Chances are that back when you first began using credit cards, the credit card companies were never shy about offering you more cards and larger credit lines. They acted this way because they wanted you to live beyond your means and take on more debt than you could reasonably pay off on a monthly basis. These companies do not make money when customers charge low amounts and pay off their balances in full; they make money when customers carry high balances and pay hefty interest rates. Then, once these same consumers are maxed out and finding it difficult to make even the minimum payment, what do the credit card companies do? They raise their interest rates even higher!

Based on these business practices, it should be no surprise that the credit card companies actively sponsored recent legislation making it harder than ever to declare bankruptcy—even for those who need it most.

Legally, there are two types of bankruptcy available to individuals: Chapter 7 and Chapter 13. Most people think of bankruptcy in terms of Chapter 7, which means almost all current debts are canceled, and after they file, they owe nothing. They also get to keep all of their current belongings. The credit card companies are obviously against Chapter 7, because it means they will never see any more money from those customers.

The more common type of bankruptcy (and the one preferred by creditors) is Chapter 13. A person filing for Chapter 13 bankruptcy has their debts, income, and assets carefully looked over by a court representative. The court then decides how much, if any, of the debt they still have the ability to pay, and then sets up a strict payment plan (often, money is taken directly from paychecks). Any and all personal assets, from a car to furniture and clothing, can be ordered by the court representative to be sold to pay off your debts.

While the credit card companies would prefer bankruptcy did not exist, they greatly prefer it when people file for Chapter 13, because the companies have a chance at receiving even more money. New legislation passed in 2005 made it harder than ever to qualify for Chapter 7, which means even more consumers may be forced to sell their vehicle or their family home to satisfy debts—debts that in many cases were actually paid off years ago, with only the years of high interest payments left.

The Real Consequences of Bankruptcy

After filing for bankruptcy, you no longer have your old debts, but you also no longer have any of your old lines of credit. For someone who has been living beyond their financial means for a long time, this new situation can be a painful and difficult shock.

If you filed for Chapter 13, you will start with a five-year repayment plan, as ordered by the court. You will not have access to old credit lines, and have very limited (if any) access to new credit. Shockingly, your bankruptcy does not actually start to count down until the end of this five-year period.

Bankruptcy goes on your credit report, and remains there for up to ten years. (With Chapter 13, the ten years start after your five-year repayment ends, adding up to as many as 15 years in total.) Immediately after filing, your credit score will go down, and for at least the first year getting any new line of credit may be impossible. Over time, your credit score will slowly improve, and you may be eligible for some credit offers. Be wary of opening any new accounts, remembering your earlier debt problems. Remember, you can only declare bankruptcy once every seven years, so no matter what new circumstances come up (medical expenses, death, etc.), you are completely liable for any new debts for at least seven years forward.

Your first credit offers post-bankruptcy will likely be for small credit lines (a few hundred dollars), with high interest rates and usually an annual fee. To get back on track to good credit, open one of these cards only if you are ready for the responsibility. Pay on time, and don't exceed your limit. As time goes on, you will be offered cards with larger credit lines, lower rates, and less or no fees.

Posted by National Ass'n of Responsible Lending and Investme on July 23, 2006 at 9:26 AM | Leave a Comment (0)

A recent article in the New York Times highlighted what many students already knew - that not only was college getting more expensive, but the amount of federal aid available to students is not keeping up with rising education costs

A revision and update to the EFC, or Expected Family Contribution, formula for the 2005-2006 school year translates into an increase in what families have to pay before federal aid can kick in. In the New York Times study (June 6, 2005), the average amount of additional money that families must come up with is $1,749 per year, with some families experiencing increases between $6,000 - $7,000.

Why is the shift of the financial burden moving increasingly towards families? Part of the overall formula for determining federal financial aid is the rate of inflation - as inflation increases, the number of dollars that a family has would be expected to increase.

For example, a family with a household income of $50,000 in the year 2000 would be expected, based on a 3% inflation rate year over year, to have an income of $57,964. in 2005. By that assumption, the family would have more money to spend on education, and therefore federal aid could be reduced.

However, there is a flaw in the formula used to compute federal financial aid, and that flaw is this: the projected rate of inflation which the formula is based on does not necessarily reflect the actual rate of inflation. As a result, the formula assumes people make more money - in some cases, much more - than they actually do.

What is the solution for the increased gap between federal aid and the actual cost of education? Private student loans, such as the Act Education Loan from the Student Loan Network, can help to bridge the gap between federal aid, the actual cost of education, and expected family contribution. Loans such as the Act Education Loan are independent of federal financial aid computations, and are based on the creditworthiness of the borrower, rather than need-based formulas.

