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Reader Mail: Getting Out of Private Student Loan Hell

August 31, 2010 By

Following my recent post on how to ease your student loan burden, a reader wrote in asking for advice on how to better manage her private student loans, which are a bigger annoyance in some ways than federal loans.


           Dear Farnoosh,

I was hoping you would have some advice for people like me who have about 50K in private student loans. Yes I know, it’s crazy. My monthly payments are almost $500 a month (that could have been a really nice savings account) but I’m BARELY making the minimum payments. Please, please, please tell me there is something I can do to help my newly engaged, looking to buy a house, then get married but have no money-self.

P.S. This was all acquired from my culinary degree, which coincidentally the school from which I graduated no longer has a culinary program!!

Greatly Appreciated, Nicole


Dear Nicole,

To answer your question, there is something you can do. In fact, there are several things you can do. But before I give you advice, I need you to accept the following: This debt is only your responsibility and you must make paying it down a top priority. Realize that at the end of the day, unfortunately, no one is obligated to help you ease this burden. I know you’re frustrated and regret taking on this debt, but if you want to turn this ship around you need to take control of the situation and raise your commitment level to these loans. Otherwise you risk putting a great deal more at risk, including your ability to afford a wedding and own a home.

Here’s my honest advice, which has less to do with actually modifying your loans and more to do with modifying your lifestyle and making some key changes in your income and budget. Bottom line: No one cares more about your financial situation than you.

Boost income. Since you can barely make the minimum payments, it’s fair to say that you have an income problem. You have a $500-a-month dilemma. So what can you do in your spare time to bring in that money? With your culinary degree can you cater a couple of extra parties a month? Host private cooking classes? What else can you easily and quickly do? Babysit? Tutor? Freelance food and recipe articles? Embrace the fact that you’re young and educated. The job market is rough right now but by taking on an entrepreneurial spirit you can find a way to add a revenue stream or two.

Reduce spending. While you’re looking for ways to make money, take a long and hard look at your spending. What’s coming in and what’s going out? Why are you barely able to make the minimum on your student loans? What’s eating up your income on a monthly basis? It may not be one category of spending. It could be a collection of expenses from eating out to your rent to your gym membership to your cable bill. You need to make some adjustments. Substituting your gym membership, for example, for free runs in the park or free online workout classes, can save you $75 a month right there. This probably isn’t the advice you wanted to hear, but it’s the one sure-fire way you can personally take control of the situation.

Speak with your lender. If you haven’t done so already, it may be worth speaking to your lender about any alternatives to the current loan program you are in. Is there a way to stretch the repayment period? Or consolidate your loans to one loan with a reduced interest rate? You won’t know unless you ask.

Don’t miss any payments. The biggest danger of all is falling behind. I’ve seen scenarios where a $10,000 private loan balloons to $30,000 because of late or totally neglected monthly payments. If all you can afford is the monthly minimum right now, then stick with the minimum. Once you start making more money and reduce your spending you’ll have extra savings to play. At that point, put more money toward the principal of the loan.

Farnoosh Torabi – Credit.com Personal Finance Contributor, nationally recognized author, expert and television host. Her first book, You're So Money, is an acclaimed tell-all for young adults searching for financial independence. Her new book Psych Yourself Rich, gives readers the mindset and discipline to build their financial life.
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Reader Mail: Getting Out of Private Student Loan Hell

August 31, 2010 By

Following my recent post on how to ease your student loan burden, a reader wrote in asking for advice on how to better manage her private student loans, which are a bigger annoyance in some ways than federal loans.


           Dear Farnoosh,

I was hoping you would have some advice for people like me who have about 50K in private student loans. Yes I know, it’s crazy. My monthly payments are almost $500 a month (that could have been a really nice savings account) but I’m BARELY making the minimum payments. Please, please, please tell me there is something I can do to help my newly engaged, looking to buy a house, then get married but have no money-self.

P.S. This was all acquired from my culinary degree, which coincidentally the school from which I graduated no longer has a culinary program!!

Greatly Appreciated, Nicole


Dear Nicole,

Credit-mailbag To answer your question, there is something you can do. In fact, there are several things you can do. But before I give you advice, I need you to accept the following: This debt is only your responsibility and you must make paying it down a top priority. Realize that at the end of the day, unfortunately, no one is obligated to help you ease this burden. I know you’re frustrated and regret taking on this debt, but if you want to turn this ship around you need to take control of the situation and raise your commitment level to these loans. Otherwise you risk putting a great deal more at risk, including your ability to afford a wedding and own a home.

