Student Loan Borrowers Are Increasingly Making This Major Mistake

Student Loan Borrowers Are Increasingly Making This Major Mistake

Student Loan Borrowers Are Increasingly Making This Major Mistake

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With countless students nationwide packing their bags and gearing up to head off to college, a large number of future graduates are no doubt feeling the financial crunch. In fact, some students might be scrambling to fund their upcoming studies, thereby increasing their likelihood of falling victim to a growingly dangerous trend: borrowing for college from private lenders.

According to data from Credible.com, students are becoming increasingly reliant on private loans to cover their various costs. In 2018, the average private student loan balance was $18,332, compared to $16,078 in 2017 and $14,446 in 2016. And the reason largely boils down to the fact that the cost of most U.S. colleges exceeds the current limits for federal loans.

Though college costs have increasingly risen over the past decade, federal student loan limits have not gone up since 2008. So, when students find themselves unable to cover their costs even after maxing out their federal borrowing options, they often turn to private lenders as a last but necessary resort. In doing so, though, they make it much harder to manage their loan payments once they start coming due.

The dangers of private student loansStudent Loan Borrowers Are Increasingly Making This Major Mistake

Any time you borrow money, you automatically sign up to pay more than the original loan amount taken out. That’s just how loans work. However, whereas federal loan interest rates are regulated, private loan interest rates are not. As such, you may come to find that you’re paying a substantially higher interest rate on a private loan than a federal loan, thereby making it costlier. Furthermore, when you take out federal loans, you lock yourself into a fixed rate for the duration of your repayment period. Private loans, though, often come with variable interest rates that can rise over time, thereby making your monthly payments even more burdensome.

Another issue with private loans is that they pretty much offer zero protections for borrowers. If you take out federal loans and lose your job, you can ask to defer your payments until you’re back on your feet. Similarly, you can apply for an income-based repayment plan if your standard repayment plan (10 years for federal loans) results in a monthly payment that’s too onerous. With private loans, you’re at the mercy of your lender, who is by no means obligated to cut you any slack, regardless of whatever financial hardships life throws your way.

Finally, unlike federal loans, private loans don’t come with a borrowing cap, which means you could conceivably rack up as much debt as you’d like. And that’s a dangerous road to go down when you’re young and relatively unaware of just how difficult it can be to pay that money back.

A better way to pay for college

If the cost of attending college exceeds the amount you’re eligible for in federal loans, there are several avenues you might explore before resorting to private lenders. For one thing, you can see about transferring to a less expensive school. Based on current average tuition costs, switching from a private university to an in-state, four-year public college could save you roughly $25,000 a year.

If that’s not an option, try working as you go to pay your tuition bills rather than finance them all. You might even look into taking a semester or two off to save up some money. Or, do the opposite — accelerate your studies so that you graduate a semester or two early, which will shave a bundle off your total costs as well.

In a perhaps more ideal world, federal borrowing limits would better align with the costs students are facing today. Then again, those borrowing caps exist for a reason — to prevent students from getting in over their heads. So, if you’ve maxed out your federal loans, don’t be so quick to turn to private lenders. Chances are, it’ll be one of the costliest mistakes you ever make in your lifetime.

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wahts your money type personality image

What’s Your Money Personality Type

Do you know your money personality type?

When it comes to handling money, we all fit into one of three personality types, spender, saver or investor. Having said that, it is not as easy as saying you are a clear spender or certainly a saver because we can easily cross over from one group to the next. Sometimes we may be a saver and at other times we spend. An investor may switch to saving at times and a spender may spend the majority of the time, but also save a bit each month. The point is, we are not definitely one over the other two, we filter from one to the other at different times, so the question is which money personality type, do you predominately fall into?

Below you will see a series of statements for each personality type. If you answer the majority of the statements within a personality type in the positive, then that is the preference you have when it comes to dealing with money.

Are You A Spender?

  • You tend to have too much month left at the end of the money
  • You have an eye for the latest gadgets and toys
  • You have more than one credit card
  • You love to buy one get one free offers
  • You don’t like waiting for the sales to start
  • You have a wardrobe full of clothes/shoes you hardly wear
  • You love to treat friends when out, maybe with drinks or meals
  • You buy magazines but rarely read them
  • You live, for now, the future and retirement is something you will deal with later
  • There are times when you struggle to pay your bills

Are You A Saver?

  • You have money left over at the end of the month
  • When you go shopping you know what you want because it’s on your list
  • You use a bank/debit card rather than credit card
  • You are happy to wait for a deal rather than buy it now
  • You have a savings account / retirement plan in place
  • You shop around for the best savings plan with the best interest rates
  • Paying your mortgage/rent is more important than filling your house with gadgets
  • You stay in more weekends than going out
  • You read books rather than glossy magazines
  • You take a lunch to work, more often than buying lunch

Are You An Investor?

