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The www.FedPrimeRate.com Personal Finance Blog and Magazine

Monday, October 31, 2005

New Website Offers Tips for College Students and Grads with Student Loan and Credit Card Debts

YouCanDealWithIt.com offers free advice, tools and tips for college students and college graduates with student loan and credit card debts.

Here a clip from a press release issued today:

"YouCanDealWithIt.com, a comprehensive money management website, offers invaluable advice on budgeting, credit cards and student loans for college students and recent graduates, an increasingly indebted segment of American consumers.

Today, more than 83 percent of college students have at least one credit card and the average balance is $2,347, according to HSH Associates, an organization that tracks the country's consumer loan information. The typical college graduate owes $3,262 on their credit cards and almost $20,000 in student loan debt upon graduation.

As students and grads struggle to take control of their debt and manage their finances, YouCanDealWithIt.com can help with information on establishing good credit and handling existing debt—both important issues for future success.

The website offers easy-to-follow tips on how to save money every day with tools such as an online budget calculator. Users can create a monthly budget, learn how to prioritize spending based on needs vs. wants, and track and make adjustments as their finances change.

'The YCDWI budget calculator is really a great resource for planning my monthly expenses,' says Kimberly Rothwell, a spring '05 Georgetown University graduate. 'I really want to move out of my parents` house, and now I know how much rent I can afford.'

The website is a public service initiative of American Education Services (AES). Deena Engle, Assistant Vice President of AES’ Default Prevention Services, suggests students use YouCandDealWithIt.com to become smart money managers while still in school. 'After graduation, financial responsibilities grow substantially. Grads are faced with the challenges of managing student loan payments and other debt with brand new expenses such as rent, car loans and other costs.'"

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Saturday, October 29, 2005

A Test of My New Credit Score Results In Failure!

As I reported here recently, my credit score jumped from 686 to 706 this month. Emboldened by this development, I decided to test the power of my new FICO score by applying for a new business credit card.

I'd had my eye on one particular business credit card offered by Chase for about 8 months; I was attracted to it's exceptionally low interest rate (APR) and excellent benefits. I hadn't had the courage to apply for the card before because I knew that a card with such a low interest rate would not be easy to get: I knew that only folks with truly excellent credit would be able to get this card and enjoy its benefits.

Well, my application was rejected, and I'm certain that my personal credit history and my personal FICO credit score influenced the outcome of the application. Darn' it!

Of course I'm disappointed that I won't have this credit card in my wallet--Chase was offering an exceptionally juicy 0% balance transfer offer with the card!--but I'm not devastated. I currently have 2 business credit card accounts and I am quite satisfied with both. However, the bottom line is that if my recently rejected application had instead been accepted by Chase, I would have been able to save some cash in the long term by a) taking advantage of the 0% balance transfer offer by transferring one or two balances to the new card and b) having and using a business credit card with a fixed annual percentage rate that is as close to the prime rate as I have ever seen.

Looks like I flew too close to the sun this time around. But I'll apply again in about 6 months. Wish me luck!

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Friday, October 28, 2005

A 20 Point Jump In My FICO Credit Score!

I've been waiting for my FICO credit score to hit the 700 mark for over 2 years now. Well, it looks like it's finally happened! Yesterday, I checked my score and found that it had jumped from 686 to 706! Yippee! Pretty exciting stuff!

In October of 2004, my score was 628. I really don't know if it is a real accomplishment to go from 628 to 706 in a year, but I think it is.

How did I finally get over the 700 mark you ask? Well, I recently made a nice sale of one of my online properties which left me with a decent chunk of cash to play with. After making some investments, I was left with about $4,000. I could have put that money into the bank, but I realized that it made more sense for me to use the money to pay down some of my personal and business debts. Why? The answer is quite simple:

The money I am saving in interest charges that I would have paid to the credit card companies is greater than any interest I would earn by putting the money away or even by making some safe investments (like a Certificate of Deposit.)

And, of course, paying down my debts would cause my FICO score to rise, and an improved FICO score has many obvious benefits.

I did not realize, however, that my FICO score would jump by 20 points as a result of my actions. I was expecting a 10 point increase, or maybe even a 15 point increase at most.

I think that other factors may have contributed to this favorable jump in my score. Perhaps I had reached a 2, 3 or 4 year anniversary with one or more of my creditors this month, and that could have been a contributing factor.

