Ask The Money Coach

Archive for the ‘Resources’ Category

Q: I Have Four Stafford Loans With Sallie Mae – Three are Subsidized and One is Unsubsidized. I Also Have One Student Loan with Direct Loan. I am Considering Transferring the Sallie Mae Loans to Direct Loan. Does it Make Sense to Transfer These Loans?

A: When you say “Direct Loan,” I believe you are referring to the U.S. Department of Education’s Direct Loan Program (http://www.dl.ed.gov), where you can transfer and consolidate your federal education loans into a single, new loan which offers lower monthly payments. Whether or not it makes economic sense to transfer the loans depends on a host of factors, including: how manageable (or unmanageable) your monthly payments are; how many payments are left on your existing loan; the amount of time and interest you are willing to pay over time; and the interest rates on your current loans.

If you have variable rates on those Stafford Loans, it may be helpful to consolidate them in order to get a fixed rate. On a Direct Consolidation Loan, the rate is based on the weighted average of all your combined loans, rounded up to the next highest 1/8th of a percent. Your loan rate can never go above 8.25%. There are two quick and easy ways to see the financial ramifications of transferring/consolidating your loans. You can use this online calculator provided by the Department of Education. Or you can simply call the Department of Ed at 800-557-7392 and a customer service representative will be able to tell you your new payments — as well as how much extra you will pay in interest charges by consolidating.

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Q: I Have a School Loan for Me and My Daughter from 1994. I Have Paid Interest Only and Currently the Balance is $68,000+. My Monthly Payment is $375. I Have Deferred Payments at Least Twice the Past 4 Years. What Options Do I Have Other Than Walking Away From the Loan?

A: Unfortunately, student loans aren’t like mortgage debt. You can’t simply “walk away” from student loans — at least not without very, very severe consequences, and not without those loans haunting you, literally, for the rest of your life. You see, student loans have no “statute of limitations.” So your lenders (whether private lenders or the federal government) can come after you and/or your daughter forever to try to collect. Read this article on how to pay student loans fast, and the links on these posts on student loans too, for some ideas about how to eliminate that student loan debt.

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Q: What advice do you give to tackle payday loans? I Have Two at the Moment and I Can Not Afford to Pay Them Both at the Same Time. What Do You Suggest?

A: Unfortunately, millions of people get caught up in the cycle of payday loans each year — not realizing that many of these loans, when rolled over, carry annual interest rates of about 400%, making them nearly impossible to pay off. I’ve written extensively about the dangers of getting payday loans and alternatives to them. Read this post for some of my tips for raising cash when you’re in a financial pinch.

I also recommend taking a look at an excellent five-part series on payday loans, written in 2010 by a terrific financial reporter, Pallavi Gogoi, for DailyFinance.com, an Aol Money and Finance site. Gogoi examines the growth of payday loans, she explains why even federal regulators haven’t been able to protect the public from payday lenders, and offers some good advice for help and alternatives for people with payday loans. Read that series on payday loans, and it’s sure to be an eye-opener, as well as helpful to your specific predicament.

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America’s foreclosure crisis got especially ugly last month.

According to RealtyTrac, lenders repossessed more homes in August 2010 than in any other month since the housing meltdown and recession began back in December 2007.

All told, banks took back 95,364 properties in August, a 3% rise over July figures, and a 25% increase over year-ago levels.

Unfortunately, we’re on track to see more than four million homeowners get a foreclosure notice in 2010. Of those, an estimated one million property owners will actually lose their homes.

All this stepped up foreclosure activity suggests that banks are accelerating their foreclosure proceedings and getting more aggressive about evicting past-due homeowners.

One possible reason for this is that no bank wants to look like a scrooge by putting individuals and families on the street during the November and December holiday season. So I expect that lenders will likely try to get a lot more foreclosures done this fall, especially in September and October.

Facing foreclosure? Read these tips to see if you can save your home.

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Here’s an idea that we can all hopefully get behind – whether you’re a Republican, Democrat Independent or something else.

The Obama Administration is marking the back to school season by launching its National Financial Capability Challenge for the 2010-11 academic year.

The Challenge is a voluntary online exam and classroom tool kit designed to promote financial education to high school students. The idea is that by teaching teenagers things like saving, budgeting and investing, they’ll hopefully fare a lot better than many of us adults did during this latest recession.

“We know we have to educate our way to a better economy,” said Secretary of Education Arne Duncan.

That’s one way to get there. And I prefer this idea as opposed to spending our way to a better economy.

Educators can register for the Challenge at http://www.challenge.treas.gov. The online exam will occur between March 7 and April 8, 2011.

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