal for everyone who is able to keep working that long) the more you will be able to enjoy your retirement years.

‘;
var coords = [-5, -72];
// display fb-bubble
FloatingPrompt.embed(this, html, undefined, ‘top’, {fp_intersects:1, timeout_remove:2000,ignore_arrow: true, width:236, add_xy:coords, class_name: ‘clear-overlay’});
});

Consumers have been drawn to balance transfer credit cards over the past months as these particular types of credit card opportunities have not only allowed some consumers access to credit, which will obviously be used for a variety of purposes, but whenever a balance transfer option is offered on a particular card, some consumers are finding that the interest rates for a short period of time will allow them to consolidate multiple debts and pay off what they owe. While this topic has continually been covered over the past weeks, there are still some aspects of balance transfer cards that consumers may not be aware of, and when it comes to comparing rates on these balance transfer cards, some consumers are still unaware of just exactly what options are available.

Currently, many of the average rates on balance transfer cards for June 21 stand at around 12% to 16%, but again these are only averages. Consumers who are in the market strictly for a balance transfer card may fail to realize that there are a wide variety of card types that may be available, with each one potentially offering a balance transfer opportunity for the consumer who may have multiple debts which could be consolidated. However, what the problem we have seen over the past weeks centers around is that consumers are simply looking for cards that offer a balance transfer opportunity, without weighing the pros and cons of whether a balance transfer consolidation is right for them.

Numerous types of credit cards are available, as there are everything from student cards to bad credit credit cards, and of course these balance transfer cards, so it will heavily depend on what the consumer plans to use their card for as to what type they should research. Yet, some consumers who may only be looking for a balance transfer credit card solely for debt consolidation could find themselves in a difficult financial position later as opening a line of credit only for the purposes of consolidating debt is usually not in the best interest of a consumer.

Consumers who are facing multiple debts that may be problematic often think that debt consolidation is the answer to their questions, and since some feel that the process of acquiring a debt consolidation loan can be cumbersome, many see these balance transfer credit cards as a more streamlined way which they can acquire debt relief through consolidation. It is true that some consumers have turned to these balance transfer cards over the past weeks as a way to consolidate debt and they have been able to pay off what they owe during a period where low interest or no interest was associated with the balance transfer on their card, but consumers have in some cases had to pay fees or meet certain requirements before this low introductory rate remains in place.

While keeping up to date on what rates are averaging on certain cards can be helpful and is necessary during the research process for anyone who may not have a line of credit but happens to be in the market for a credit card for the purposes of building credit or other uses, many advisers have prompted consumers to avoid opening up another line of credit particularly for the purposes of debt consolidation, especially if alternatives to debt relief like budgeting or outside assistance from a credit counseling agency have not been explored first.

“Finally, you can change your repayment plan at any time, and there?s no penalty for paying your student loans off early.”

THAT’S a bad joke! If you can actually get your ‘servicer’ to tell you WHERE to send extra payments you’ll be doing better than most – and THEN there is the issue of whether they actually apply that extra to the principal! By law, they can apply it to interest first, fees and charges, and IF anything is left over, THEN maybe..

Student loans are predatory by design – the lenders and the government make MORE on defaulted loans.

And they WILL put you in default at the earliest opportunity!
Student loans are DEBT SLAVERY FOR LIFE!

The use of personal debt consolidation loans has been an options that numerous consumers explore when they are facing multiple debts on various obligations that range from credit cards, personal loans, student loans, or other financial obligations. However, many consumers make the mistake of not comparing interest rates and debt consolidation opportunities, as there are different rates from a variety of lenders that may be available here in the later part of May and early part of June. Understandably, consumers who compare interest rates and debt consolidation opportunities could find a great deal of affordability if they can acquire a lower rate on this particular type of loan that is meant to help them erase their debt which may have been causing financial problems.

Researching these options will be vital for each consumer as not only will interest rates vary from one lender to another, but there are some cases where a personal loan which is to be used for debt consolidation could vary in interest from one location to another. While this may be unhelpful for a consumer who lives in one area but has seen personal loan rates are lower in another, it is one way to gauge how much a personal loan should cost an individual who may be in a specific financial position. Yet, when it comes to the financial position a consumer happens to be in, this will obviously either increase or decrease the overall rate a consumer will be able to acquire when seeking debt consolidation.

In many cases, rates currently average around 10% to 20%, but again this can be highly variable as a consumer with an excellent credit score and history who may simply need a little help getting out of debt could get an incredibly low rate while others, who may be bad credit borrowers as example, could get a rate above 20%. While these rates may also simply be averages that could be seen, the specific rate a homeowner will be offered is not the only aspect of debt consolidation that consumers are exploring, as the total amount of time spent in repayment will also heavily factor into the cost as well.

