Dealing with Debt

The Ultimate Post-College Starter Kit

Gradspot.com — Thu, 17 Dec 2009 15:55:10 -0500

Class of 2009, your moment is now! For those still on campus, have fun and be sure to carry around some Claritin so you can say you have allergies when people accuse you of crying. Then, once you've had a second to catch your breath, decide which of the following groups you fall into and check out all the helpful resources we've compiled to help you transition seamlessly to life after college.

Congratulations!

The Dollar Is Strong, Give Me an Around-the-World Ticket and Some SPF-50!

Hitting the road or taking to the skies is a textbook post-graduation move. If you've got the money (you don't need much) and the time, why not? Unwind, see somewhere new, and have fun.

Recession? Not My Problem. I Need a Job NOW!

Right now, finding gainful employment is all about being persistence and looking for opportunities instead of "dream jobs." Use these tips and tricks, and don't rule out the possibility of starting out with an internship.

Get Me to Graduate School, I Need More Learning.

With the job market tightening up, the grad school rush is on. Do you really need another degree? And if so, is now the time to get it? Think through your options with these guides.

Grad School Options
Funding Graduate School
Studying for the GMAT, LSAT, and GRE
Getting into law school and business school.

Chill Son, I Just Want to Hang Out.

You need some time to decompress and take stock. That's understandable—just make sure you give yourself a time limit. Next thing you know you're 32 and still asking mom if you can sleepover at your friend's new 6-bedroom house!

And If You Need to Know Everything...

...then See All of Our Survival Guides >

Also, consider grabbing a copy of our book, Gradspot.com's Guide to Life After College! (We couldn't help but add this plug.)

Book Review: "I Will Teach You To Be Rich"

Stuart — Thu, 17 Sep 2009 11:42:58 -0400

The name is a lot to get past. For me, it conjures images of people in Hawaiian t-shirts, converging on Vegas en masse, to attend a "how to get rich" seminar which actually is nothing more than a giant pyramid scheme. Surprisingly though, I couldn't recommend this book more to recent grads (after I got past the tone).

First off, the name is a bit of a misnomer. The author, Ramit Sethi, isn't teaching you how to earn a lot of money in this book. It's not an overnight solution. Other than the lotto, I'm not sure that there is. Instead, the goal he sets out to accomplish is to teach you how to effectively manage your money and how to maximize it over the years to come. These, in our opinion, the most important finance concepts for recent grads.

The book is split into a six week plan to help twentysomethings get their finances on track. It begins with a very helpful discussion on credit, how to build it, and how to maintain it. It next focuses on picking the right credit card(s) and bank account(s), and then moves towards paying off debt and effectively managing money for the short term (i.e., making sure there's enough to pay rent but also enjoy life) and long term (i.e., making sure that when it's time to retire, there won't be a lifestyle hit). Through this, he discusses financial options like secured credit cards, online savings accounts, lifecycle funds, how to setup an automatic financial management system, and more. And it ends with a chapter about some of the decisions and opportunities (sometimes directly related to finance, or just surrounding it) that you'll encounter such as purchasing a car, asking your boss for a raise, living with a girlfriend/boyfriend/spouse, and more.

The book is limited only in it's timeliness. It seems that it was written prior to the heart of the recession and was able to make some, but not all, recession-focused edits just prior to publication. For example, as a result of the credit crisis, some of the facts regarding banking savings accounts (i.e., interest rates) aren't as accurate anymore and thus some arguments aren't as strong. That being said, finance will always be a moving target and no book will ever reflect the exact environment that you read it in, but the principles in this book are today and certainly will still be applicable tomorrow, next month, and in the years to come.

I could also see another small gripe being that a lot of this information is also available for free on the web, whether that's on Gradspot (we cover most of these topics in our Money section) or even Sethi's own blog. However, sometimes it's just easier to not have to dig around for everything and instead find it all in one digestible book.

Now, if you know your credit score and are continually building it, have money stashed away in an online savings account, setup a 401(k) through your employer and an Roth IRA through your investment account (and are depositing money in each regularly), understand dollar cost averaging, and know the difference between a stock, bond, mutual fund, index fund, and lifecycle fund, then this book will probably be too rudimentary for you. But if you don't, it may be one of the more important books you'll read for some time to come.

