KNS Financial

Personal Finance From a Biblical Perspective

Four Student Loan Debt Options You May Not Have Considered

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In our current society, it has unfortunately become the norm to graduate from college with a large amount of student loan debt. Then the student struggles to find employment, and if they are lucky enough to do so, the salary is way below the expectation of the degree they earned.

Student Loan Debt

Thankfully, there are a number of options out there to help alleviate this debt that goes beyond the six month grace period after a student graduates. Some people may be qualified without realizing it, since some are pretty new, and haven’t considered getting help with the burden.

The important thing to realize is that this isn’t easy or free. There are extremely specific qualifications that need to be met in many cases, such as: debt to income ratio, specific time frames, length of employment, and consistent payment of existing loans. Also, only certain loans are eligible for these options.

Student Loan Debt Repayment Help and Forgiveness Options

1. Becoming a teacher in a low-income area. If you have a Stafford or Perkins loan, some or all of your debt can be forgiven if you work in a designated school (the government provides a directory of schools that qualify) as a teacher for five complete and consecutive years.

2. Join the military. Each branch has their own student loan debt forgiveness information, so check with the specific branch of the military for options.

3. A Public Service or non-profit job. This Public Service Loan Forgiveness option only applies to a Direct loan. For this loan you must have 120 qualifying payments (keep in mind that these payments will take you at least 10 years) while working full-time in these areas. Since this option came about in 2007, you can apply for this in 2017. “You must be working for a qualified public service organization at the time you submit the application for forgiveness and at the time the remaining balance on your loan is forgiven.”

4. Pay As You Earn. This program caps payments at 10% of discretionary income and forgives remaining loans after 20 years. For this plan, you must be a new borrower as of 2007, and only certain Federal loans apply. You must have at least a partial financial hardship and your payment amount may increase or decrease each year based on your income and family size.

Other Options for Student Loan Debt

These are a few of the most common plans out there, but please research through the government’s website, your loan program, even your employer to see if more options are available to you.

This is an important thing to do, especially if your debt is taking up more than 10% of your income.

 

 Have you applied for, or benefited from any student loan debt forgiveness or help? Do you know of any other student loan debt options?

 

Photo by FreeDigitalPhotos.net

Be Wary of Short-Term Loans

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[The following is a guest post about the dangers of short-term loans.]

If you are facing a financial crisis, a payday loan may seem like the perfect solution to your problem. They usually offer to provide you with instant cash that may be in your bank account in just a matter of hours. They also promote the fact that they will lend to anyone with a steady job, even if you have no credit, or poor credit.

While this may seem like the answer to your financial problems, there are some things you should know about payday loans before making your final decision. Otherwise, what may seem like the perfect solution, may only add to your financial problems.

Payday Loans

How Short-term/Payday Loans Work

A payday loan company is likely to offer you a loan of up to $2,000 that you can spend on anything you want to. Through this loan contract, you agree to make regular payments to the lender until your loan is paid in full. They will attach various fees to your loan that you must also pay back in full. The application process is very easy and these companies do not do any type of credit check to see if you qualify for approval. As long as you have a steady income, you will probably be approved.

You may ask yourself why payday loan companies offer loans to people with little or poor credit when other lenders will not. This is because they set up an agreement with you where they are practically guaranteed to get their money back. This is because you agree to allow the payday loan company to withdraw the fund directly from your regular pay check or your bank account. These funds will then be directly forwarded to the payday loan company.

Repayments

It is very important that you realize the when you agree to a payday loan, you are authorizing the company to take funds directly from your pay check or bank account to cover your debt. Once you make the agreement, these payments will be automatic and there will be nothing you can do to stop the payments. This means that you will have fewer funds available to you every week until the loan is paid off.

If you are having the money directly deducted from your bank account and you do not have sufficient funds available, you are likely to receive an additional fee from your bank.

Added Fees

While the government has set some strict guidelines in place for payday loans, you will still repay a substantial amount more than you initially borrowed. Right from the start you will be charged a 20% establishment fee just for taking the loan out.  If you are taking out a $2,000 loan, the establishment fee would be $400. You will also pay a 4% monthly account fee on the balance you still owe. This will add up to a lot of extra charges.

For example, if you obtain a loan for $2,000 and plan to repay the loan over 16 biweekly installments, you will owe $190 every two weeks. This will equate to a total repayment of $3.040.00, which means you will be paying more than $1,000 more on a $2,000 loan. This does not even include late fees if you are ever late with one or more payment.

Alternatives To Expensive Short-term Loans

There are several alternatives to payday loans that you may want to consider. You definitely want to contact your lenders first and see if you can make alternative payment arrangements with them, so you do not have to take out a loan. You may also be able to borrow a small amount from a friend or family member and pay it back over a set period of time.

There are also some other loan alternatives, such as a standard bank loan or you may be able to obtain a low-interest credit card that you can use for some of your expenses. If you are low-income you may be eligible for specialty or Centrelink loans from bank and charity partnerships, such as the StepUp Loan and the No Interest Loans Scheme. If you receive payments from Centrelink, you may be eligible for an advance payment to help offset some of your current bills.