Some consumers have explored debt relief options and have come to the conclusion that, without debt consolidation, they may face missed payments or other financial setbacks, so this is not the only route a consumer may take, but has been common for many. Like a credit card, though, many personal loans that are used to consolidate debts will have a minimum monthly payment, and consumers generally feel that if they can pay this amount they will have no problems. However, this is where interest rates come into play once more as a consumer who has a long repayment timeframe and only make minimum payments will end up paying a great deal more in overall costs, but this is usually well-known among borrowers.

Essentially, what many financial gurus will advise for consumers who are seeking a debt consolidation loan is to take stock of their finances so that they can apply as much money as possible to this debt consolidation loan, which may be from funds that are cut in areas of needless spending in the personal life of the consumer. While comparing interest rates is an important first step, even if the interest rate on a debt consolidation loan is not one that a consumer particularly desires, expediting the repayment process can lower the overall costs and put consumers on a path to debt relief much faster.

For college graduates who are carrying student loan debts, the issue of unemployment may have arisen at various points in the lives of these men and women as there are certain graduates who have recently left college who are still finding it difficult to find employment, while others may be facing problems like underemployment, but there are also men and women who have been out of school for years and are now facing joblessness but also continued required payments on their student loans. Yet, when it comes to unemployment repayment assistance available on student loan debts, there are forbearance opportunities and even lower payments that may be available on either federal or private loans, but these options must be explored by the individual student and ideally in a timely manner so that a solution can be found.

First, we can address private student loan unemployment assistance, as in this issue is of which will require the most personal research on the part of a student, since each private lender’s student loan repayment requirements and assistance opportunities will obviously differ. While there are some major financial institutions that offer these private loans and have very little information related to what opportunities unemployed students may have when repaying their debts, others may offer more options to graduates if repayment has become a problem due to unemployment.

While it will depend on a student’s or graduate’s particular private student loan lender, some of these institutions may offer options for a reduced payment by only having students pay their interest rate that is accruing on these loans and would at least give the graduate who holds the loan a more affordable payment so that defaulting or delinquency could be avoided. Yet, there are some banks that also say they can work with a student to offer forbearance, but this would be at a lender’s discretion and may only be available to individuals with federal student loans in the majority of cases.

The opportunity to, again, only meet interest payments for a set time, could be helpful for those holding private student loans, but it’s widely known that federal loans bring about unemployment forbearance opportunities, income-based repayment plans, and both federal and private student loan borrowers may be in a position where consolidation will lower their overall monthly payment that is required on this particular form of debt.

Federal student loans usually offer a wider spectrum of repayment opportunities, particularly those for those facing financial hardships, but there may be some private lenders who can work with a graduate in this area as well, yet there are no guarantees. If private loans are a problem, contacting a lender early before missed payments have begun may give a graduate a better opportunity at finding a solution to their problems while they are attempting to overcome financial difficulties in their life.

The Student Loan Ranger would like to give a special shout out to all you new graduates!

As you know, we dedicate a blog post each month to questions we have received in order to shed some light on the educational debt decisions our readers face. This month, we are going to look at some slightly technical (but oft asked) questions regarding Income-Based Repayment (IBR) and Public Service Loan Forgiveness (PSLF).

Q: I am trying to have my loans forgiven under Public Service Loan Forgiveness. I had Stafford loans, but the payments were too high, so I had them consolidated and they are now considered FFEL loans according to the National Student Loan Data System. Can these loans still be considered for the public service program? If so, what are the steps? If not, are they eligible for IBR?

First, congratulations on looking up your loan information on the National Student Loan Data System. We always encourage people to do that, because it is important to know exactly what loans you have.

Your FFEL Federal Consolidation Loan is not eligible for PSLF; only Federal Direct Loans are eligible. However, you have a right to reconsolidate your FFEL Federal Consolidation Loan into a Federal Direct Consolidation Loan.

If you want your payments to qualify for PSLF (remember, you need to make 120 qualifying payments to earn forgiveness) you should reconsolidate as soon as possible. You can use the online Federal Direct Consolidation Loan application available on the Department of Education’s website. It is important to remember that payments must still be made on your loans during the process of reconsolidation.

Also, IBR is a qualifying repayment plan for PSLF, so you should be able to select IBR as your repayment plan when you reconsolidate. (This is the sweet spot in the College Cost Reduction and Access Act: making low payments under IBR that count toward your loan forgiveness!)

Finally, both FFEL and Federal Direct Loans are eligible for IBR, so you can apply for IBR immediately by contacting the current servicer of your loans (the company with which you previously consolidated your loans) and tell them you want to sign up.