Consider purchasing I Will Teach You To Be Rich >

Debit Cards and Overdraft Protection

keshav.singh@gradspot.com — Tue, 15 Sep 2009 00:26:34 -0400

After missing monthly payments on credit cards too many times, or charging more than you could afford and racking up credit card debt, a logical decision would be to scrap the Amex and pick up a debit card. Since with debit cards you theoretically can only spend as much as you have in your bank account and there aren't monthly balances (since the money is in theory deducted right when you spend it), this strategy should avoid overspending and missed due dates, right? Not necessarily. Enter overdraft fees, the topic of this week's New York Times article: Overspending on Debit Cards Is a Boon for Banks >

Have You Thought About Your Student Debt Today?

sarah.collins@gradspot.com — Thu, 02 Jul 2009 09:11:18 -0400

I don't mean to bring the mood down, but for the Class of 2009 it's about that time of year when the excitement of graduation is finally beginning to wear off and maybe, just maybe, a few less-than-exciting realities are beginning to set in. Or maybe not. At any rate, we hope you're taking the opportunity to have fun. This is just a friendly PSA to remind you to assess your student debt sooner rather than later.

One of the few nice things about your loans is that it probably has a built-in grace period (usually six months). Make sure you utilize this time wisely to make the best decision about how to tackle your debt. Here are some survival guides you can use to figure out the best strategy:

Note: Income-Based Repayment began on July 1 and is definitely worth checking out if you're looking for a student debt bailout.

If you have any other questions, hit us up @gradspotguru and we'll do our best to help you out.

Want Your Debt Forgiven? Follow Your Dreams

Christopher Schonberger — Fri, 24 Apr 2009 12:27:27 -0400

It's one of the most common sources of consternation for recent grads starting their working lives: they know what jobs they want, but the burden of $20k+ creates pressure to shoot for a higher paying opportunity they're less passionate about. Hence, the tragic case of the aspiring inner city teacher who has to become an investment banker to make ends meet. (Ok, so maybe this case is not as common as people would make it seem, but you get the point.)

But new student debt forgiveness rules—Income-Based Repayment (IBR) and Public Service Loan Forgiveness (PSLF)—are designed to rectify this situation and encourage careers in public service. Moreover, the new standards may even help people who draw a low income but don't work in the public sector. As CNN Money explains:

Under certain circumstances, the federal government will reduce payments, and ultimately forgive all or part of an educational loan for those who choose a career in the military, volunteering, teaching or practicing law or medicine in low-income communities. And some may even be able to reduce their payments, based solely on their income and family size.

If you think you might be eligible for Income-Based Repayment (IBR), be sure to check out Ibrinfo.org, a great independent resource about federal student loan payment and forgiveness. The program begins July 1, 2009, and it helps borrowers keep their federal student payments under control with monthly payment caps based on income and family size. It's important to note that this is different from the Income Contingent Consolidation. This form of consolidation basically allows you to defer the bulk of your payments until you start making more money down the line, whereas the new Income-Based Repayment scheme actually includes forgiveness of a portion of your debt.

As always, the rules for who applies are somewhat convoluted, but a good rule of thumb is that if you make less than you owe each month, you definitely apply. Otherwise, use the IBR calculator to determine your eligibility.

The second program is Public Service Loan Forgiveness, which began in July 2008. IBRinfo.org explains that "if you're a teacher or work in government or at a nonprofit (501(c)(3)) organization, you might qualify for a new type of public service loan forgiveness after 10 years of eligible payments and employment." This extends the reach of prior forgiveness programs.

Needless to say, both of these programs come with all sort of fine print, so be sure to do your research. To apply for either the PSLF or IBR, call the US Department of Education at 1-800-557-7392.

With the private sector getting hit hardest by the current economic crisis, student debt forgiveness may just be another perk to a rewarding career in public service.

Debt + Job Options: Recipe for a Crisis

Gradspot.com — Thu, 19 Mar 2009 11:31:14 -0400

So, yesterday during our all-day @gradspotguru Q&A extravaganza on Twitter, we heard a familiar story that, unfortunately, doesn't get any easier to deal with in a crappy economy. To paraphrase: I am a temp with a bunch of debt, but just got a full-time offer. Problem is, it pays way less. Teaching pays almost double. What should I do?

