REPAY: Stay Out of Debt. Emily Burris, Coordinator Student Financial Management Center

Transcription

1 REPAY: Stay Out of Debt Emily Burris, Coordinator Student Financial Management Center

2 Student Financial Management Center Basement of Coates Hall B4A Coates Career Services Purpose To provide financial literacy education through campus outreach Evaluate student s financial challenges & provide applicable information on subjects Provide resources to LSU students to help them make healthy financial decisions. Empower LSU students through financial education

3 So, the SFMC can help through One on one appointments discussing budgeting, money management, student debt, credit cards, etc. Resources available at such as downloadable budgets, calculators and articles Workshops and presentations

4 Savings

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8 Signs of Debt Distress Using credit card cash advances to pay for living expenses. Using the overdraft protection plan on your checking account to pay monthly bills. Using savings to pay bills. Using one credit card to pay another. Delaying one bill (or floating ) to pay another overdue bill.

9 Signs of Debt Distress Paying only the minimum due on charge accounts. Using payday loans. Being over the limit on one or more lines of credit. Delaying medical and dental visits because you don t have enough cash to pay for them.

10 Highest balance? Prioritize Repayments Highest interest rate? Lowest balance? How much interest will you pay over that time? Use this information to help you prioritize your debt repayment Use power payments as you pay off one debt use that money toward your next priority

11 Use these CashCourse calculators to help How Long Until My Loan is Paid Off? What Is The Impact of Making Extra Payments? How Long Will it Take to Pay Off My Credit Card? Place CashCourse URL Here in Master Slide 11

12 FICO Score Most lenders use this to determine your credit risk Affects how much and what your interest rate will be Higher FICO score, less interest you pay bankrate.com

13 For Example A $25, month new automobile loan Myfico.com/LoanCenter/Mortgage

14 Components of FICO Score 10% 10% 15% 30% 35% Payment History Amounts Owed Length of Credit History Types of Credit New Credit pueblo.gsa.gov

15 Payment History 35% Did you pay on time Late payments, bankruptcies hurt credit score On time payments fastest way to increase score

16 How much you owe 30% Looks at how much you owe in all of your accounts Looks at the number of accounts with balances Looks at how much of available credit using The more you owe, compared to credit limit, lower score Keep balances low

17 Length of Credit History 15% Longer credit history, higher score Keep old accounts open Do not open a bunch of accounts at once

18 Types of Credit 10% Mortgages Auto loan Credit Cards

19 New Credit 10% Apply for new credit only when you need it Number of recent credit inquiries Fewer is better (do not open a lot of accounts at once)

20 Types of Credit Credit Alternatives Open End Credit Short term: electric and phone bills Revolving: credit cards, gas cards, and retail cards Closed End Credit Automobile Loans Mortgage Loans Student Loans 20

21 The Downside of Credit Use The price of credit is high KNOW the APR! Additional fees add to the cost Credit makes it easy to overspend You are vulnerable to fraud 21

22 Ten Credit Mistakes 1. Overspending 2. Holding too many credit cards 3. Making only minimum payments 4. Carrying a permanent balance 5. Assuming low interest rates stay the same Continue... 22

23 Ten Credit Mistakes 6. Paying a higher interest rate than necessary 7. Paying extra for incentive credit cards 8. Not reading the disclosure statement 9. Paying off the wrong credit cards first 10. Ignoring extra fees or penalties 23

24 The High Price of Interest Assume you owe $5,000 on a credit card that charges 18% interest on the unpaid balance. The minimum monthly payment is 4% of the money owed (initially a payment of $200). How long will it take for your to repay the $5,000 if you make the minimum payment each month?

25 The High Price of Interest It will take 12.5 years to repay the $5,000 if you make only the minimum payment each month. By paying $250 each month, it takes 2 years to pay off debt. By paying $300 each month, it takes 1.67 years to pay off debt. By paying $400 each month, it takes 1.17 years to pay off debt.

26 Staying Out of Credit Card Trouble Shop for the credit card with the best terms Limit the number of credit cards you have Don t charge perishable items Pay off as much as possible every month 26

27 Timing Makes a Difference Try to pay all credit card bills on time Pay off the credit card with the highest interest rate first Don t buy on impulse Notify your creditors if you can t make your payments on time 27

28 SNL Words of Wisdom 28

29 There Are Different Types of Loans Student Loans Stafford Perkins Parent PLUS Loans Graduate/Professional PLUS Loans Private (Alternative) Loans 29

30 Stafford Loans Guaranteed by the federal government Depending on your school, funds come from private lenders or the U.S. government (called direct loans) or both Fixed rate of 6.8% regardless of lender Can be subsidized or unsubsidized 30

31 A Subsidized Loan For the student with financial need Federal government pays the interest while student is enrolled in college at least half-time and for six months after student is no longer enrolled At the end of the six months, student is responsible for loan interest and repaying the loan Source: U.S. Department of Education (wwww.ed.gov) 31

32 An Unsubsidized Loan Offered to students with no financial need Same interest rate as a subsidized loan Student is responsible for paying all of the interest Can choose to pay interest while enrolled in school or have it added to loan principal to repay after school. 32

33 Undergraduate Student Loans Source: 33

34 Private (Alternative) Loans Offered by private lenders Tend to cost more than federal loans Have their own application that has to be approved by the school May require a credit check for approval 34

35 You Can Choose the Plan to Repay Your Student Loan Standard Repayment Fixed payments, minimizes interest Graduated Repayment Payments go up over time Income Contingent Payments increase as your income increases Extended Repayment For loans over $30,000 you have up to 30 years to repay 35

36 Which Repayment Plan Is Right for Me? Situation 1: Just graduated from school; joining the Peace Corps Situation 2: Just graduated; has a respectable job with an income that supports needs Situation 3: Just graduated; good job; spouse is full time student earning no income Situation 4: Extended Payment Plan? ($13,000 in student loans) 36

37 Estimated Repayment for Federal Direct Subsidized Loan Total # of Monthly Interest Total Borrowed Payments Repayment Charges Repaid $2, **$50 $ $3, $4, **$50 $1, $5, $7, $86.31 $2, $10, $10, $ $3, $13, $15, $ $5, $20, $23, $ $8, $31, $46, $ $17, $63, **Minimum monthly payment 37

38 Federal Loan Consolidation One loan created by combining all of your federal student aid loans New interest rate a weighted average of current loans interest rates Same repayment options Must have loans of $3,500 or greater, not be in default and be a U.S. citizen Source: 38

39 Should You Consolidate? Pros One monthly payment Lower monthly payments Longer time to repay If consolidate variable interest rate loans, new rate is fixed Cons Increases overall cost Repay over longer period of time Should take time to compare offers first 39

40 The Main Points Student loan debt adds up quickly If you borrow, graduate! Have realistic expectations of your starting salary so you can estimate how much student loan debt you can afford Not paying back student loans can have major consequences Student loans are NOT free money Only ask for what you NEED 40

41 Check out our new website!

42 Thank you! For more information: LSU Student Financial Management Center B 4A Coates Hall (225)