While taking out a payday loan may seem like a good idea initially, keep in mind how much you will need to repay in added fees. If you are not careful, this type of loan can actually add more financial stress on you than you currently have. This is because you will have to go with several weeks or months of decreased pay checks to cover all of your other expenses.

If you do obtain a payday loan make sure you read the contract through completely and that you are certain you will have the ability to repay the loan.

A Few Tips To Better Understanding Loans

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[The following is a guest post explaining the various terms used concerning loans, so that you can make a more informed decision when borrowing money.]

Deciding that you need to apply for a loan of any sort can come at a traumatic and hard time for anyone. And yet once you have decided to take that step you are confronted with a wall of buzz words and catch phrases that simply don’t mean anything to you.

Follow this plain speaking guide below to understand for certain what type of loan you might require.

Loan Sign

Unsecured Vs Secured 

Loans fall into two categories here and are always one or the other. A secured loan is one that is secured against something that you already own. For example you might take out a loan that is secured on your car. This means that if you default on payments the loan company may seek to claim ownership of your vehicle instead to make up for the missed payments.

An unsecured loan is one that is not tied to any assets, these tend to be short term and for smaller amounts than secured loans.

Short Term Vs Long Term 

Again loans are always one of these two categories, either short or long term. This are relatively self explanatory expressions with short term loans being repaid over a much shorter time frame and long term loans being held over a longer time. Short term loans tend to be for smaller amounts such as an overstretched month or small purchase.

Long term loans tend to be larger and for one of purchases of a substantial nature, the most common of course being a mortgage which is a long term loan to buy a house.

Guarantor Loans

Traditionally those people with bad credit or low wages have not been able to take out loans. However, it is now possible for these (and others) to get a guarantor loan which is a loan that another person guarantees will get paid.

In essence this means that if you default on the loan then they become liable for the repayment.

Open Ended Vs Close Ended

A closed end loan is simply one that as you pay back the debt decreases but it gives you no available credit for re-borrowing. An open ended loan is one that as you pay back money you gain credit which allows you to re-borrow again and again up to the total you originally borrowed.

This means that your debt can go both up and down.

So now you’ve got the basics, hopefully you feel a bit more confident about finding out your next step.

photo credit: freedigitalphotos.net

Why We Chose To Make A Loan To A Friend

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Whenever I counsel anyone who talks about making a loan to or taking a loan from a friend or family member, I usually tell them that it’s a bad idea. It can very easily ruin your relationship with that person, even if they do pay you back.

 

Making loans to friends or family can definitely cause a lot of stress; and there may even be some tension that unintentionally gets built into the relationship. This is especially true if the borrower has trouble making some of the payments or if they don’t seem to take their obligation seriously, because of the closeness of your relationship.

Lend Money to Friend Family

Another thing that can happen is that the lender begins to scrutinize every purchase that the borrower makes. For instance, if you had to borrow some money from your brother, and then (while the loan is still outstanding) you ask him to help you set up your new flat-screen tv or expensive computer, he might begin to wonder why you didn’t use that money to pay him back completely!

I’ve seen this happen even when the borrower is making all of the payments on time! The high-end electronics example may be a little extreme, but it can happen with buying an article of clothing or even just eating out. The point is, it’s hard to know that these feelings will creep up until you are actually in this situation.

This, plus a number of other reasons, is why I try to avoid lending money to a friend or family member, even it proves to be the best loan available for them.

Because of what he was dealing with, and also his financial trouble in the past, there was no way that he could qualify for a great personal loan from a bank.  I recently wrote on my other website about our friend getting into some financial trouble because the deferred payments were due on his car loan. I also told you how he was able to get out of the mess.

{Find out what the bible says about cosigning for a loan!}

He called me up and asked if he could borrow money from me, and that he should be able to pay it all back within a couple of weeks. I called my wife and told her the situation and we agreed to give him the loan. Here are the main reasons why we decided to go against my normal recommendation:

Why We Chose To Make A Loan To A Friend

He had a plan to pay us back – He looked over his income and expenses for the next few weeks, and determined that he would be able to repay us within a month. I was impressed that he didn’t just make a unrealistic promise out of desperation.

He has recently made financial sacrifices – He is selling a car that he loves and he also moved to another state in order to pay cheaper rent.

He is trying to get his finances in order – I met with his girlfriend earlier this year in order to help her get her finances (and she has taken care of a lot of things so far), and he has asked me to sit down with him as well.

He realizes that his situation is his own fault – The remorse that he is showing over his situation is not just based on not wanting to deal with adversity, but it comes from an understanding that his poor financial decisions are to blame. This is what is fueling his desire to make serious changes and become financial responsible!

It was a real need – He needed the money in order to pay his rent (our loan covered a portion…he had the rest). To me, that’s important enough to at least consider going against my general advice.

We had the money in our emergency fund – Since we have an emergency fund, we were able to give him the loan without reaching into our checking account, or wrecking our budget for the month.