Having debt hanging over your head when you're just starting your career is a tough pill to swallow, but there are ways to make it manageable so it doesn't become be the deciding factor in all your major decisions. If you're trying to weigh the pros and cons of paying off your loans versus taking the job you want (and potentially taking a pay cut), here are some things to consider:

Dealing with Debt

Those loans can't be ignored, but they don't have to dominate your life. Unfortunately, a lot of recent grads aren't aware of the options available to them when it comes to paying off debt—most notably, student debt consolidation. Not only does consolidating allow you to streamline various loans from different lenders into one loan with one fixed interest rate, but it also allows you to spread out the payments over time to make them more manageable. The downside, of course, is the longer you're paying off your loans, the more you'll end up paying in interest over time. But the fact is, consolidation is a useful way to make your payments more manageable today, when you're still getting your feet underneath you and looking for the right job. To learn more, check out our Student Debt Overview.

The Temp Life

As we mentioned recently, temping is not something any recent grads aspire to in the long run. That said, it can be a great way to get your foot in the door at a company or to make some money while you're searching for a full-time opportunity. One factor that can make temping a lot more palatable is if the temping agency provides benefits. Having someone pay for your health insurance (and, yes, we do suggest you get insurance even if you're unemployed) can be a big factor in your bottom line each month. Most notably, that money you would be spending on your healthcare premium could go toward paying off debt. Also, remember that while you're temping, you can make extra money in other ways as well.

Taking a Pay Cut

No one wants to make less money. But as a recent grad, more often than not playing the field and gaining new skills and experiences is the best way to find the career that's ultimately going to fulfill you. And that might require forgoing some financial gain in the short run. On his blog, Netscape co-founder Marc Andreessen offers the following Fight Club-esque philosophy on careers:

The first rule of career planning: Do not plan your career.

We agree. Instead of trying to map out a 40-year plan, he argues that recent grads should spend time developing skills and pursuing opportunities. You are almost certainly not going to spend your entire career with the company you work for right out of college (especially a temp agency!), so don’t let it be the reason that you pass on a riskier (but potentially better) opportunity. Furthermore, without kids or a mortgage, you have a lot of freedom to take an “income risk” (a pay cut) and/or “geography risk” (moving to a new city).

Of course, it's tough to take these risks in a climate where everyone's freaking out about finances. But if you're only working to pay the bills, you're going to burn out pretty quickly, and you may lose out on some great opportunities that will help you find the position that you really want down the line.

Let Your Friends Pay Your Rent

Stuart — Wed, 17 Dec 2008 10:32:47 -0500

A friend of mine just lost his job and is very concerned about making his December rent payment. So what can he do to raise some cash? Throw a houseparty! (We can easily figure out where this road can take us from watching any of the college moves we've come to love.) Surprisingly enough, there's actually a history behind this concept, AND an official name: "Rent Party."

In Harlem in the 1920s, tenants who didn't have enough money to cover their monthly rent would hire musicians, invite friends, and then pass around a hat and ask for donations. And it worked. In fact, these rent parties are considered by some to be a driving force in the birth of Jazz.

I have no idea how this hair-brained scheme could work in 2008, but I guess it's worth a shot. If nothing else, maybe the art form of tomorrow will emerge in the apartments of today's unemployed grads. Or maybe everyone can just play Guitar Hero.

Who said the recession was a bad thing? Party on.

Can You Fix Bad Credit?

keshav.singh@gradspot.com — Thu, 11 Dec 2008 11:15:19 -0500

There are few things as annoying as suffering the consequences for doing something you didn’t know was wrong, or something you sort of did know was wrong but happened during reckless, irresponsible phase that totally has nothing to do with the person you are now. But that, as devil’s advocates like to tell us, is life. And it’s particularly relevant when it comes to credit. We know that building and maintaining credit is crucial for your financial health down the line, but what if you’re unhappy with your credit as it stands now—can you do anything to fix it? Well, that depends. Here’s an easy 5-step process for improving your credit.

