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Bad Debt Consolidation Re Mortgages

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					                  Financial Triage
                  for Fiscal Health




              A Debt Management Overview for the
            University of Alabama School of Medicine




14-Nov-10                                          1
             Scenario 1 – Highest Rates


            Average Indebtedness: $87,000

            DL Interest Rate Cap:   8.25%

            10 Years to Repay:
                = $1067/month
                = $41,049 interest paid
                = $1642/month gross income
                = $197,040 gross over 10 years

14-Nov-10                                        2
              Scenario 2 – Average Rate


            Average Indebtedness: $87,000

            Interest Rate:   6.25%

            10 Years to Repay:
                = $977/month
                = $30,220 interest paid
                = $1503/month gross income
                = $180,360 gross over 10 years

14-Nov-10                                        3
              Scenario 3 - Consolidation


            Average Indebtedness: $87,000

            Interest Rate:   3.375%

            30 Years to Repay:
                = $385/month
                = $51,465 interest paid
                = $592/month gross income
                = $213,120 gross over 30 years

14-Nov-10                                        4
                           Why Consolidate


            Consolidation locks in the interest rate for the life of
            the loan.

            After July 1, 2005, all new consolidation loans will
            have higher interest rates.

            After July 1, 2005, all new consolidation loans may
            have variable rates, changing annually.

            Only Direct Loan borrowers can consolidate while
            still in-school!

14-Nov-10                                                              5
                   What to Consolidate


            All Federal education loans

            Ford Direct Loans (sub & unsub)
            Stafford Loans (sub & unsub)
            HPSL
            Perkins + others

            www.nslds.ed.gov


14-Nov-10                                     6
                     The $8640 Benefit



            Consolidating Federal Direct Loans
            while in-school can lower your
            interest rate lock to 2.875%, saving
            you $8640 over a 30 year extended
            repayment.




14-Nov-10                                          7
                       Direct vs. Stafford



            Direct Loan rates set by Congress.

            Stafford rates also set by Congress,
            with competitive flexibility once in
            repayment status.




14-Nov-10                                          8
                       Direct vs. Stafford



            Stafford repayment incentives can
            allow interest rate drops or principal
            reduction savings to reward timely
            repayment.
            Only between 11-16% of borrowers
            will qualify.


14-Nov-10                                            9
                     Can I Re-Consolidate?



            Yes. New DLs can be bundled with old
            DL Consolidation. Check the interest rate
            effect before doing so.

            Old DL Consolidation (prior to 6/01)
            may be rolled into FFELP Re-Consolidation.
            Rate becomes variable.



14-Nov-10                                                10
                             Shameless Plug


            Student Loan Xpress is currently the only lender offering
            a Federal Re-Consolidation Loan.

            RightRate program offers the benefit of today’s lower
            variable rates, and caps the interest rate at whatever
            the previous locked rate was instead of 8.25%

            Mostly for ’98-’01 graduates. Only beneficial to a few
            current students.




14-Nov-10                                                               11
                 Private (Alternative) Loans



            Loans outside of the Federal system.
            No interest rate cap.
            Rates vary quarterly.
            Some defer for residency, some don’t.
            No Federal protection.




14-Nov-10                                           12
                     Private Loan Consolidation


            Check interest rate formula & deferment options.

            Most can include Federal loans - DON’T DO IT.

            Most can combine spouse’s loans – DON’T DO IT.

            Only use these loans to consolidate private loans,
            institutional loans, residency loans, and other
            education debt.




14-Nov-10                                                        13
                          Credit Cards



            Free t-shirts aren’t free.
            Low rates won’t stay low.
            Airline miles are paid for somehow.
            Cash saved is better than cash back.




14-Nov-10                                          14
                   How Bad Can It Be?

                Top Credit Card Interest Rate
                           35.20%

                  Average Credit Card Debt
                          $8,000

            2003 Profits by Credit Card Companies
                     1.5 trillion globally
                    60 billion nationally

14-Nov-10                                       15
                    But Worse Yet…



            Fees have doubled.

            Income from over-limit charges,
            calendar manipulation and returned
            checks has far outpaced actual
            interest rates.