Here’s my honest advice, which has less to do with actually modifying your loans and more to do with modifying your lifestyle and making some key changes in your income and budget. Bottom line: No one cares more about your financial situation than you.

Boost income. Since you can barely make the minimum payments, it’s fair to say that you have an income problem. You have a $500-a-month dilemma. So what can you do in your spare time to bring in that money? With your culinary degree can you cater a couple of extra parties a month? Host private cooking classes? What else can you easily and quickly do? Babysit? Tutor? Freelance food and recipe articles? Embrace the fact that you’re young and educated. The job market is rough right now but by taking on an entrepreneurial spirit you can find a way to add a revenue stream or two.

Reduce spending. While you’re looking for ways to make money, take a long and hard look at your spending. What’s coming in and what’s going out? Why are you barely able to make the minimum on your student loans? What’s eating up your income on a monthly basis? It may not be one category of spending. It could be a collection of expenses from eating out to your rent to your gym membership to your cable bill. You need to make some adjustments. Substituting your gym membership, for example, for free runs in the park or free online workout classes, can save you $75 a month right there. This probably isn’t the advice you wanted to hear, but it’s the one sure-fire way you can personally take control of the situation.

Speak with your lender. If you haven’t done so already, it may be worth speaking to your lender about any alternatives to the current loan program you are in. Is there a way to stretch the repayment period? Or consolidate your loans to one loan with a reduced interest rate? You won’t know unless you ask.

Don’t miss any payments. The biggest danger of all is falling behind. I’ve seen scenarios where a $10,000 private loan balloons to $30,000 because of late or totally neglected monthly payments. If all you can afford is the monthly minimum right now, then stick with the minimum. Once you start making more money and reduce your spending you’ll have extra savings to play. At that point, put more money toward the principal of the loan.

 

Farnoosh Torabi – Credit.com Personal Finance Contributor, nationally recognized author, expert and television host. Her first book, You're So Money, is an acclaimed tell-all for young adults searching for financial independence. Her new book Psych Yourself Rich, gives readers the mindset and discipline to build their financial life.
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Lessons from the Gilded Age, Part 3: Parties

August 27, 2010 By

Today we’re going to party like it’s 1897. So, pretend you’re loaded. No, I mean with money. Though alcohol fueled many of the Gilded Age’s most deliciously decadent moments. Like the evening when former president Ulysses S. Grant was so lit up at a party in New York that he stuck the lit end of his cigar into his mouth.

No, I mean pretend you’re so loaded that you can drop $8.5 million on one big blowout ball, just to show everyone else in society that you could outdo Caroline Astor, as Cornelia Bradley-Martin did. Then, when the press denounces you for this outrageously self-indulgent abuse of privilege, you move to England. But not before throwing a farewell party at the Waldorf-Astoria for your closest friends, and spending $2,668 per plate as one last slap at your detractors. 

800px-BMBallHarpers

      Bradley-Martin Ball of 1897. Harpers image via Wikipedia

This would be an appropriate time to give another tip of my metaphorical top hat to Greg King’s magnificent chronicling of the wonderful and wacky wealthy in his book, A Season of Splendor.

And here’s our lesson: If you’re going to throw a party, realize it’s not about how much you spend on your family and friends, but how much you value them.

What people enjoy and remember most is the engaging company and conversation shared. Yes, you want a few bottles of good wine and some tasty food, but again, this can be achieved without having to close all of your off-shore bank accounts.

If nothing else, our Gilded Ones teach us that too much money can devour all rationality from your brain. By the early 1900s, much to Madam Astor’s abhorrence, her exceedingly rich colleagues had perfected their pursuit of decadence with exquisite relish.

In the here’s-your-brain-on-mad-money category, one couple threw a Circus Ball, where an elephant wandered the house solely so that guests could feed it peanuts. Then there was the acclaimed Dog Dinner. Of the 200 guests, 100 were lavishly costumed canines accessorized with jewels such as a $315,000 diamond-studded collar. Liveried servants, of course, served a three-course feast of “stewed liver and rice, fricassee of bones, and specially baked biscuits.”

Even if you are fortunate enough to earn an income in league with the Astors and the Vanderbilts, just because you make a lot of money doesn’t mean you have to spend a lot of money. Like my cousin’s husband always says, “Save till it hurts, then save some more.”

Or invest, donate, pay down debt… Just don’t go crazy on those cotillions.

After all, our Gilded Agers were so enamored of turtle soup at their constant sumptuous soirees that they are single-handedly credited with driving the terrapin to extinction.