[Get tips and tools for managing student loans.]

Q: Is it possible to consolidate private loans with the Department of Education in order to apply for PSLF?

Unfortunately, there is no way to consolidate private loans in order to apply for PSLF. Again, only FFEL and Federal Direct loans are eligible for IBR and only Federal Direct loans are eligible for PSLF. For that reason, we urge students who think they are interested in those programs to avoid private loans and take out as many federal loans as possible.

Q: I work for the Department of Justice as an assistant attorney general in the Federated States of Micronesia. Am I eligible for PSLF?

Thank you for getting in touch with us. The Student Loan Ranger will be happy to do an in-person seminar in the Federated States of Micronesia for you if the DOJ will cover the cost of travel!

Assuming you are being paid by the federal government and working full time, you should be eligible for PSLF. (All levels of government­—federal, state, local and tribal­—count as qualifying employment.) Also, you may be eligible for debt relief under the John R. Justice Student Loan Repayment Program. We are unsure at this point if that program will be funded for the coming year, but the latest information we received from the Bureau of Justice Assistance was relatively hopeful. We will be updating our website as we find out more information regarding the funding of this program.

I assume you have already done this, but just in case, you should also check with your law school to see if they have a loan repayment assistance program (LRAP) in place. Finally, many federal government agencies have their own LRAPs that you might be eligible for.

Q: Is working at a 501(c)(4) qualifying employment for PSLF?

Unfortunately, at this time a 501(c)(4) nonprofit is not employment that qualifies for PSLF. (Working at a 501(c)(3) is qualifying employment.)

However, a number of private organizations do qualify as public service organizations. For example, a private organization that provides public services such as emergency management, military service, public safety, law enforcement, public interest law services, early childhood education, public service for individuals with disabilities and the elderly, public health, public education, public library services, school library, and other school-based services can qualify.

Here are links both to the College Cost Reduction and Access Act (you will want to scroll down to Title IV) and to the relevant federal regulations. You may want to look at these to see if your organization qualifies under some of the provisions listed there.

May’s mailbag is now in the bag. Please continue to send questions to us at [email protected] And sign up for our Friday, July 8, webinar: Drowning in Debt? Learn How Government and Nonprofit Workers Can Earn Public Service Loan Forgiveness.

College students graduating this spring are walking away with
more than just a diploma. Many will have debt — and lots of it.
The average debt at graduation was $24,000 in 2009, points out Jane
Bennett Clark in
The Dark Side of Student Debt

.

Students with federal loans can get some reprieve if they’re
struggling to make monthly payments. Here are the various ways they
can repay loans, according to the June issue of
Kiplinger’s Personal Finance

.

Standard plan.

This arrangement, in which you are enrolled unless you say
otherwise, requires you to make 120 equal payments over ten
years.

Graduated plan.

You make lower payments in the first few years and higher payments
later, over a ten-year period. You pay less interest initially but
more over the term of the loan. The U.S. Department of Education’s
Student Aid on the Web site has a
calculator to show you what your estimated payments
would be

under this plan.

Extended repayment.

Borrowers with at least $30,000 in loans can stretch monthly
payments as far out as 25 years, at a commensurately higher cost.
The Student Aid on the Web site has a
calculator to show you what your estimated payments
would be

under this plan.

Income-based repayment.

If you have high debt relative to income, you qualify for reduced
monthly payments. Any remaining debt is forgiven after 25 years.
Visit
Student Aid on the Web

for more information about eligibility, monthly payment amounts for
a range of incomes and a calculator that will help you determine
whether you’ll benefit from the program

Income-contingent repayment.

This plan is similar to income-based repayment but uses a less
generous formula to determine the monthly amount. To calculate your
payments, use the
ICR plan calculator

.

Consolidation.

Available through the Federal Direct Loan program, consolidation
lets you combine all your loans into one and extend repayment to as
long as 30 years, at a higher total cost. For more information,
visit the

Direct Consolidation Loans

site.

You might qualify for a deferment, forbearance or other form of
relief if you’re having trouble making payments. See the
Postponing Repayment

page at Student Aid on the Web. Explore these options to avoid
missing payments or defaulting on your loans. Otherwise, you’ll
face the repercussions listed below:

Late-payment repercussions

1 day

Lose the discount for on-time payment

21-20 days

The loan goes into delinquency

22-37 days

A loan agency sends collection notices

60 days

The delinquency is reported to the credit bureaus

270 days

The loan goes into default, the borrower is subject to wage
garnishment and other penalties

Follow
me on Twitter

Some students have opted to attend for-profit schools to meet their educational needs and after college have found themselves with a substantial amount of debt, which can be problematic for not only these graduates but when it comes to the types of loans that the students borrow, it can be even problematic for the economy as well. Students who are attending certain types of colleges are usually heavily reliant upon federal financial assistance and as more men and women are looking to student loans when free sources of financial aid are not available, this leads to a higher likelihood that defaulting could have more adverse effects on not only taxpayers whose money funds these plans, but it could lead to stricter student loan rules in the future.