14-Nov-10                                        16
                  As for Interest Rates



            One late payment can eliminate all
            low teaser rates, raising interest
            from 3.9% to over 20%.
            Cash advance interest rates may
            capitalize daily, not monthly.
            Annual fees, points program fees,
            authorized user fees all add up.

14-Nov-10                                        17
            The Lure of the Minimum Payment


                             $2,500

             At an “early consumer” interest rate of 24%,
             making only the minimum payment:

               • 304 payments over 25 years (to 2030)
               • Interest payments of $7,625.48
               • Increase the cost to $10,125.48



14-Nov-10                                                   18
              1970s Industry Deregulation

            There are no regulations which prevent
            credit card companies from changing
            your rate at any time for any reason

            – Failing to make a timely payment to
              another creditor
            – Account balances deemed too high



14-Nov-10                                       19
                 What if I pay on time,
            and more than my minimum due?

            • On a low balance, a very good practice

            • On a high balance, timely payments
              alert the credit companies to increase
              your maximum, extending you more
              credit and lending you more money

            • More potential credit can work against
              your ability to borrow

14-Nov-10                                         20
                    Ultimately, credit . . .



            • Results in more spending, more debt
              and more credit costs
            • Should be used to buy what you can
              pay 100% for at the end of the month
            • Should be reserved for large purchases
              you’ve planned for, not the day to day
            • Can be based upon “good” or “bad”
              debt

14-Nov-10                                        21
                     Why Not the Day-to-Day?


            •   Snacks at coffee shop ($5 x 4)          $   20.00
            •   Gum or candy ($1.20 x 4)                $    4.80
            •   Soda or bottled water ($1.25 x 4)       $    5.00
            •   Movie & snacks ($12.00)                 $   12.00
            •   Occasional magazine ($4.50)             $    4.50
            •   Gas                                     $   25.00
            •   A couple of CDs                         $   15.00

                     The costs of the “little things”   $   86.30

                     Total over 35 weeks?               $ 3,020.50



14-Nov-10                                                            22
                   You Do The Math!


            Bob’s $2.80 tall, double-shot, nonfat
            mocha from the coffee shop really
            jump starts his day. In four-and-a-half
            years when he can’t make his first
            student loan payment or pay his rent,
            how much could he have stashed
            away in a shoe box under his bed?

                       $1,960
14-Nov-10                                        23
                          Your Credit Is Seen By


            •   apartment managers
            •   employers
            •   car dealers
            •   retail creditors
            •   banks
                •   income
                •   length of employment
                •   length of tenancy or homeownership
                •   the kind of credit requested


14-Nov-10                                                24
             What Do Potential Creditors See?

            For up to 10 years:
            • Late payments
            • Paid charge-offs
            • Paid collection accounts

            Indefinitely:
            • Unpaid collection accounts
            • Charged-off accounts

14-Nov-10                                  25
             All carefully tracked by




            Fair, Isaac & Company
                  (a.k.a. FICO)




14-Nov-10                               26
                  How is FICO Measured?


            FICO measures your financial responsibility
            based on your credit history calculated from
            5 categories:




14-Nov-10                                                  27
                        A FICO Score


            • Considers all 5 categories
            • Looks at all information
            • Considers positive and negative
              information
            • May contain errors which are the
              individual’s responsibility to know
              about and correct



14-Nov-10                                           28
                          FICO Scores


            • 75% of Americans have a recorded
              credit history (225M)
            • Median credit score – “good” – is 720
            • Highest score is 850
            • The riskiest population – those who
              will most likely charge off debt or file
              bankruptcy – is below 600


14-Nov-10                                                29
                     The 3 Credit Bureaus


            Equifax
            800-685-1111 (www.equifax.com)

            Experian
            888-397-3742 (www.experian.com)

            TransUnion
            800-888-4213 (www.transunion.com)

14-Nov-10                                       30
                    www.annualcreditreport.com


            Beginning June 1, 2005, all Alabama residents may
            receive one credit report from each bureau annually.

            Follow instructions to dispute any errors.

            Ask creditors to reduce unnecessarily high limits to more
            reasonable amounts.

            Close unused accounts.

            You don’t need a “credit repair” company!