It won’t destroy us financially if he is unable to pay us back – Proverbs 19:17 tells us…”One who is gracious to a poor man lends to the Lord, and He will repay him for his good deed.” Even if he isn’t able to pay us back, we will not hold it against him (we would just need to communicate). We really wanted to bless him in this situation, and ultimately, our repayment will come from the Lord!

We knew that it was the best loan for him – He may have been able to get a payday loan or find some other way of getting the money, but we didn’t want him to be forced to do something that would have made his situation worse.

As you can see, even though I would normally counsel against extending a loan to a friend or family member, there are some cases where we will do so. However, a lot of things have to line up in order for that to happen. It took a lot of consideration and evaluation, but in the end, I think we made the right choice.

photo credit: Freedigitalphotos.net

Reader Questions

  1. Have you ever given a loan to someone close to you? If so, how did it turn out?
  2. Have you ever received a loan from a friend or family member? If so, did you feel a greater sense of obligation toward them (as compared to a bank) or less?

Keys To Finding The Right Debt Consolidation Company

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If you’re struggling with debt, you may be able to dig yourself out of the hole by self-discipline and paying off debt with every free dollar you have.

However, if you’re carrying a lot of debt, professional debt consolidation help may be the fastest and cheapest way to resolve your debt.  When considering professional help you want to find the best type of debt consolidation for your situation  and the best debt consolidation companies to work with.

It’s also very important to remember that even if you find a good solution for getting out of debt, unless you address the reasons you accumulated debts, you’re likely to find yourself running up debt again.

The right way for you to resolve your debt depends on:

  • The assets you own
  • How much you owe
  • What you can afford to pay toward your debt each month
  • Your credit rating

Good Credit Debt Consolidation

If you have equity in a home and your credit is strong, look into:

1.   Cash-out Refinance: Consolidating debt through a cash-out refinance can be a great solution. Interest rates are at historic lows, so a cash-out refi will lower your rate on most any debt you have.

2.   Unsecured Personal Loan: Interest rates are higher, in general, for a loan that has no collateral. If your credit is excellent and the debt you wish to consolidate is high, however, you should check with banks, credit unions, and peer-to-peer lenders.

Bad Credit Debt Consolidation

On the other hand, if you don’t have a valuable asset to use as collateral and you don’t have strong credit, then you have to look for another solution.

The following two options don’t really consolidate your debt, they consolidate your payment. Unlike the debt consolidation loans mentioned above, where your creditors are paid off and you have a new lender, in these programs you still owe your original creditors until you complete the program.

  • Consumer Credit Counseling: Credit counseling works in two parts. First, your overall finances are analyzed and your budget is reviewed. If you don’t have a budget, your credit counselor will work with you to establish one. If high interest rates are one of your main problems or if you need a slight reduction in the size of your monthly debt payments, the program’s Debt Management Plan could benefit you greatly. Your one monthly program payment will speed up the time it takes to be debt free.
  • Debt Settlement: Debt Settlement is a more aggressive form of “debt consolidation,”designed for people in a serious financial hardship. In a debt settlement program, you choose to stop making monthly payments to your creditors, to reach reduced, lump-sum settlements with them. Because you’re not making a monthly payment, your credit rating/score takes a big hit. However, debt settlement has lower costs than credit counseling. It gets you out of debt faster and at a lower cost than any way other than bankruptcy.

Choosing the Best Debt Consolidation Company

The steps you need to take to find a reputable firm to help are similar, whether you’re consolidating debt from a strong position or a weak position. However, you need to exercise a higher degree of caution, when you are in a weak position. Unfortunately, predators come out to take advantage of those who need the most help. They know that a desperate person is likelier to let down his guard.

To protect yourself and to find the best debt consolidation company, follow these six basic tips:

1.   Look for accreditation-  If you are looking at credit counseling, choose a firm that is a member of the National Federation of Credit Counseling (NFCC ). The best debt settlement companies are members of the American Fair Credit Council (AFCC).

2.   Find out how long they’ve been business– Scammers tend to be fly-by-night firms. They are here today and gone tomorrow. it is a good sign when firms last a number of years. It also gives you a longer track-record on which to judge their performance.

3.   Read your paperwork– It seems pretty obvious you should carefully read any agreement you might sign. Sadly, however, it is not uncommon for people to skip this important step, either due to the complex legalese used in agreements or out of sheer laziness.

4.   Avoid advanced fees– Although professional debt consolidation will have fees associated with it, your fees should not be charged up-front. It is illegal for debt settlement firms that telemarket to charge fees upfront.

5.   Avoid high-pressure sales tactics- Salespeople who employ high-pressure sales techniques do so because they are effective with some customers. Don’t be one of them. It is a red flag if signing up for the program is more important to the salesperson than it is to you.

6.   Shop Around– No matter the product or industry, shopping around is smart. There is no better way for you to find the best fit for your goals than to speak to multiple companies. Not only can you compare costs, but hearing more than one presentation allows you to judge whether you’re receiving consistent information or if one company is over-promising.

photo credit: FreeDigitalPhotos.net

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