Obviously, the best way to combat student loan debt is by avoiding borrowing excessive amounts or researching options that will allow students to avoid loans altogether. However, there are other financial decisions that students may make not only when borrowing but after graduation that could affect how they pay back these college loans or the likelihood that they may face a situation where they have to default.

Schools that are seeing a lot of defaults on student loans, as an example, may be in a position where federal aid will be denied to them and this would obviously be more problematic for future students, so when it comes to repaying student loan debts, this should be a highly priority on the list of any graduates financial obligations. Yet, some students often feel that they had years, or even decades, to repay their loans and fail to realize that student loans will not be their only debt obligation.

There are those who have graduated school, gone on to get jobs, and simply make their minimum monthly payments on various student loans or a student loan consolidation plan, but many will also start using credit cards, perhaps buy a new car, or even look to purchase a home, and all of these debt obligations can start to pile up and cause financial strain.

Also, there are some men and women who are more concerned about saving money or investing before paying off what they owe, and since student loans may be offered at an affordable interest rate, they do not see erasing this debt as a high priority even though it can be much more expensive over the long run to simply let this particular type of debt obligation remain in their life for years. Understandably, every student’s situation will be different after they graduate school, and some have had to enter into forbearance or seek out reduced payment plans due to financial problems or unemployment, but graduates who are in a position to pay off what they owe are being prompted to focus on erasing student loans through either careful budgetary practices, talking with student loan lenders about options that may offer more affordability if default is possible, or even consulting a credit counselor who can help individuals better budget their income to meet their debt obligations and, as a result, pay off what they owe and plan for future financial goals.

As college graduates across the country admire their hard earned diplomas they recently received, it’s hard to forget about the burdensome student loan debt plaguing many graduates. In fact, the average student loan debt upon graduation is $24,000, according to the Project on Student Debt. For those who’ve just graduated and have no idea how to tackle their debt, New York Times bestselling author David Bach has all the answers in his newest book, Debt Free For Life, which is a goal for students with insurmountable levels of debt. I recently spoke with David and he shared the following suggestions to eliminate debt.

1. What Types of Loans Do You Have?

It’s one thing to know you have $50,000 worth of student loans, but you must dig deeper and figure out the specific types of loans you have, either government or private. Check out this overview of the different types of student loans.

According to Bach, “If you’re not sure, check the paperwork: If there’s any reference to a Stafford Loan, Perkins Loan, Federal Direct Loan Program or the Federal Family Education Loan Program, congratulations — you have a government loan, which means you are eligible for a number of different repayment options.”

Those repayment options are the following:

10-Year Plan: This is the default option. You make fixed payments each month for ten years and at the end of the decade, your loan is paid off and you own your diploma outright.

20-Year Plan: Although this option results in lower monthly payments since the repayment period is expanded, be prepared to pay more money in interest over the long-run.

Bach suggests the 10-year plan: “Since your goal should be to become debt free for life, the 10-year plan is generally your best option.”

On the other hand, if you have private loans, things are a bit tougher, as Bach explains: “You’re basically stuck with the repayment terms that you agreed to when you took the loan out.”

2. Consolidate, Consolidate, Consolidate

Chances are you have several loans from different lenders. The paperwork and stress of tracking all of these loans is no easy task, which is why many students elect to consolidate their federal loans. According to Bach, consolidation combines all your obligations into one monthly payment, there is never a fee for consolidating federal loans and you can choose to extend your repayment term.

Bach offers this tip: While students with federal loans can consolidate with any lender, it is always a good idea to consolidate into the federal direct loan program. That’s because there are some loan forgiveness programs that are open only to people with federal student loans.

Those nasty private loans are a different situation and cannot be consolidated with federal loans.

3. Get Familiar with Student Loan Lingo

There are a few important terms that will make managing and paying back your student loans a lot easier, which Bach outlines in Debt Free For Life: Deferment and Forbearance.

Deferment: Under deferment, you stop making payments for a certain period of time only due to special circumstances, such as financial difficulty or if you’re out of work. Interest does not accrue during deferment for subsidized loans, but it does accumulate if you have unsubsidized loans.

Forbearance: If you don’t qualify for deferment but are experiencing financial difficulty, you can apply for forbearance, which will temporarily postpone or reduce your payments,” says Bach. Be careful: Interest accrues during forbearance, even if you have subsidized loans.

