Author: shovel

Americans pay how much in credit card fees per year?

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Credit card fees are no joke, and it’s an important part of the equation for how credit card companies make so much money (remember, rewards aren’t free!)

But the amount Americans pay in credit card fees every year is staggering.  According to a new study by Magnify Money, that total from March 2017 into March 2018 was $104 billion in interest and fees.  

That’s roughly the GDP of Ecuador.

Those purchases that are paid off after the following month come at a cost:


Think of it this way: If you’re carrying a balance on a credit card with a 21 percent interest rate, and you use that card to buy lunch, you just took out a high-interest loan to buy lunch.

David Slade, Charleston Post and Courier

The recommendation is to transfer high-interest credit card debt onto low-interest credit cards, in what’s called a balance transfer.  People of a certain credit score are eligible for these, and they allow you the opportunity to pay down these credit card balances with less fees and interest incurred over time.

However these are a band-aid – the recommendation is always to pay down high-interest credit cards as quickly and fully as possible – unless you enjoy paying for someone else’s airline miles.

Even the experts struggle with credit card debt

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Credit card debt is one of those things that can sneak up on even the financially-informed.

NerdWallet’s new piece on their team of experts sheds some light on how anyone is susceptible to the dangers of credit card debt.  Common threads include using credit cards for single large purchases that you’re later unable to pay off, or letting everyday expenses get in the way of paying down looming, high-interest credit card debt.

The allure of 0% APR, rewards, or cash back is a great deal for most people.  But most of the experts expressed regret that when cash was available, they didn’t simply pay down the cards and tighten their belts sooner – even digging into financial-expert-recommended emergency funds to pay them down.

It’s an important reminder to all of us – credit isn’t free.

I didn’t pay my credit card bill – now what?

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We’ve been there.

You had a rough month or even a rough year.  You charged a bunch of money onto your credit card and now you can’t even make the minimum payments.

You just want it to go away, but you don’t want your credit to go in the toilet.

You keep getting those letters in the mail with bigger, scarier numbers.  We’re not here to shame you – we’re here to help you understand it.

eventually you resort to writing in your calendar with lipstick

Most importantly – how do you preserve or salvage your credit, or at least how do you keep it from being permanently affected?

If you want to have decent credit in the future – avoid the settlement arrangement. It sounds nice – you owe $2000 which is now $2400 with late fees, and for the low rate of $980, you can settle your balance.

What results in your credit having a scarlet letter “A” is a settlement arrangement for less than the full balance.

And guess what – a lot of credit card companies and debt collectors try to steer you towards it.  They know you don’t have funds available, but it’s a way to get as much money as possible without worrying about dealing with you again.

Think about it: it’s the same as that friend who owes you money.  You know they’re never going to give it back in full, but you just want SOMEthing from them, even if it’s a couple hundred bucks.  You’ll never forget it either – and credit agencies are the same way.

Depending on the report, an annotation is made for debt settlements – and if you settle for less than the full balance due, then that is looked at less favorably than if you just go ahead and make a payment arrangement for that full balance.

Of course, there’s still going to be a minor speed bump on the report saying “hey there was this card that wasn’t settled while it was in use” – so the best thing to do to mitigate any more fallout is making minimum payments in a payment arrangement on the FULL balance.

The larger monthly payment arrangement is, the sooner you can come to paying down that full balance.  Some settlement arrangement credit cards can stay on a report for 4 years.  Negotiating a pay plan is vital because the options available in order of worst to best are:

  1. Ignore it forever and have debt collectors chase you – worst option
  2. Arrange to a settlement and don’t pay in full
  3. Arrange to a settlement and do pay in full
  4. Arrange to pay the full balance and don’t pay in full
  5. Arrange to pay the full balance and pay it slowly
  6. Arrange to pay the full balance and pay it quickly
  7. Arrange to pay the full balance and pay it completely

Start with 5.

Move to 6 as a stepping stone to 7.

If your debt has been sent from the credit card companies, talk to the debt collectors directly.  They’re not all evil and shady – some just have an account they want to collect money on, and they’re going to attract more flies with honey than vinegar (which would you rather pay or fight – the company that says they’ll help you put together an arrangement, or the one that calls at odd hours and threatens?)

