Loan Consolidation Workshop

Managing Debt You can achieve your dreams… • make it happen • get some answers • find direction • Credit history & credit reports • Credit cards • Debt counseling • Student loan consolidation Credit History and Credit Reports Do You Have Credit Now? • • • • • Student Loans Apartment Leases Utility Bills (Cable, Phone, etc.) Credit Cards Car Loans Why build good credit history? • Employers can and do check your credit history • You can leverage your purchasing power • Car • Furniture • Home • Your credit history reflects in your credit report (much like a college transcript) Credit Reports • Your credit report includes employment information and previous addresses • More than 60% of credit reports have negative information • Bad credit could prevent you from receiving future loans • Review your credit report periodically • Make corrections when needed • Be wary of stolen identities What lowers your credit rating? • Too much open credit • High credit limits on credit cards • Late payments • Accounts being transferred to credit agencies • Bouncing checks • Bank could close your account Advantages and Disadvantages of Credit Cards Credit Cards • Advantages – – – – – – – – – Provide credit record Available for emergencies Rent a car Pay for purchases over time Allows you to use someone else’s money (float) Immediate cash availability Limited liability Convenience checks Frequent flyer miles or points Credit Cards • Disadvantages – – – – – – – – Can create excessive debt Interest can be high Repayment could take many years Repayment could be 3 to 5 times the original amount Too many cards increase default risk Card number can be stolen by different means; i.e., physically, over the internet, over phone, mail orders, etc. Immediate cash availability Convenience checks Credit Cards • Keep the number of accounts small • Reduce credit limits if not needed • Close unneeded accounts • Beware of low introductory rates – Bait and switch rates • Carefully read your statement – Make payments on-time – Thoroughly research erroneous charges Credit Cards • Know how the interest rate is calculated – Variable vs. Fixed – Interest charged on average daily balance with or without new purchases – Cash advances vs. purchases • Be wary of those who bear gifts • When making online purchases pay attention to websites’ security • Read the small print Did you know? • 40% - 90% of credit card payments pay fees/interest/finance charges • Merchants pay a discount fee for accepting credit cards • Fees: – Annual Fees – Late Payments – Going over the limit – Cash Advances What can you do to avoid the credit card blues? • • • • • • Use CASH Get a debit card & use it Limit your limit Pay on time, every time Have one or less credit cards Transfer any high interest balances to cards • Ask for a lower interest rate • Get a realistic budget and stick to it Let’s test your credit card knowledge We’ll look at two scenarios, the only difference is the monthly payment Credit Card Scenario #1 • You charge $2,500 • You pay $50 a month • Yearly interest rate is 20% How long will it take to pay the $2,500? Answer: 9 Years 1 Month!!!!! Recap Scenario #1 • You charged $2,500 • You paid $2,920 in interest over the 9 years • You paid 116% interest Credit Card Scenario #2 • You charge $2,500 • You pay $100 a month • Yearly interest rate is 20% How long will it take to pay the $2,500? Answer: 2 Years 9 Months!!!!! Recap Scenario #2 • You charged $2,500 • You paid $761 in interest over the 2 years • You paid 30.4% interest Life After Graduation Planning For Life After Graduation • Start now • Research expected salary • Before taking on debt, make sure you can meet your financial obligations after you graduate Student Loan Repayment You Borrow For How Many Years? Interest Rate Monthly Payment Total Interest Paid $4,760 $4,100 $7,100 $14,000 $10,000 $15,000 $15,000 $10,000 10 10 10 10 8.25% 5% 8.25% 20% $123 $160 $185 $200 Budgeting Scenario • You take a $30,000/year position • You purchase a new car for $20,000 • You have $17,000 in student loans • You rent an apartment for $650/mo • You have $3,000 of credit card debt Budgeting Post Graduation Budget Gross income/$30,000 yr Monthly Basis $2,500 Less 18% for income taxes Less 7.65% for social security/medicare Less health insurance ($450) ($191) ($75) Take Home Pay $1,784 Monthly Expenses Expense Rent Utilities Phone