More valuable personal finance and student loan tips can be found in Debt Free For Life and on Bach’s website, FinishRich.com. And if you’re struggling to pay back credit card debt, check out Bach’s Debt Wise program, which provides a complete plan of action on how to pay off debt and it comes with four free credit scores each year.

Scott Gamm is a student at NYU’s Stern School of Business and founder of the personal finance website http://HelpSaveMyDollars.com. He has appeared on NBC’s TODAY, MSNBC, Fox Business Network, Fox News, ABC News and CBS. Follow Scott on Facebook.

Follow Scott Gamm on Twitter:

www.twitter.com/ScottGamm

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.

Skip to next paragraph

Trent Hamm

The Simple Dollar is a blog for those of us who need both cents and sense: people fighting debt and bad spending habits while building a financially secure future and still affording a latte or two. Our busy lives are crazy enough without having to compare five hundred mutual funds – we just want simple ways to manage our finances and save a little money.

Recent posts

1. Car buying question
2. Food business
3. Student loan question
4. Difficult car choice
5. Moving from Mint to spreadsheet
6. Savings or down payment?
7. Homeschooling
8. Overwhelmed by mortgage
9. Investing versus loan repayment
10. Hidden messages?

Yesterday’s review of The Total Money Makeover Workbook left several people asking me about other workbooks. While I may eventually review a few of them, I’ll say that most of the ones I’ve seen on the market are exactly like TMMW: they’re just rewrites of other personal finance books with some detail removed and some spaces for writing inserted in their place.

By default, I always would recommend grabbing a notebook and a pen and just working through a regular book instead of a workbook. You’ll get more out of the experience – and you’ll be able to work through the book again in the future or easily pass it along to friends.

New York City to the Midwest and we need to buy a car fairly quickly. We both have jobs (he’s started his, mine starts in three weeks), and will gross about $75,000 a year combined. We have $33,000 in combined student loans (currently paying minimums) but no other debt, and $45,000 in savings earmarked for the move ($4,000 for the movers), emergency fund (no set amount really), and eventual house downpayment or student loan repayment. While we’d hoped to be able to rely on public transit, the job I found is not actually in the city center and we will need to purchase a car for me to get to work. We can borrow a car for a week or two, but that’s it.

I’ve lived in NYC and have been car-free for nearly a decade – and my college car I bought from a kid in my dorm for $1000 in cash on the hood, no negotiation, no mechanic’s visit, nothing (which worked out fine, but it’s not something I want to do this time). My husband bought his last car five years ago by walking into a dealership and walking out with a brand-new lease, which he ended up returning less than a year later when he was transferred to New York. We are both rusty and kind of intimidated by the used-car buying process.

Our biggest priorities are safety, reliability, and gas mileage; we plan to buy used and pay cash, but every time I look on Craigslist I am overwhelmed, mostly because I am not there in person yet and don’t feel like I will have the time to shop around. I will arrive in our new city five days before I start my new job, and as I will be the one driving the car 90% of the time, we feel that I should be the one to test-drive and pick it out. Ten years of ignoring what’s going on in the car market because it didn’t apply to my life has made me feel like I’m in over my head.

How much would you spend on a car in our situation, and how would you shop for it?
– Rachel

I would buy a low-end inexpensive car to start with, one that will allow me to commute easily for a while but won’t financially break me. I would not compress shopping for a $15K or a $20K vehicle into such a short timeframe. Focus on something very low end with the understanding that you’ll upgrade later on.

I would pay cash for this vehicle. I would also expect that within a year or two, you’d be shopping for a better replacement car, but at that point you’ll have the time and energy and focus to do it slowly and with adequate research.

Don’t overthink this purchase. You’re going to have a lot of other things to worry about when you move, so just go low end and don’t stress about it too much.

Q2: Food business
I made excellent deviled eggs. In fact I always make deviled eggs for every office birthday party or office pot lucks. I have been given so many wonderful compliments and people always request that I make and bring my creation at every office event.

Next

You earned straight A’s through four years of college and landed a job with a respectable starting salary right after graduation.

Now come some big tests: Repaying student loans, keeping credit card spending under control, and getting a grasp of 401(k)s, health savings accounts and other employee benefits.

Makes you long for the good old days of late-night dorm parties.

If you’re going it alone after graduating from college, it’s easy to be immediately overwhelmed by all your new financial responsibilities. But failing to pay the credit card bill for a month or two or not taking advantage of company matching funds on the retirement plan can have lasting consequences.

Here are some suggestions for starting off on the right foot.

•Know your loan payment options. That bachelor’s degree you worked so hard to obtain has left you more than $27,000 in debt. That’s about the average amount of debt for grads who borrowed, according to FinAid.org.