Christopher Johnston has written for American Theatre, Cleveland, Continental, Crain’s Cleveland Business, Editor & Publisher, The Plain Dealer, Progressive Architecture and Urban Design, and Scientific American, among other publications. He is currently writing a biography of Frederick C. Crawford, founding chairman of TRW Inc. As an avocation, he is a playwright and director, and this December, his play APORKALYPSE! will premier at convergence-continuum theatre in Cleveland.
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Let Family be Family, Leave the Lending Business to the Banks

August 26, 2010 By

I remember when I was in high school and Friday night rolled around.  As most 17-year-olds, I was as broke as an old clock.  And, WOW, what $20 could buy in 1985.  So like most young kids do, I asked Banco Padres (the parent's bank) for $20 on a regular basis.  And it wasn't a loan for $20, because if it was then I defaulted on every single one of them.

So when is it time to stop asking family and friends for money?  It's my opinion that you should never, ever ask anyone other than a bank or some other form of official lender for money, ever.  Here's why...

  1. Most "loans" are paid back under the terms of a promissory note.  Borrowing dough from mom and dad is not.  It's paid back under some loose assumption of terms, which often leads to misunderstandings and hurt feelings.  And nothing makes Thanksgiving dinner more uncomfortable than the elephant in the room, which is "the guy carving the turkey owes me $10,000."  

  2. Co-signing is a temptation, which is fraught with peril.  Co-signing for a loan or anything for that matter is the financial equivalent of getting married.  You are officially connected and getting disconnected, which might seem really attractive, is next to impossible.  Lenders love two liable parties instead of just one.

  3. "He who gets gypped has the memory of an elephant."  Notwithstanding the fact that I've now mentioned elephants twice in this article, the quote rings true.  I can't remember who gave me what at my wedding, but I sure can remember the folks who gave us nothing.  It's human tendency to remember these things and nothing is worse than the constant memory of getting ripped off, by a loved one.

  4. Save the lending to the lenders.  Lenders are expected to be cut throats.  They'll report you to the credit bureaus, hire collectors to track you down, and might even sue you for delinquencies.  Do you really want to put your loved ones in that position?

Here's my suggestion, if you are seriously thinking of letting someone borrow money, just let them have it.  That way there's no expectation of getting paid back so there are no hurt feelings when the checks don't roll in.  But even then I'd think twice.  You're enabling irresponsibility by letting someone borrow or have money, plain and simple.  True example, a buddy of mine's father in-law borrowed $100,000 from my buddy's father.  He did this under the guise of saving his home and business.  Of course after he renewed his country club membership with a sizable chunk of the money it became quite obvious that he had no intention of handling the money as he had represented.

Let the banks be banks.  You be a friend or relative...and neither the two shall (or should) meet.

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.

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Small Credit Card Charges Could Mean a Big Problem

August 25, 2010 By

You see a small charge on your credit card you don’t recognize.

What do you do?

Small charges you don’t recognize can be a sign of a bigger problem. The New York Times takes a look at a lawsuit filed in March by the Federal Trade Commission, which claims that during the past four years, scammers raked in more than $10 million by putting small bogus charges – ranging from twenty cents to $9 – on consumers’ credit and debit cards. And in a scheme that apparently has dragged out for more than a year, scammers have made fake $1 purchases on iTunes customers' accounts, only to follow up with increasingly larger ones, sometimes totaling hundreds of dollars.

An unknown charge could mean your account was compromised. Or it could just be that you don’t recognize the name of the company billing you for a purchase you made. After all, merchants have a limited number of characters with which to describe their products and services on statements, and those descriptions can be cryptic.

So what should you do when you find an odd charge on your credit or debit card statement? Here’s how I would handle it:

1.    Call the merchant to find out whether the charge is for an item you actually purchased. If the phone call doesn’t clear it up,

2.    Call your credit card company and file a dispute.

3.    If you believe your card number has been compromised – especially in the case of a debit card – cancel the card and ask for a replacement with a new number.

Remember, under the federal Fair Credit Billing Act, the most you can be held liable for is $50 in unauthorized purchases, and that's only if the card was physically presented in the transaction. Most card companies won't even hold you responsible for that if you notified them of the fraud promptly.

However, you have to read your statements to identify fraudulent charges – especially the small ones that are easy to overlook.


Gerri Detweiler – Personal finance author and Credit Advisor for Credit.com, Gerri contributes budgeting, debt recovery and savings information online. She is also the co-author of Reduce Debt, Reduce Stress: Real Life Solutions for Your Credit Crisis.

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