Surefire Ways to Deal with Student Loans and Credit Card Debts
According to the Consumer Financial Protection Bureau, nearly half of all student borrowers owe at least $50,000 when they graduate. The Institute for College Access and Success reports that the average student debt after graduation is about $28,950 per owing student. Aside from the student loan debts, there are also credit card debts which need to be addressed. '
Moreover, the National Center for Education Statistics reports that 50% of college graduates leave academic institutions with unpaid student loans. The cost of college is double that of the rate of inflation, so there are not enough scholarships or grants to cover the cost and also pay for basic needs. This is why students increasingly feel that they have no choice other than turn to student loans and credit cards.
What these and other statistics show is that there is a trend that begins from the time one is an undergraduate student and progresses beyond graduation and often even much later on in life. It may start with a reasonable amount, but with the passage of time and commitments, the debt becomes a burden that grows and gets harder and harder to deal with.
Credit Card Debt
There is a report that shows that the average student has approximately 2.8 credit cards. The Sallie Mae's 2016 "Majoring in Money" report shows that 56 per cent of undergraduate students were credit card owners in 2016 which represents a big difference compared to 2013 when 30 per cent owned credit cards.
It also shows that the likelihood of owning a credit card increases with the age of the student, i.e. 43% of students between the ages of 18 and 20 own a credit card, compared to 63% of students between the ages of 21 and 22, and 71% of students between the ages of 23 and 24.
When it comes to credit card debt, it is necessary to cut the bud before it develops into a fully mature oak which is not as easy to eliminate. The way to do this is by developing financial discipline from the onset. The key issue, as with any other type of debt, is to ensure that repayment is made as soon as possible. This is irrespective of whether it will inconvenience the credit card holder or not because it is critical to master the earliest possible, the art of living within our means.
One major problem with the credit card is that the holder does not pay keen attention to their spending as would be the case if they were using cash. The credit card can give an illusion of limitless availability of funds. This is why studies show that people make more purchases using credit cards then they would have otherwise, if they actually had cash with them instead.
It is necessary to change your spending habits drastically, such that you eliminate whatever is unnecessary from your lifestyle, including eating out in fancy restaurants, procuring gifts for oneself and others, online or offline impulse shopping, trips and vacations and so on. Use the money that you have saved from these extras in your life to offset the balance starting with the card that has the highest interest rate and moving onto the other cards.
Ensure that you do not miss a single monthly repayment. This will avoid a situation where the debt grows exponentially until it reaches a level that can no longer be contained. Never accept any excuse to postpone till next month or the indefinite future what is due this current month. As far as possible, it is advisable to transfer as much of your debt from the card with the highest interest rate to the one with the lowest interest rate in order to save on your monthly charges.
It is also essential to make a habit out of checking your credit card balance regularly, at least on a weekly basis, in order to monitor how much you are spending and give yourself the opportunity to make the relevant adjustments in being proactive rather than reactive.
If you are the holder of several credit cards, list the financial information on each credit card in a single document. This will help you to better manage the current balance, the credit limit, balance transfer fees, minimum payment interest rates and payment due dates.
Despite the fact that credit card debt for students is not as high as other types of debts, there is a much greater and subtler danger involved. This is because they will typically already have considerable student loans which can take several years to repay. Another problem is that the students are just entering college from a lifestyle where they are already used to being supported by their parents.
They will not have an idea of the real struggles and challenges involved in earning the money. Their parents’ efforts have been there for them as a safety net and so they are already preconditioned to being covered by external sources. Hence, it becomes easy to transfer the same mentality and view to the credit card companies and assume that though the present financial situation is dire, they will eventually be taken care of, one way or another.
It is critical to understand that the credit card is NOT an alternative source of income for the student. As already noted, the student is unfortunately not mature enough to fully understand the skills required for managing finances. Another factor that compounds the problem is that there are lending companies out there which issue credit cards to students without requiring parental approval.
It is always better to avoid credit cards altogether and instead use debit cards because the debit card will show the money that has been taken out of the bank account as soon as a transaction is made. However, if you as a student already have credit card(s) it is essential that the monthly repayments do not exceed the due dates to avoid exacerbating the situation.
Put together a budget listing all the things that you require as a student and then test yourself as to whether you have the discipline to keep to that budget irrespective of the circumstances you're in. For most people, it is too tempting to resist the appeal of all the extra financial opportunities that come with credit cards. But if you find that you do not have the discipline to maintain the budget and to live within your means, it is an indication that you need to avoid the credit card at all costs.
The credit card issuing companies understand the psychology of dependency and their system is set up in such a way that they profit from people who unable to pay on time. This is because such individuals have to pay for accumulating interest which is how the company generates its revenue. So if a person does not have the financial discipline required to live within their means, they present a lucrative opportunity for the lending companies.
As far as possible, seek to repay the amounts that you owe by your own efforts, rather than depending on the efforts of parents, relatives, friends or others to bail you out. This will build the structure required to break out of all amateur dependencies when it comes to financial management and will foster a more realistic view of money and the responsibilities that go along with it.
Loan Debt Consolidation
There are some student loan debt consolidation programs which allow the student to get some cash back for consolidating their loans. It is possible to have low-interest rates for these and even reduce the amounts charged monthly depending on how consecutively past repayments have been made and the given loan period.