What’s the best strategy for whittling it down? It depends partly on the type of loans you have — federal loans or private loans from banks or nonprofits, for example — and their repayment options. School financial aid offices can give guidance.

If you have multiple loans, aim to pay down the most expensive first, then plow more into the next biggest debt.

There are also advantages to consolidating loans through the federal Direct Loan Program. The biggest benefits are lower monthly payments and extended repayment periods. But consolidating is not for every grad. For guidance, go to the Federal Direct Consolidation Loans Information Center at LoanConsolidation

.ed.gov.

•Pick a credit card that works for you. If you don’t have a credit card or are considering a replacement to the card you now carry, look for one that lets you accumulate and redeem points for merchandise, airline travel and other services. Unless you’re particularly loyal to one airline, go with cards that offer travel benefits on any carrier.

•Track your credit history. Don’t succumb to the offers from credit-monitoring services that charge a fee to monitor your credit score. You can get a report for free every year from each of the three legitimate credit bureaus — TransUnion, Equifax and Experian. Go to AnnualCreditReport

.com to sign up. Stagger your requests so you can get a free report every four months.

•Control your shopping. Contrary to what you see on television, independent living does not require 500 cable channels with the premium movie package, a top-of-the-line set of kitchen knives and a new leather couch for the apartment. Go slow and avoid impulse buys that can knock the stuffing out of your paycheck.

•Don’t wait to save. One May grad recently asked if she should be putting part of her paycheck into her savings account. Absolutely, and it’s painlessly easy to do by requesting that your payroll department automatically deposit part of your check into your savings account. This will help you build an emergency fund to pay for new tires, wisdom teeth extraction and life’s other unexpected expenses.

The other priority: As soon as you’re eligible, start chunking money into your company’s 401(k) or similar retirement account.

Many companies also will match your contribution up a certain percentage. Consider this match “free” money — and it doesn’t take a degree in rocket science to understand that this concept could be a financial game-changer for you down the road.

In student loan hell? Here’s how to get out.

Go ahead, ask me anything about cash, credit, savings and so on – I’ll do my best to provide the information you need to get ahead. There’s one subject that drives me nuts, though. Federal student loans. When you take them out they’re awesome. You have access to a large amount of cash without needing a good credit score, and the terms tend to be terrific.

But allow them to go bad? Hold on. They can be the worst. The default notation can remain on your credit report indefinitely, the IRS may garnish your wages without having to drag you into court, and interest and fees will pile up in an almost surreal way. Collection techniques can be pretty ugly too.

Now, I’ve been overt with my passion for personal responsibility – you borrow the money, you repay the money. If you can’t, make a supreme effort to do the right thing: request deferments or forbearances. Be a grown-up and follow through. However, I also know that good people sometimes default. And when that happens, they should be able to pay the loan back without too much consternation. However, many loan holders make getting back on track bizarrely difficult.

Enter the lawyers. Well, one in particular – Joshua Cohen – who is fighting for borrowers, helping them do what they want and need to do: deal with their student loan debt. Here’s our Q A.

When defaulted borrowers come to you, what is their typical state of mind?

Most people just want to get control of their student loans. Student loans have a bad habit of turning into runaway trains, especially when a borrower never had the ability to make payments (or was never told of an affordable repayment plan). A borrower may have taken several years of deferments or forbearances and now they feel cornered.

Some contact me before they enter into default wondering what they can do to stay out of default, others have been in default for years and had no idea where to turn. While I can’t promise to solve their problems, my goal is to educate them about what can and cannot happen. At the very least, I want them to be able to sleep knowing the student loan demon is not going to visit them at work or take their house.

Why does working with student loan collectors tend to be so difficult?

I’m afraid part of it is the incentive structure. When a loan is in default, collectors can charge up to 25% collection fees (and even up to 40% for a default Perkins loan). But if a debt collector helps cure a loan (get it out of default), the most they can get is 18.5%. Do the math, which is more profitable? Of course you have to realize, a collector doesn’t get a dime (from the borrower) if the borrower never makes a payment. The collection fee comes off the top of payments made.

In plain English, for every $100 paid to a collector on a default debt, $25 goes right in the pocket of the collector. The remaining $75 goes first to interest, and if there is anything left, principal gets paid. If a borrower has been in default for several years, or if they used a few deferrals or forbearances, there is likely a good bit of interest to be paid down before principal is ever touched.

While the APR on student loans is lower than credit cards, the principal is usually a great deal higher, so even a low interest loan can rack up a huge amount of interest if too few payments have been made. Now read that again…a debt collector only gets paid on what is collected. In truth, a collector makes much more money off a cured loan then one that has sporadic payments. I’m not sure the industry actually gets this, however.