Well, whatever the reasons, I am still seeing some somewhat discouraging language in my credit report, i.e:

1. The proportion of balances to credit limits on your revolving/charge accounts is too high.

Analysis of consumer credit behavior repeatedly finds that owing a substantial balance on revolving/charge accounts (Visa, MasterCard, Discover, American Express, Diners Club, department store cards, etc.) relative to the amount of revolving/charge credit available to you represents increased risk. In fact, the level of revolving debt is one of the most important factors in the FICO score. The score evaluates your total balances in relation to your total available credit on revolving/charge accounts, as well as on individual revolving/charge accounts. For a given amount of revolving credit available, a greater amount owed indicates a greater risk, and lowers the score. (For credit cards, the total outstanding balance on your last statement is generally the amount that will show in your credit bureau report. Bear in mind that even if you pay off your credit cards in full each and every month, your credit bureau report may show the last billing statement balance on those accounts.)

2. The length of time your accounts have been established is relatively short.

This factor is based on the age of the accounts on your credit bureau report (the age of the oldest account, the average age of accounts, or both). Research shows that consumers with longer credit histories have better repayment risk than those with shorter credit histories. Also, consumers who frequently open new accounts have greater repayment risk than those who don't.

Source: FairIsaac

So it would seem that I still have a long way to go before I will reach my ultimate goal: debt free, with an 800+ FICO score. Wish me luck!

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Friday, October 21, 2005

Welcome To My Personal Debt Blog

Hello and welcome to my personal debt blog.

I have established this blog because I have a lot to share with the blogosphere about debt. I have everything from student loan debt to credit card debt to debt related to my businesses, so I have quite a bit of experience dealing with debt.

Over the years, I've learned a number of useful and not-so-well-known tricks that I've used to improve my credit score (which has led to me being able to secure far more favorable rates whenever I signup for a new credit card or line of credit, etc.) and I'll be sure to share them here. I am hoping that the visitors to this blog will also share their experiences by posting comments, so please feel free to leave your comments about any blog entry in this blog.

Personal debt has become a serious issue in the US, and I think that if we--the average middle class consumers who have to work for a living--if we share our experiences and ideas on how to keep debt under control, we can all benefit and improve our collective lives.

Thanks for reading. Looking forward to reading your comments.

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Sunday, October 16, 2005

Starting Tomorrow, Discharging Student Loan Debt By Declaring Bankruptcy Will Be Much Harder To Do, But Not Impossible

If you've been thinking about using bankruptcy to get rid your student loan debt(s), you better be prepared to prove that your financial situation is extremely dire. That's because changes to the nation's bankruptcy laws that will take effect tomorrow will make it far more difficult to discharge student loan debt using either Chapter 7 or Chapter 13 bankruptcy protection.

Some folks in the forums I frequent think that discharging student loan debt will be impossible once the changes take effect tomorrow, but this is not the case. In fact, you will still be able to discharge student loan debts with either Chapter 7 or 13, but you must be really suffering financially, or, as the lawyers like to put it,

"...paying the debt would cause the debtor 'undue hardship.'"
And the burden of proof will be on you. To secure a "hardship discharge", you'll need to prove that you are, e.g. unemployable for some reason, or suitably underprivileged, or that there are really no jobs available for someone with your skills. Certain physical or mental disabilities may also be enough to convince a bankruptcy judge that you are worthy of a discharge.

Of course, as with any legal battle, having a lawyer to represent you in bankruptcy court will drastically increase your chances of success if you decide to opt for bankruptcy protection.

It's really no wonder that these changes have been put into place. Back in the 1970's and 80's, certain unscrupulous college students would take out student loans in order to finance their college educations. They would then declare bankruptcy right after graduating from college and get their student loan debts erased. End result: a free education! So, as is usually the case, we all have to pay for the misdeeds perpetrated by a handful of scammers.

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Tuesday, October 04, 2005

Higher Education Act May Be Subject to the Biggest Cuts In the History of the Program

12.5 billion! That's how much Congress wants to cut from current Federal Student Aid programs. These federal aid cuts would make it much more expensive to borrow money for college, and would translate to a lot more student loan debt for students who have no choice but to seek financial help in order to get a college degree. Is this a good idea considering the fact that personal debt in America is out of control? I don't think so. If the Higher Education Act changes are passed in their current form, many future college graduates will face student loan debts that are even more oppressive than those faced by today's graduates. These future graduates will need to take home some healthy paychecks in order to make ends meet. But how will these graduates be able to secure those high paying jobs when more and more companies are outsourcing to countries like India and China? In my opinion, it's a recipe for disaster; better push your kids to become doctors, lawyers, or get a PhD in their chosen field, or else they might just find themselves in a very bad situation: a bachelors degree, lots of student loan debt and unemployed (or underemployed.)