  • You have money in other accounts rather than just your bank account
  • You have set money aside for life’s emergencies
  • You have investment accounts that pay more interest than your standard bank account
  • You are always looking for ways to invest your money
  • You can’t remember the last purchase you made
  • You have a plan to pay off your mortgage ahead of time if haven’t done so already
  • You don’t have any debt
  • You are comfortable making a loss with investments from time to time
  • You prefer to put your money in long term investments (5 years+) rather than buy the latest ‘thing’
  • You know the names of the presenters of CNBC rather than the characters of The Bing Bang Theory

Having gone through the lists, which money personality type are you?

If you want to be an investor, but you came out predominately a saver, well its only a short step to moving over into investment and making a few adjustments. If you came out a spender, you are going to have to look at a making some lifestyle changes, if you really want to begin investing for your future, and the main change you have to make is switching from a spender to a saver.

If you are a spender and do want to be an investor, the best way is not to try and do it immediately. Start gradually by making note of all your monthly spend and cutting back on the purchases that are ‘wants’ and not ‘vital needs’. If you have any debt, look to clear that debt as quickly as possible and as you begin to gain extra money each month, resist the temptation to spend it, but rather start investing small by placing it in a good saving account with reasonable interest.

There is a lot more that I can say on turning from spender to investor, but the purpose of this post was to help you ascertain your money personality type. If getting out of debt is a priority to you, then I recommend you check out the various programs on offer from daveramsey.com

If investing is something you want to consider, I do have a section on this site covering the various types of investments, or you may want to check out information on gold investment companies if you want to invest in something different, like precious metals.

return on investments chart

The first step to managing your money

When it comes to managing your money and ultimately improving your finances, the very first question you have to ask yourself is, why? Why do you want to increase your wealth? Why do you want to manage your money better? Why do you want to improve your financial status?

Now the mistake a lot of people I have coached over time make, whether it is to do with financial issues, their relationships, their health and so on, is they fail to get clarity as to why they want to change their situation. The principle is the same no matter what the issue in hand; unless you have clarity as to your why, and that clarity must be self motivating, you will fail to achieve your outcome.

In his book,7 Habits of Highly Effective People, Dr Stephen Covey said that one of the habits of highly effective people is they start with the end in mind. You need to envision what you want in the future so that you know concretely what to make a reality.

Unless you start out on your journey knowing where you want to end up, how will you ever know when you have got there? So as we are discussing finances, let me put to you a number of different scenarios that may help you to know ‘concretely what to make a reality.’winning at money management

  • You want to get married and not do so with any debt
  • You want to clear your student loans by the time you are a certain age
  • You plan to have children and you want to move to a certain neighborhood before they are born
  • Your retirement plan is worthless and so you want to increase it by a certain amount before you reach 50
  • You want to live debt free by the time you are 40

Whatever your reason, please ensure you are as clear and concise as possible. Simply saying ‘I want to have more money cause I’m sick of being in debt’ will not help you to change your situation and help you manage your money better. If having more money is all you can say, then email me your address and I’ll send you $10, mission accomplished, you now have more money. Effective money management takes proper time, consideration and action and so the more clear you are, the more focused you will be and the more self motivating your actions will be because you will know exactly why you are doing what you are doing.

Now before you start to take your first step into managing your money better, there are a few things I need to stress before you begin.

  1. This is not about getting rich quickly. Only lottery players, gamblers and scammers get rich quickly. Proper effective wealth takes planning and correct management so if you are hoping this is all going to make you wealthy tomorrow or next week, or by Christmas, forget it.
  2. This is most definitely not any of that law of attraction stuff. I will not be telling you to put stuff out to the universe, to make wish lists and image boards. I don’t have time for that and further more I don’t believe in any of that stuff.
  3. If you are in a deep financial mess, I strongly suggest that you get professional financial counselling from a fully trained and qualified advisor. This coaching is not a way of bypassing your responsibility to your creditors. Yes I did use these methods to help me clear a lot of personal debt without filing for bankruptcy, but I took the relevant action by seeing a counsellor first, making arrangements with my creditors and working hard. These steps were an addition, not a replacement, that enabled me to improve my finances and grow my wealth.

So if you haven’t yet taken the time to write out your reason as to why you want to improve your finances, then please do so.

improve your credit score

Improving your credit score

How to improve your credit score

Everyone wants as healthy a credit score as they can get, but sometimes circumstances can negatively affect our score and getting credit then become extremely difficult because our score gets reduced. So if that ever happens, what can be done to get your score back up into the healthy section?