Another reason I think it is difficult to work with a collector is again an incentive issue. If a debt collector violates collection law (the Fair Debt Collection Practices Act), and if the borrower is smart enough to find a consumer attorney (go to www.NACA.net if needed – the National Association of Consumer Advocates), and if a suit results, statutory damage is limited to $1,000. So, again do the math – and this time do it as a cost benefit analysis. How much does a debt collector stand to gain from a debt collection violation that may result in only a couple of law suits? I am not saying that debt collectors purposefully commit FDCPA violations. Most of the violations I see are due to training issues – as in inadequate training, or perhaps from misinterpretation of laws (which by the way there is no defense to – the Supreme Court settled that issue last year).

So what are the rights you’d like all defaulted borrowers to know about?

1) You have the right to not be harassed. The FDCPA applies to all debt collectors (even attorneys who regularly collect debts). Some states have laws similar to the FDCPA that applies to creditors and servicers. Those laws can be applied to student loan lenders and guarantors.

You have the right to cure (fix) your default. There are two ways to do this: 1) consolidation OR 2) rehabilitation. A borrower can only do each one time. If a borrower has rehabilitated once before and defaults again, the only choice is to consolidate.

If you think you’ve been treated unfairly by any collecting party, be it a debt collector, lender, or guarantor, contact the Department of Education Ombudsman at 877-557-2575.

4) You have the right to hire an attorney, or at least consult with one about collection conduct. While bringing an FDCPA suit will not affect a borrower’s loans, there is a general hope that a debt collector will fix particular practices or conduct after being sued. It’s also nice to get some cash for the harassment.

Tell me about loan rehabilitation and the reasonable and affordable payment option.

Rehabilitation, in a nut shell is this: make nine, reasonable and affordable payments, within ten months (or nine consecutive payments if rehabilitating an Perkins loan). If your loan is a Direct Loan (ask your debt collector, they’ll tell you), the loan is instantly rehabilitated upon receipt of the 9th payment. If the loans is now with Direct Loans, then after the 9th payment, the holder of the loan will attempt to sell it to a new lender. Only after the loan is purchased is the loan considered rehabilitated.

The advantage of rehabilitation over consolidation: rehabilitation includes deleting negative comments on a borrower’s credit report – as if the loan never entered into default. If a borrower doesn’t care about their credit report, or if the loans has been in default for so long that it is no longer reported, there may not be an advantage to rehabilitation. At that point, consolidation tends to be a better option because it only takes 30 to 90 days to process the application. Once consolidated, the loan is out of default (because it has essentially been replaced with a new loan).

The interesting part of rehabilitation is the reasonable and affordable payments. The regulations plainly state that the payments must be reasonable and affordable and then go further to say that the payments must be based on a review of the borrower’s financial circumstances, via documents (that means the review cannot happen during a phone call). The regulations go a step further to state that no minimum payment is required, and if a review of a borrower’s financial circumstances merit a payment below $50, so be it.

  

Anything new about student loans and the law you can share?

In 2005, the banks blindsided consumers by lobbying for legislation which changed bankruptcy law in a terrible way for student loan borrowers. Specifically, as of 2005, private student loans are no longer dischargable through bankruptcy. Last year, bills were introduced in both the Senate and the House to repeal that portion of the 2005 bankruptcy bill – to allow private student loans to be discharged once again through bankruptcy. It died in the lame duck session after the elections. However, the bills have been introduced again.

I’ve been told by a few people more politically active than me that there is little hope the bill will pass, especially with a Republican controlled Congress. But, I’d like to be hopeful that with enough press coverage and a grand letter writing campaign, maybe the Republicans will look a little closer at this bill and give hope back to the generation stuck in Student Loan Hell.

After all, it doesn’t matter your political affiliation, if you have a private student loan that you cannot afford, you are screwed. It’s a small step, but considering the other options for private loans (there are none!), this could actually help the US economy. The banks will complain that they’ll lose money, but from where I sit, they aren’t really making any money right now – no one can afford their monthly payments. Let it go, change the industry, and let’s stop penalizing people for getting an education.

Posted By: Erica Sandberg (Email) | June 07 2011 at 03:38 PM

Listed Under: student loans

del.icio.us
Digg
Technorati
Reddit
LinkedIn
Facebook

Slashdot
Fark
Newsvine
Google Bookmarks
Twitter

Share

| Email

Any recent graduate may feel like he or she has hit the jackpot by landing a job right out of school, especially in today’s job market. While a new office job likely pays more than a gig in college, that doesn’t mean you can be carefree with your finances.