If you have taken both federal and private loans, ensure that you do not consolidate them into one. Federal loans have the backing of the government and can be refinanced, but the same does not apply to private loans. Also, private loans have a high rate of interest which is charged on them. Though it is not possible to obtain consolidation for private loans, you can check out the William D Ford Federal Direct Loan program to find out more about those which are offered by the government.
You can also contact the Direct Loan Origination Centers. Lender if you are in that program. There is a requirement that the student must be in the process of actively repaying the loan and the minimum amount required by most companies which offer loan consolidation is about $10,000. It is important to do research in to study the current interest rates before engaging in a student loan consolidation program and hope that these rates will to reduce in the coming years.
It is important to consider the subject of student loan debt seriously because it has an impact when one’s credit rating is assessed for future loans. For example, if your student loan is more than 85% of the total income that is earned by you per month, it will go down as a negative score.
In order to consolidate your student loan, you need to have completed your studies and graduated from college and be in the ‘Grace period’ or be actively engaged in repaying your debt. You need to link up the consolidation agency with your creditors in order to secure an arrangement.
It is possible for the agencies to communicate to the creditors and convince them to not only reduce the interest charged on your loan, but also reduce the monthly repayments that have been charged to you. The agencies can also qualify you for the programs depending on the state of your finances and how consistently you are making your repayments.
However, it is important for you to make sure that you do your homework well in times of researching and making sure that you are connecting with an agency that has a good reputation and positive reviews by others who have tried it, so that you do not incur additional losses.
The agency that you select should be genuine, with the interests of the students at heart. Falling for a scam in this area will result in digging a much deeper hole. Investigate, do your due diligence and make comparisons between different loan consolidation programs so that you settle for an arrangement that is best suited for you.
Consolidating all the student loans into one reduces the burden that the student has to bear, helping him or her to better concentrate on the studies and other academic activities. It also reduces the chances of the student becoming carrying a negative credit history with them in future. It also reduces penalties and other costs which are connected to your loan.
You don't have to deal with multiple monthly loan payments but instead, you only deal with one single payment each month. This is one way how the arrangement leads to debt relief. Chances of you missing to pay your monthly obligations are much higher when you have multiple creditors that you're dealing with, compared to the situation where you are only dealing with a single creditor and this increases your credibility and credit rating.
Some of these consolidation loan programs can begin with the rates which are as low as 2.75% end can extend from 10 to 25 years depending on the number of loons which are being combined together. The consolidation can make a difference of up to hundreds of dollars monthly on payments which could have otherwise been incurred through the different loan programs that the student was involved in.
You can either choose a Standard Repayment Plan which gives you a maximum of 10 years to repay at a fixed rate or an Extended Repayment Plan which is similar, though the period of repayment can be increased to a maximum of 30 years, depending on the amount that has been borrowed. This allows you to make a decision on how much you can afford to pay monthly at the rate that is convenient for you.
The Graduated Repayment Plan also has a period of study as maximum but the amount that you pay every month will increase after every second year. The Income Repayment Plan is has a monthly payment that is not fixed. This depends on several factors including the amount owed, the size of your family and your personal income. The repayment period is 25 years maximum.
Key Tips for Getting out of Debt
- Strategize: Plan a way of clearing you your student loan outlining the specific steps to attain that goal, with clear milestones so that you motivate yourself to be able to do what you have set out to achieve.
- Earn: During summer or whenever possible, try to land a job placement or paid internship. Save as much money as possible from this (half and above) into a savings account that has a high interest. You can research on this from websites such as mybanktracker.com. Engage the services of a financial advisor in order to ensure that you get the highest possible return. All the money saved during the course of your university education can be used to offset your debt.
- Consolidation: As stated before, make sure that that method you use to consolidate your loans gives you the lowest possible interest rate. Also, check whether you are going to be eligible for programs that allow you to waive your debts after you consolidate your loan.
- Exchange Program: Engaging in paid volunteer work or finding a seasonal job can reduce the amount of debt, whether it involves moving to areas where there is a shortage of teachers in order to provide educational services for students, or areas where medical or legal services are needed. You can work for organizations like Peace Corps or AmeriCorps. Websites like Indeed, GoOverseas and AnyworkAnywhere provide lists of opportunities for students.
- Work-Study: Approach your Finance or HR office on campus concerning the opportunities for work-study that are available. Once you find a suitable fit, you can use your earnings to offset the amount of debt.
- Scholarships: Granted, due to the reduction in the budget for scholarships, it is more difficult nowadays to get a college scholarship that it was a few years ago. However, do not let this deter you from submitting as many applications for scholarships as possible. The more applications you submit, the more chances you have of securing one, so do not give up even if you have endured a lot of rejections. Visit your Financial Aid office to inquire about programs or opportunities for aid which are available for students. You could also ask them to contact and notify you whenever new ones become available. The other alternative is to carry out your own research on the internet and other information sources in order to find out where you can get these programs and how to apply. These include studentaid.ed.gov and scholarships.com.
- Grants: Ensure you submit applications for as many grants as possible. Applications for federal grants can be submitted to the Federal Pell Grant, The Federal Supplemental Educational Opportunity Grant (FSEOG) program, Leveraging Educational Assistance Partnership (LEAP) program and the National Science Scholarship Program.
- Consistency: As stated before, always make the monthly repayments on time in order to avoid receiving a bad credit report which can remain on your record for several years. In case you are in a position where you cannot pay on time, inform the student loan company about the situation and request for a loan deferment until the time you're able to resume making the repayments.