Imagine how good it would feel to take that sword of Damocles over your head – that credit card bill that still hasn’t been paid – and winnow it down to a toothpick.  You can pay it slowly, but your best bet is to pay it in full.

Does debt have to be a waiting game?

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One of the problems with debt is that it’s incredibly easy and quick to accrue, and can take an extraordinarily long time to pay off.

But that process is better started now than waiting to do so and suffering even more exorbitant payments.

First things first: get that interest rate down.

When you have a lower interest rate, more of your money goes toward principal (the actual debt you owe) each month. You may be able to lower your interest rate by negotiating with your card issuers.

 The longer you stretch that debt out, the more of your money goes to interest and not towards actually paying off debt.
And also–please, please don’t make just minimum payments.
It’s tempting to send out $20/month to get the credit card company off your back.
But that’s what they want you to do.  They want you to keep paying the minimum payment so they can earn a steady income from you over time.
What they don’t want you to do is to pay off your debt in larger amounts.

For example, take someone who has two credit cards with balances. One has a $3,000 balance at 15 percent, and the other is a $2,500 balance at 17.9 percent.

At a minimum monthly payment of $131 it will take just over five years to be debt-free and cost a little over $8,000 (with 33 percent of that being interest). But pay less than $100 more a month — $222 a month total — and you can be debt-free in two years and seven months, and the total cost will be $6,753 with only 19 percent of that interest.

You save nearly two and a half years and $1300 in this scenario simply by paying a little extra, sooner.

 

A story of defaulting on student loans

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Anna Moreno, a contributor to The Billfold, writes about what happened when she defaulted on her student loans.

It shows just how easy it is to get into that “I’ll handle it later” mentality, and how easy it is to not get a job and then face down the barrel of enormous student loan debt.

Eventually, after having her wages garnished for a year, Moreno sought out loan rehabilitation and consolidation with the Department of Education, which sounded like a completely reasonable and pleasant process.

But her story is a cautionary tale for all young people out there, even the credit-averse and the good-planners—yes, it can happen to you too.

So when you’re considering taking out student loans, follow my path to success:

1. Have a few roads you can take: that dream job after college didn’t come through? Plan a few other potential jobs with salaries that can get you debt free ASAP.
2. Backup your money: you backup your hard drive, but why don’t you backup your checking account? Work on building up your emergency fund, even if it’s only $100/month during and before college. This could make the different down the road between creditor calls and ramen dinners versus paying off debt and normal food.
3. Line up jobs now: it’s never too early to start looking for a job. Start networking and lining up potential jobs now. Reach into whatever networks you can—parents, friends, friends’ parents, any adults you trust.
4. Budget: find the absolute max you’re required to pay per month, and start budgeting to put that aside. Setup auto-pay so payments go out on-time and in-full, avoiding those pesky creditor calls, late payments, and credit score dings.

Obama admin limits public workers’ ability to discharge student loan debt?

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In 2007, the Public Service Loan Forgiveness program was started to encourage more recent graduates to join the public sector.

The program is unique in that it does the following:

allows public servants (like teachers, law enforcement officials, government workers, public health workers, and more) and employees at 501(c)(3) nonprofits to see the remainder of their federal student loan debt forgiven after 10 years of repayments.

However, according to the Obama administration’s 2015 budget—that has limits.

not necessarily

 

In other words, if you take federal loans to go to a very pricey liberal arts college—you won’t get all of your debt forgiven.

The budget caps that amount at $57,500. So if you still have more than that after 10 years—that’s the limit of what will be forgiven.

The PSLF lets you qualify even if you only make minimum payments (which, if you want to obtain a public sector job and your debt will be forgiven after 10 years, makes simple sense). However, due to interest rates, you may still owe nearly the same amount.

According to Boston.com:

it’s imminently possible for somebody making payments under PSLF to see their debt basically stand still or even increase over the 10 years of payments.

It remains to be seen if the proposal passes. But if it does—the incentive to get rid of student loan debt by becoming a teacher may vanish.