Jesse Ryan, managing director at Accounting Principals says it is common for those just out of school to feel they are making a lot of money, but creating a smart budget from the start is essential to creating a healthy financial lifestyle.

“That gross number may seem huge,” he says of salaries, “but figure out the net take home. List out every expense you have.”

When creating a budget, Ryan suggests students work with their parents, loan companies and employer benefits to help determine the best savings approach. “Look at things within that budget, they all work in conjunction with one another,” he said.

Here are some of Ryan’s tips for spending smart as a new grad:

Consolidate your student loans. Government consolidation combines all student loans into one monthly payment, which gives you a lower interest rate and may even lower monthly payments, according to Ryan. He also suggests grads that don’t have a job immediately after graduation request a six-month deferment on their loans.

Cut back on small expenses. Going out to eat frequently or making frequent trips to the mall really add up and can be draining on a budget. “Look at things in your budget and figure out what other items you can factor in there,” says Ryan.

Build an emergency safety net. Once you find a job, start saving between three and six months of living expenses in an emergency fund. “Figure out every expense you have: student loans, small expenses and then the safety net.”

Pick the right bank. Evaluate different banks to identify which one offers the best options for your lifestyle, including free checking, direct deposit and convenient locations.

Avoid credit pitfalls. Stay away from relying on credit when you are just out of school. Ryan suggests working off a cash budget to prevent overspending. “It’s tangible cash, rather than credit,” he said. “You want to work off of a cash basis.”

Be careful with taxes. Filling out a W-4 form can be confusing, so make sure you are choosing the right  withholding option to avoid owing money when tax season rolls around.

Go over your benefits, carefully. If you have a job, make sure you fully understand and take advantage of the company’s benefits.  Taking out pre-tax money for commuting and health coverage can save money in the end. Also, enroll in a 401(k) savings plan, especially if your employer offers matching contributions. “Your company is paying good money for these benefits, so you have to take advantage of them.”

You earned straight A’s through four years of college, and landed a job with a respectable starting salary right after graduation.

Now come some big tests: Repaying student loans, keeping credit card spending under control, and getting a grasp of 401(k)s, health savings accounts and other employee benefits.

Makes you long for the good old days of late-night dorm parties.

If you’re going it alone after graduating from college, it’s easy to be immediately overwhelmed by all your new financial responsibilities. But failing to pay the credit card bill for a month or two or not taking advantage of company matching funds on the retirement plan can have lasting consequences.

Here are some suggestions for starting off on the right foot.

 Know your loan payment options. That bachelor’s degree you worked so hard to obtain has left you more than $27,000 in debt. That’s about the average amount of debt for grads who borrowed, according to FinAid.org.

What’s the best strategy for whittling it down? It depends partly on the type of loans you have — federal loans, private loans from banks or nonprofits, for example — and their repayment options. School financial aid offices can give guidance.

If you have multiple loans, aim to pay down the most expensive first, then plow more into the next biggest debt.

There are also some advantages to consolidating loans through the federal Direct Loan Program. The biggest benefits are lower monthly payments and extended repayment periods. But consolidating is not for every grad. For guidance, go to the Federal Direct Consolidation Loans Information Center at www.loanconsolidation.ed.gov/.

Pick a credit card that works for you. If you don’t have a credit card or are considering a replacement to the card you now carry, look for one that lets you accumulate and redeem points for merchandise, airline travel, and other services. Unless you’re particularly loyal to one airline, go with cards that offer travel benefits on any carrier.

 Track your credit history. Don’t succumb to the offers from credit monitoring services that charge a fee to monitor your credit score. You can get a report for free every year from each of the three legitimate credit bureaus — TransUnion, Equifax and Experian. Go to www.annualcreditreports.com to sign up for the service. Stagger your requests so you can get a free report every four months.

Control your shopping. Contrary to what you see on television, independent living does not require 500 cable channels with the premium movie package, a top-of-the- line set of kitchen knives, and a new leather couch for the studio apartment. Go slow and avoid impulse buys that can knock the stuffing out of your paycheck.

Don’t wait to save. One May grad recently asked if she should be putting part of her paycheck into her savings account. Absolutely, and it’s painlessly easy to do by requesting that your payroll department automatically deposit part of your check into your savings account. This will help you build an emergency fund to pay for new tires, wisdom teeth extraction, and life’s other unexpected expenses.

The other priority: As soon as you’re eligible, start chunking money into your company’s 401(k) or similar retirement account.

Many companies will also match your contribution up a certain percentage. Consider this match “free” money —and it doesn’t take a degree in rocket science to understand that this concept could be a financial game-changer for you down the road.

Reach Steve Rosen at 816-234-4879 or [email protected]