Step 1: Get your credit report. Everyone is entitled to one free credit report a year. Go to AnnualCreditReport.com and order one from Equifax, Experian, or TransUnion.
Step 2: Categorize the negative items. These will fall into two categories: things that are legitimately negative and mistakes. It’s reported that 80% of credit histories have at least one error, and customers find 13 million inaccuracies each year.
Step 3: Deal with the mistakes. You hear all sorts of absurd stories about people who have a whole credit card on their report that they never even owned, or late payments on balances of $0. In cases of glaring errors, you just need to dispute the claim with the credit reporting agency and be sure to follow up—it’s a hassle but you shouldn’t run into too much trouble. Scroll down on this page for a sample dispute letter.
Step 4: Try overturning legitimately bad items. Ok, so it’s no mistake—you really did miss that one payment on your AmEx for 30 days. It never hurts to ask for a little forgiveness. In some circumstances, a creditor maybe be willing to waive or remove a negative item if you’ve been an otherwise excellent customer. (There are many “credit repair” companies out there, but as Consumerist points out, they are not miracle workers. They will basically just file the necessary paperwork and lodge complaints for you. You can do everything they do yourself, and that way you won’t have to waste any money or risk getting scammed.)
Step 5: Forget about FICO (well, not completely). Not pleased with your FICO score? There are alternative credit scores out there, including an interesting one called PRBC that helps you build credit through paying rent on time and doing other responsible things that aren’t included in traditional credit scores. As Consumerist notes, “These alternative scores won't be able to magically turn a 400 into an 800 (what do you think they are, investment bankers?), but they can give a more accurate picture of a borrower who has very little information reported about them to the bureaus.”

If you do have a few bad items on your credit report, don't get too freaked out about it. You're young and you have a lot of time to build up your credit. You can't get rid of these things overnight, but they don't stick with you forever.

Q&A with Marc Scheer

Gradspot.com — Tue, 28 Oct 2008 10:14:03 -0400

Did you know that students expect to earn 44 percent more than they actually do when they graduate? And that at most college, each class breaks down to $100 per hour? (No use feeling guilty about sleeping through most of them now!)

In No Sucker Left Behind: Avoiding the Great College Rip-Off, Marc Scheer offers an illuminating investigation of the exorbitant fees charged by universities, forcing us to question the assumption that every college experience is worthwhile. We caught up with Marc to chat about dealing with student debt, going to grad school, and becoming "financially literate."

Clearly, the main thesis of this book is that universities are run just like just other for-profit businesses and students may not always be getting the best bang for their buck. So what can you about it if you've already left school? What is the one piece of advice you'd impart to recent graduates?

If you've already left school, your options are somewhat limited. Now you have to figure out how to re-pay your debt. I advise people to become familiar with all of their options, including "loan forgiveness," "loan consolidation," "extended repayment," "graduated repayment," "deferment," "forbearance," and "refinancing." People who struggle with their debt should also not hesitate to reach out for help to resources like: their schools, their lenders and credit card companies, the Federal Student Aid Ombudsman, a lawyer or legal counselor, an accountant, the National Association for Credit Counseling, and the Association of Independent Consumer Credit Counseling. One specific option is to see if your loans can be consolidated into a "Direct Loan" managed by the US government; direct loans tend to have the best terms. New grads also need to manage their debt properly, and not depend on credit cards because these cards are expensive and companies may soon reduce credit limits. Grads also need to get in the habit of paying their debt bills on time, otherwise their credit scores can be harmed, and it can become more difficult for them to obtain financial assistance in the future.

Student debt is the unfriendly reminder of those exorbitant tuition fees from college. How has the consolidation market changed in light of the credit crunch and what major traps should recent grads look out for?

Private lenders are leaving the student loan market in droves. This is making it more difficult to get private student loans, and more difficult to get private consolidation loans. The good news is that the US government is offering consolidation loans within their Direct Loan program. But many student loan lenders are blocking their borrowers from converting their loans into a government consolidation! So the whole situation is a mess, and grads need to explore all of their options.

You talk about the "scam" of debt and credit counselors. Can you explain that?