 

Learn from this guy who paid off his student loans in two years

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Paying down student loan debt may seem like a neverending chore.

The monthly payments, the interest charges—it becomes one more bill that seems to never go away.

But one man, Matthew Burr, figured out a way to pay off $74,000 of student loans—in just two years.

His key advice? Start paying them down right away.

If you can, don’t wait for the six-month grace period to end to make payments, advises Burr.

As soon as I got my first check, I made a payment. You’ll pay less interest if you start making payments in a hurry, and it gets you into a routine. If you’re disciplined up front, you’ll be far ahead of everybody else.

He also made multiple payments per month and paid more than the minimum payment per month, but was careful to make sure that his loan allowed that type of repayment (some loans limit the number of payments you can make per month).

Now mind you—the man is not a millionaire. The job he got right after his master’s degree earned $80,000. Instead of upgrading his entire life with a new car and electronics, he put the money right towards his loans, paying them down and cutting out luxuries.

It’s not impossible, folks. If he can do it—so can you.

 

How the federal government protects abusive debt collectors

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With the latest round of student loan reforms, the Obama administration has worked to develop “loan forgiveness programs and efforts to help borrowers reduce payments”.

However, one glaring aspect of student loan debts has not been addressed at all: abusive debt collectors.

These aren’t just employed by loan sharks or private debt companies either. The Department of Education has hired abusive debt collectors to come after student loan debts, with one-tenth of loans in danger of default—nearly $94 billion.

In fact, lenders hired by the Department of Education have been specifically cited for abuse:

In March 2012, Bloomberg reported that three of the companies working for the Department of Education had settled federal or state charges that they’d engaged in abusive debt collection.

When approached, the Department of Education has been anything but helpful:

The GAO report found that the Education Department still does little to oversee student-loan debt collectors, and has done little more than provide “feedback” when alerted to abuses.

The National Consumer Law Center has been trying for two years, through Freedom of Information Act requests, to obtain information from the Department of Education.

But so far, the Obama administration has stonewalled the requests. On Monday, after more than year attempting to peel back the secrecy around the debt collection contracts, NCLC filed a lawsuit demanding that the Department of Education comply with the Freedom of Information Act and release the data.

The federal government under the Obama administration is protecting abusive debt collectors when students and Americans have a right to know what’s going on. Hopefully, they choose to be more open about their practices soon.

Australia refinances government student loans, women hardest hit?

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Until now, Australian higher education students have been able to obtain government student loans at quite the discount—“with no interest payments other than those needed to keep pace with inflation”.

However, the government has changed the interest rate to around 4.5 percent, so that interest is pegged to the 10-year Treasury bond rate.

What does this mean?

Higher debt and more money to repay.

According to the Tertiary Education Union, “the new arrangements have a built-in bias against graduates with carer responsibilities, which will mainly be women”.

Essentially, if you take time off work to have a child, debt will be accruing during that time at a higher interest rate and you’ll be less prepared to pay it back because of wages not earned during that time.

The link seems tenuous, but the fact remains: the Australian government cannot support lending money at record rates to a citizenry accruing record debt.

What not to do when buying a new home

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Buying a new home is both an exciting and stressful part of life.

You may think you’re prepared for this arduous process, only to have it all fall apart at the last second.

One of the flashpoints of conflict in purchasing a new home that few are aware of is loan pre-approval.

Being pre-approved for a home loan is crucial to the process if you’re financing your home (which you most likely will be).

However, pre-approval is not exactly what you think it is.  Pre-approval:

does not mean the process is over — you don’t actually have the loan yet at that point. At the final underwriting review just before the closing, your financial situation needs to be at least as good, if not better, than when you were approved for the home loan.

Remember that—you’ve been pre-approved, but that doesn’t mean you’re in the clear.

In fact, if you finance purchases during the time in between pre-approval and purchasing a home—such as a new car loan or a credit card—you can damage your credit score and alter your eligibility for a loan.

Lay low if you were pre-approved for a loan, and if you have any revolving credit accounts, this would be a good time to pay them down and increase your credit score. Taking on new debt during the process of purchasing a home just might lose your dream home.

not quite