The numbers speak volumes: By the end of 2005, The United States will graduate 70,000 engineers; India will produce 350,000 and China will churn out a whopping 600,00!

Below are some more details related to changes to the Higher Education Act from a recent StudentLoanConsolidator.com press release*:

Both houses of Congress spent a fair portion of the summer designing revisions to the Higher Education Act of 1965 (last reauthorized in 1998) which, if passed, would make significant changes to federal financial aid programs. Some of the proposed changes include:

  • Penalizing graduates with higher interest rates if graduates choose a fixed rate consolidation over a variable rate consolidation

  • Stafford Loan interest rate increases from the current 5.3% to 6.8%

  • Reduction of $5 billion - $12 billion in funds from higher education funding

  • Elimination of spousal consolidation, which allowed married couples to consolidate their loans together

  • Preventing graduates who opt for income contingent repayment plans from consolidating their loans.
Not all of the proposed changes will be ratified in the final passage of the Higher Education Act Reauthorization of 2005, tentatively titled the College Access and Opportunity Act of 2005. However, there are enough changes to the student loan consolidation program in the House and Senate committee drafts to warrant concern for any recent graduate with federal student loans.

If you don't like the way things are going with the proposed changes to the Higher Education Act, click here to contact your Senator or Member of Congress.

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Saturday, October 01, 2005

Student Loan Debt Contributing to A Failing Foster Care System

Here in the USA, the lawyers for foster children are overworked, underpaid and are most often overburdened with oppressive student loan debts. This is causing many lawyers to leave the foster care system for jobs that are less stressful and--you guessed it--pay more. Here's a clip from a story I found today:

"But with many of these lawyers burdened with overwhelming student loans, poorly compensated posts and outrageous caseloads, many are being forced out of these roles that foster children so desperately rely on.

According to a report by the Children's Law Center of Los Angeles released today, student loan debt drastically affects the ability to recruit and retain attorneys in this practice. The survey of more than 300 juvenile-dependency attorneys in 43 states found that 62 percent of the lawyers said their student loans would affect their decision to seek other jobs.

While the lawyers are saddled with the bill, foster kids are the ones who ultimately pay the price. With many attorneys leaving the practice, kids are often assigned to various lawyers, just as they are shuffled from one foster home to the next. Each relationship between child and attorney is disrupted, and no real trust or knowledge of the child's wants and needs is formed. If foster care is truly meant to provide a haven for neglected and abused children, each of them must be given consistent and effective legal representation."

If you are like me, you are probably saying to yourself, "Hey, these lawyers are working their butts off to do good work for some disadvantaged kids. Cancel their student loan debts, for goodness sake!"

Well, the good news is Congress is doing something about it:

"Two bills were recently introduced in Congress that include provisions on loan forgiveness programs for attorneys representing foster youth -- 'We Care Act,' S1679 (Sens. Jay Rockefeller, D-W. Va., and Mike DeWine, R-Ohio), and 'Fostering our Future,' HR3758 (Rep. Adam Schiff, D-Pasadena).

Both bills call for training for dependency attorneys and call for loan forgiveness for lawyers to require the best representation for children.

'Almost one-third of practicing dependency attorneys graduated from law school with over $75,000 in outstanding loans and 44 percent of them currently owe over $50,000,' said Schiff. 'High turnover among dependency attorneys has led to a dearth of experienced lawyers who can maintain valuable relationships with their young clients.'"
So, fellow bloggers, do fosters kids around the country a favor: email your Senators and you representatives in Congress and let them know that you adamantly support these bills. As a reminder, here are the names of those bills:

The House: "Fostering our Future" - HR3758
The Senate: "We Care Act" - S1679

Email is free and it only takes a moment of your time to send a message. America: this is your democracy, so use it! A good old fashioned snail-mail letter has more impact, in my opinion, and legitimate emails can often get captured and terminated by spam filters. But do your best: snail-mail, email, fax.

OK, let me make it even easier for you. If you don't know who your representatives are or you are not sure how to contact the people who represent you in the national government, click here to jump to site where you can get all the info you need.

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