Everywhere you go these days, you see ads for "credit counseling companies." These are organizations that say they can help you lower your debt or work out affordable payment plans with your lenders. Some of these groups can be very helpful. However, a large number of them are scams. In fact, the government recently identified some groups that swindled Americans out of $100 million. The problem is that the bad ones charge high fees and deliver no benefits. Before working with an organization like that, you need to do your homework. Check with the Better Business Bureau. Watch out for groups that charge more than $25–$50 in monthly fees. If a credit organization sounds too good to be true, it probably is. Instead, you can find trustworthy help from the National Foundation for Credit Counseling and the Association of Independent Consumer Credit Counseling Agencies.

There is a chapter in the book called "Greedy Grad Schools" that deals with more money-making schemes universities try to hit us with if we decide to go back to school. What are some pitfalls to keep an eye out for, and how do you identify "less risky" programs?

College degrees are risky because the short-term costs often outweigh the short-term benefits, and graduate schools raise the stakes even higher. Graduate school usually requires even higher costs, higher debt, and more years of sacrificed income while in school. Some programs offer particularly risky combinations of high debt and relatively low salaries, including lesser-tier law schools, Psy.D. programs, primary care medical specialties, and, these days, MBAs (especially in finance). Many Ph.D. grads are also finding that full-time academic positions are nowhere to be found.

There are some things that students can do to identify less risky programs. First and foremost is to verify what their starting salaries will actually be when they graduate, and that their student loan payments will require less than 15% of their monthly salaries to pay (even better if this debt takes up less than 10% of salaries). In addition, students can: ask schools where their recent grads are now employed; ask to talk directly to recent grads; ask employers about the quality of the programs and if they would hire someone from them; verify graduation rates and actual number of years until graduation at each program; and talk with people in the career field right now to see if they think the program offers good value. Every graduate program should be required to provide this information to students, but right now students need to do their own homework.

What is the biggest "myth" about graduate school?

Probably that it will always lead to a great payoff. If you believe that, then you should talk with some unemployed lawyers, Ph.D. grads, and MBA grads, and some highly indebted Psy.D. grads and primary care physicians. Higher education can offer great financial advantages, but the costs and debt also present some great risks. Students need to be cautious and pick programs that will have low costs and/or high salary potential. No payoff is guaranteed, so don't take anything for granted.

Any other advice for recent grads trying to invest their money wisely?

We're living in a time of tremendous financial illiteracy. And the downside of this is that our country has been thrown into economic turmoil. I encourage grads to do everything they can to learn about money. Read books; my favorite field is the area of behavioral economics, which combines economics with psychology and illuminates all of the basic irrational financial mistakes that people tend to make. Read newspapers and magazines. Seek out non-traditional information sources outside the mainstream. These days, I've found that blogs offer some of the best information around. I've been reading one fantastic blog, HousingPANIC.blogspot.com, for the past two or three years and it completely predicted our current meltdown way before any mainstream source. CalculatedRisk.blogspot.com is another good one about the economy. I'd also recommend that people try to live below their means, resist the urge to keep up with the Jonses, start thinking entrepreneurially, keep learning skills that employers and clients will find valuable, invest for the long term, and remember that get-rich-quick opportunities are extremely rare (if not non-existent). Good luck out there!

Check out Marc's blog here.

The Debt Chronicles

Gritz — Wed, 08 Oct 2008 17:32:03 -0400

The dog days of debt have consumed the nation, and as members of so-called “Generation Debt,” perhaps it’s time to face the facts and peer into the abyss of our bank accounts. Check out these articles from Consumerist to get the ball rolling on a new era of financial self-awareness:

12 Signs You’re Addicted to Debt. Do feel like when you use a credit card at lunch, you’re not actually paying? You may be a debt addict.

Reader Pays Off $14,330 in 20 Months. An inspirational tale for anyone living with suffocating debt and trying to figure out how to reset the balance. Some great tips in here, including a sample script for calling the credit card company to negotiate lower rates.

Confessions of a Shopaholic. I’m pretty excited for this movie to be 2008’s DWP, but I have to admit it glorifies horrible spending habits. Funnily enough, the Consumerist reader who settled her $14,330 actually used the technique of freezing her credit card in a block of ice…but she refrained from hacking it out. Take it as a caveat, or a much-needed hit of escapism.

Via Consumerist