Well before I give you some tips to help boost your credit score, you need to know that there are no quick fixes. Your credit scoring is a reflection of your credit history and so therefore adjusting it can take time, especially if it was reduced because of unfortunate money management in the past. If your score is low because you have not had much credit in the past, then the length of time it will take to improve can be shortened.

Tip 1 – get a copy of your credit history.

This can be obtained from the likes of Experian who will provide you with a record of your credit history, which is reviewed and monitored by all of your current and future creditors. This will tell you exactly what payments you have made to your creditors over time, whether they were on time, whether any were late (and by how much). The record will tell you what your current credit score is and if it is low, you will be able to tell from your history, if it’s low due to poor money management or a lack of credit history.

Tip 2- Bring your biggest balances down.

Look at all the credit you have and ascertain from the report, which are not necessarily the biggest debts, but the ones that are closest to the limit. For example; if you have two credit cards, one with a $1,000 limit and $900 owed and another with $3,000 limit and $2,000 owed, work on bringing the amount owed on the $1,000 card down first. Of course don’t increase your debt on the $3,000 card as you do it. By doing this, it shows that you are not living on the limit and can actually manage your money.

If you have multiple debts in this situation, start with the smallest first to get them out of the way, and then work your way up to the biggest.

Tip 3 – Always make your payments on time.

The management of your payments makes up around 35% of your score. If you are late or default on payments then this will have the biggest impact on bringing your score down. If you have a low score due to not having a lot of credit, then make sure you never miss payments. The best way to always ensure payments are never missed is to set up automatic payments every month from your bank account – a set and forget approach.

Tip 4 – look to over pay

By paying more than the monthly required payment each month, not only shows that you are looking to reduce your payments quickly, but it also shows you can manage your money.

Tip 5 – Dont close your credit cards.

When you eventually clear the balance on your credit cards, don’t close them. For one you may need to use a credit card in an emergency, but also 15% of your credit score is made up of the length of time you have had an account opened. Even if you are not using the card anymore, the fact you have had the account for a number of years bodes well for your score.

Tip 6 –Don’t apply for more credit

If your score is low because of poor management, then do not apply for more credit. Each time you apply for credit it leaves a footprint on your record. The more times you apply, the more footprints you leave and if you leave too many, it looks like you are credit hungry and this is damaging to your score. Every time you open an account it affects your score by 10%, so if you apply for a new account and it’s not granted, you’ve just undone all your hard work in building up your score again.

Now these tips are not exhaustive but they will go some way to help you begin to improve your score. The biggest thing to remember is to cut back on your spending and increase your paying.

common mistakes with money

Common Money Mistakes

Personal finance is a tricky area, especially because it calls for sound financial literacy that not everybody is lucky to have. There are certain common mistakes that people make that set them up for huge pitfalls. These include:

Underestimating insurance needs

Insurance is your best protection against the uncertainty of the future. It is highly imperative that you value your savings and decide how much insurance you will need.

Not saving enough: Unfortunately, a lot of people are spending more than they earn, meaning that they are actually left with nothing to save.

Not paying mortgage in time

Always strive to pay your mortgage on time. And because you may not always have available cash to pay for the mortgage every month, you should set aside an emergency fund earlier on to see you through such months.

Carrying a balance on your credit cards

This is a very common mistake that people make. If you make this mistake, it means you are paying high interest charges on your credit card, and this means you are paying more than you have to for the things you are buying.

Lending money to people, or cosigning on a loan

Yes, it is a great thing to be helpful and a friend indeed, but have you thought about what will happen when the person you assist in getting the funds they need refuse to honor their obligations? You will be stuck in the middle of financial debt and you will not like it.

Going without a budget

This is a grave mistake to make, no matter how much money you earn. A budget is a road map towards financial success. If you can keep tabs on all your money, then you are one step ahead towards achieving financial stability. Do not go without a budget-it helps you decide what you are allowed to spend on, and what needs to wait.

Not reading your retirement savings account statements

It is not enough to just sign up for a retirement savings plan; you must strive to be aware and appraised of what is going on in your account. You must know whether your money is working for you, and whether you will have enough funds for your retirement. The only way you will know whether the retirement package you chose is working for you is by keeping a close eye on your account and reading those account statements.

Not paying attention to your credit score

You may not consider it very important, but a good credit score may open certain doors, while a bad credit score will keep them closed. For instance, a good credit score may enable you to get better interest rates while a bad credit score will even deny you access to certain loans when you need them.