rutgers graduate student program-03-14
TRANSCRIPT
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When you invest, compound interest is your friend :-)
When you pay interest on credit cards and loans, compound interest is your enemy :-(
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Start with rent, utilities, food, car payment, gasoline, cell phone/internet…and everything else
Add child care?
Add student loan payments
Add credit card payments
Say goodbye to budget flexibility including…
Build-up of emergency savings
Early build-up of retirement savings
Any “fun” money
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Getting a loan to repay existing debt
Charging more each month than payments
“Juggling” (rotating) payment of bills
Using credit card cash advances for bills
Consumer debt-to-income ratio > 20%
Being at or near maximum credit limits
Calls and letters about overdue bills
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Early - Begin paying late penalties
Pay minimum due
A month or 2 behind
Later - Bills are months overdue
Difficult to pay minimum
Creditors are making contact
Final - Court proceedings threatened/pending
Wages subject to garnishment
Secured items (car, etc.) repossessed
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Cap total student debt at (or below) the expected first year salary for a job in student’s field of study
Keep debt low enough so you don’t spend > 10% of post-graduation pre-tax income on student loan bills
Future artists and musicians would be wise to borrow less than future engineers and computer scientists
Future public servants might have some flexibility with loan forgiveness programs
http://www.usnews.com/education/best-colleges/paying-for-college/articles/2009/06/09/how-much-money-should-i-borrow-for-college
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“It depends”
There are no set annual or aggregate limits for Direct PLUS loans
Consider supply and demand for field of study
Consider typical career trajectory patterns and future income increases
May be best not to exceed year 5 to year 10 post-graduation income
http://www.ifap.ed.gov/dlbulletins/attachments/DLB0703Attach.pdf
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When your “future self” benefits from purchases made by your “present self”
Example #1: Mortgage for Home Purchase Builds equity over time
Example #2: Student Loan for Education Potential for higher future income
Need to view ALL debt from a ROI perspective
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It depends…
Convenience users pay no interest and fees and earn valuable rewards
“Revolvers” pay interest/fees on unpaid amounts
For revolvers, credit card debt is like a “tax” on future income to pay for current consumption
Interest adds to the cost of goods and services, especially when minimum payments are made
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Extend term of the loan (e.g., 72-month and 84-month car loans) Leads to being “upside down” for long time period
Mortgage ARM loans with low “teaser” rates
Interest-only loans
“No payment until November 2014” offers
Make only the minimum payment due on credit cards
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http://www.federalreserve.gov/creditcard/default.htm
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Card 1 Card 2 Card 3 APR Annual Fee Minimum Pmt. Penalties
Late Fees
Cash Advance
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Suggested Activity: Compare Credit Cards
Resource: http://rci.rutgers.edu/~boneill/assignments/creditcard.html
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Contact lender about loan repayment options
Visit Federal student Aid Web site to explore options: http://www.direct.ed.gov/student.html
Contact a non-profit credit counseling agency
Do a PowerPay debt reduction analysis
Embrace frugality
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Budget Counseling – should be a nominal cost Debt Management Program (DMP) Must incur no further debt and surrender credit
cards Administrative fee charged for cost of repaying bills Will only take on clients with ability to repay debt
Some states license credit counseling agencies
National Foundation for Consumer Credit
800-388-2227 or www.nfcc.org
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Print out repayment calendar for three repayment options (assumes no new future debt):
Highest interest rate first (in sequence)
Lowest balance first
Shortest payoff term first
Can add one-time or periodic additional payments (e.g., bonus, tax refund, etc.)
Time and interest savings will vary according to length of debt, number of creditors, APRs, etc.
www.powerpay.org
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Name of each creditor Balance owed Monthly payment (minimum or above) APR (interest rate)
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Personal Experience: Four bags @ $5 = $20 40 usable items @ 50 cents (jackets, shoes, suits, pants) 18 other items donated to Fire Department clothing box
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Borrowing obligates future income to support today’s spending
Lower monthly payments usually mean that
you pay more interest over the life of a loan
Your past debt payment history is your “financial reputation” and affects future credit opportunities
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www.truthaboutcredit.org
Information and balance payment calculator
www.creditalk.com
User-friendly credit card information
www.bog.frb.fed.us/pubs/shop
Semi-annual credit card survey results
www.consumer-action.org
Annual credit card survey results
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http://www.creditscorequiz.org/
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By Consumer Federation of America
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• Overview of the Financial Aid Process 1:48 • Myths About Financial Aid 2:57 • FAFSA Overview 2:09 • How to Fill Out the FAFSA 2:57 • After the FAFSA: What Happens Next 3:02 • Responsible Borrowing 2:20 • Repay your Loans 2:21 • How to Manage Your Student Loans 2:28
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Do both!
Example: 75% debt repayment and 25% saving
Opportunity cost of not saving and investing early is huge
For every decade that one delays saving, the cost of reaching a financial goal TRIPLES!
Compound interest is not retroactive!