Cable Car payment Car insurance/gas Student loan Food Entertainment Credit card payment Total Expenses Monthly Amount $650 $170 $30 $30 $400 $175 $170 $300 $100 $80 $2,105 Budget Reality Net Income Monthly Expenses End of Month Cash $1,784 ($2,105) ($321) Reality Check Where’s the ($321) coming from each month? All is Not Lost • There are things that you can do now to avoid this situation: – Don’t increase your debt as your salary increases – Use credit cards wisely – Contact your creditors and set up a workable plan for repayment, even if it is $5 a month – Student loan consolidation • Can greatly reduce your monthly payment Debt Counseling You and your peers • 78% of undergraduates have credit cards • 32% have 4 or more cards • Average number of credit cards = 3 • Average credit card debt = $2,748 • 13% have credit card debt between $3,000 - $7,000 • 9% have credit card debt greater than $7,000 • This does not count student loans! Need Help? • Find out your credit score and history free or cheap: – Go to the credit reporting agency source • www.experian.com • www.transunion.com • www.equifax.com • With debt management or credit consolidation, help is available: – Credit Bureau – Consumer credit counseling • National Foundation of Credit Counseling • IRS and FTC warn to be cautious • Don’t be in a rush – read the contract • Find out about your student loan debt – www.nslds.ed.gov Consumer Credit Counseling • Associated fees or “voluntary contributions” charged • Can’t remove legitimate negative information from credit report • Check that creditors are being paid • Do your homework – Better Business Bureau – National Association of State Charities (nasconet.org) Student Loan Consolidation Average student loan debt for Undergraduate Student $45,000 How will this debt affect me when I graduate? • Monthly payment on a balance of $45,000 is $467 • Average starting salary for a graduate is $30,000 • That payment will make up about 42% of after-tax income What are my repayment options? Repayment Options (Federally regulated) Consolidation Repayment • Fixed interest rate is determined by the weighted average of eligible loans • Maximum 30-year repayment schedule based on total loan balance • Borrower can select any repayment term less than the max • Borrowers consolidating while in school or during grace period receive 0.6% reduction in interest rate What Happens Every July 1st? Department of Education Sets New Rates • July 1, 2005 - student loan interest rates increased 1.93% • Rates WERE at a 37-Year LOW • Current rates are the 3rd lowest in history • Rates WILL INCREASE AGAIN July 1, 2006 Reauthorization Reauthorization • Occurs periodically in the student loan industry • Eliminates spousal consolidation • Eliminates in school consolidation • Rates will increase to 6.80% Reauthorization • Existing loans will continue to have variable interest rates – Changing every July 1st • Newly originated loans will have a fixed 6.80% interest rate What benefits me the most? Edconsolidation Benefits • Additional interest rate reduction of up to 1.25% – 0.25% reduction: • Auto-debit program must be used – 1% reduction: • $10,000+ loan balance and 36 consecutive payments on time and electronically Edconsolidation Benefits • Non-profit company • One low monthly payment • No prepayment penalty • Will hold application until the end of your grace period Edconsolidation Benefits • Easy consolidation process • No credit check • We will NEVER sell your loan • Personal counseling and service Consolidate Before Rates Increase AGAIN Initial Balance Standard Monthly Payment $105 $262 $524 $1048 Edconsolidation Loan Monthly Payment $78 $162 $285 $522 Loan Term 15 years 20 years 25 years 30 years Total Interest Paid $4,001 $13,773 $35,517 $87,792 $10,000 $25,000 $50,000 $100,000 Edconsolidation Savings Table Initial Balance (4.75% Interest Rate) Standard Monthly Payment Edconsolidation Loan Monthly Payment $78 $162 $285 $522 Loan Term 15 years 20 years 25 years 30 years Savings with Edconsolidation Incentives $1,024 $4,226 $12,524 $34,697 $10,000 $25,000 $50,000 $100,000 $105 $262 $524 $1048 Submit your consolidation application AFTER graduation AND BEFORE June 30! Climbing A Mountain of Student Loan Debt? Edconsolidation makes that Mountain into a Molehill Edconsolidation One loan. One lender. One low monthly payment. or visit www.edconsolidation.com 800-331-5626 Call