14-Nov-10                                                               31
                   Checking Your Reports



            • Review all information carefully

            • Every detail is important – from the SS#
              to the individual account numbers

            • Review reports every year,
              preferably more than once

14-Nov-10                                          32
                     To Dispute Items

            • Read the denial letter carefully
              (which potential creditors must
              send by law)

            • Accept the fault

            • Send written dispute letters

            • Retain copies!

14-Nov-10                                        33
                                  Letter Example

            Your name, address and phone number
            Date
            Credit Agency name & Address

            RE: Dispute and Investigation Requests

            Dear Sir or Madam:
            Please accept this letter as a written request to dispute account
            information which appears on my credit report. To prevent any confusion, I
            have listed the items and account numbers separately.

            Account 1 #XXXXXX- (example) I have settled this account to the
            satisfaction of the creditor (copy of store letter enclosed). You may verify
            this with the creditor by calling them at (XXX) XXX-XXXX.

            Account 2 #XXXXXX- (example) This account appears under a Social
            Security Number which is not mine (my SS# is XXX-XX-XXXX).

            Thank you very much.

14-Nov-10                                                                           34
               FICO Scores and Today’s Credit



            Mid-range scores require income
            verification; higher scores may not.

            The theory: If your score is high, you
            won’t make foolish debt decisions, so
            you’ll usually get whatever you ask
            for.


14-Nov-10                                            35
            Hits Against Your FICO Score



               Late payments
               Uncollected debt
               High debt
               High potential debt
               Frequency of applications
               Frequency of inquiries


14-Nov-10                                  36
                        Always Opt-Out

            Opting Out can prevent possible
            telemarketing fraud
              www.donotcall.gov or 1-888-382-1222

            Opting Out can prevent much of your
            personal information and financial habits
            from being sold to marketing companies
              – In July 2002 all 3 major credit bureaus
                in the U.S. received permission from
                Congress to sell your information

14-Nov-10                                                 37
              2 Ways to Opt-Out



                1-888-567-8688


            www.optoutprescreen.com




14-Nov-10                             38
                   Debt Management Strategies

            Create a spreadsheet, showing the following:

            type of credit   balance    mo pmt     APR
            student loan     $87,000    $ 361       2.9
            car loan         $14,000    $ 350       8.9
            Visa             $ 7,200    $ 144      15.9
            Mastercard       $ 2,400    $ 48       18.9
            mortgage         $95,000    $ 750       6.3

            TOTALS           292,000    $1653

14-Nov-10                                            39
                   Debt Management Strategies

            Now sort by APR, highest to lowest:

            type of credit   balance    mo pmt    APR
            Mastercard       $ 2,400    $ 48.     18.9
            Visa             $ 7,200    $ 144.    15.9
            car loan         $14,000    $ 350.     8.9
            mortgage         $95,000    $ 750.     6.3
            student loan     $87,000    $ 361.     2.9

            TOTALS           292,000    $1653.

14-Nov-10                                          40
                Debt Management Strategies

            Pay all extra money each month towards
            the debt with the highest APR.

            Once that debt is eliminated, roll that
            budgeted monthly payment amount into
            the second highest APR.

            This is a good rule-of-thumb -- not an
            absolute.


14-Nov-10                                             41
               Debt Management Strategies


            There are tax implications.

            Home mortgages, business loans,
            and student loans all have interest
            deductibility.

            There may be limits.




14-Nov-10                                         42
                  Your Graduation To-Do List


            Consider consolidating latest education debts, weighing
            how consolidation terms may have changed.

            Request deferments while in grace period.

            Enroll in auto-pay for all possible debts.

            Enroll in overdraft protection.

            Find a good accountant.

            Find a good financial planner.



14-Nov-10                                                         43
                     Resources



            Financial Planners
            www.cfp.net
            www.fpanet.org
            www.napfa.org
            www.iaqfp.org




14-Nov-10                        44
                        Resources



            Student Loan Xpress
            www.slxpress.com

            Information on Federal and private
            consolidation loans, residency
            relocation loans, practice acquisition
            and expansion loans.

            (866) SLX-PRES

14-Nov-10                                            45
                                Resources



            Kevin McNamara
            Vice President, Graduate & Health Professions Programs
            Student Loan Xpress, Inc.

            kevin.mcnamara@slxpress.com
            (866) 311-8135




14-Nov-10                                                       46
            Thank You!



14-Nov-10                47

				
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