Source: ActEducationLoans.com

Posted by Steven Rothberg, CollegeRecruiter.com on July 21, 2006 at 2:12 PM | Leave a Comment (0)

Now that the July 1st mad dash has come and gone, the question now is "with interest rates higher, does it still pay to consolidate my student loans?"

For many people saddled with student loan debt, the answer is still a resounding yes.

> You may be able to cut your interest rate by 42%, because you may able to obtain rates as low as 5.375% including rate reduction borrower benefits.

> Interest on student loan repayment may be tax-deductible (check with your tax advisor or the IRS for details), which may lower your actual cost of borrowing.

> Student loan consolidation can improve your credit score. By consolidating several student loans into one, the credit bureaus see one loan debt instead of several. This can help improve your FICO score, so that you can potentially qualify for and/or earn lower interest rates on other credit products such as additional student loans, a car loan, mortgage or other personal loan products.

> Consolidation can offer peace of mind. Wouldn't it be nice to know that you've done all you can to manage your student loan debt so that you can get on with your post-education career?

Make it a priority now to explore your consolidation options with a reputable student loan company, to see if consolidating your student loans is a smart move for you.

consolidate@onesimpleloan.com

Posted by OneSimpleLoan on July 18, 2006 at 9:59 AM | Leave a Comment (0)

Most people don't know it, but a bad or shady debt reduction company can actually land you in a worse spot financially than you were in the beginning. In fact, in many cases filing bankruptcy is preferable to working with a credit counseling company. Given the amount of confusing information out there, it is critical that you arm yourself with the truth about these businesses.

WARNING: Credit Counseling Isn't Always What It Appears

When you first start out, you go over all your debts with a counselor. They contact each of your creditors to lower your interest rates, which lower your payments. Together, you develop a strict budget. They hold you to this budget by asking for one lump payment from you each month, which they then use to pay your bills on your behalf.

Unfortunately, this sunny scenario hides the real truth. Yes, for a fee, credit counselors will ask your credit card companies to lower your interest rates—but you can do that yourself. Yes, for a fee, they will help you develop a budget—but you can do that yourself. Yes, for a fee, they will take one large payment from you each month and use it to pay some of your bills—but you can do that yourself, too. In fact, you can do it better.

When you're in debt, the last thing you need is a credit counseling agency charging you high monthly fees for performing tasks that you can do yourself for free. Otherwise, any savings from lower interest rates is quickly lost in new fees for your credit counselor. Does that sound like good financial advice?

Driven By Client Successes, Or By Personal Profits?

Years ago, a small number of newly created credit counselors actually made a positive difference in the lives of their clients. Before the industry exploded, many credit card companies considered professional credit counselor to be a step in the right direction. Creditors were willing to lower interest rates and make other compromises to help customers in counseling to get back on track.

No longer. Sadly, today's credit counseling companies exist to create profits for their owners—not to help customers get out of debt. In fact, some debt reduction companies are not actually dedicated to helping consumers with debt management plans at all; rather, they serve as fronts for bankruptcy attorneys or home equity mortgage brokers.

Don't be misled into believing that a non-profit credit counselor is better than a for-profit one. In fact, recent federal investigations have revealed that many of these non-profit companies are actually owned by the same people who own their for-profit "competitors."

The credit counseling industry is unregulated, meaning there is no set of central standards that companies must follow. Once the shady credit services opened their doors, the credit card companies closed theirs. In fact, it is now harder than ever to get credit card interest rates lowered. Credit counselors, not credit card users, are to blame for this situation.

It All Adds Up… To Even Higher Bills

Specific debt consolidation companies have specific guidelines as to what their clients are and are not allowed to do. For example, some companies do not allow you to open any new credit accounts under any circumstances. If the family car finally breaks down, you may not be allowed to get a new vehicle. The average debt reduction plan lasts at least three years — that equals at least three years of your life, where total strangers restrict your every expense.

Whether or not you can take out a new car loan may be the least of your concerns after hiring a credit-counseling agency. Consider how important it is to pay your credit card bills on time. Multiple late payments hurt your credit score, which means even higher interest rates on a future mortgage or student loan. What guarantee do you have that your counselor is paying attention to your due dates? Many of these businesses have been exposed for repeatedly paying bills months late. Their innocent clients never knew until it was too late.

Then there is the matter of simple math. Shockingly, the monthly payment you make to your credit counseling company may not even be covering your total minimum payments. After the counselors subtract their own hefty fees, they then pay your bills at their discretion. Some cards could remain unpaid for months as most of your money is put on another card.

At best, this means a lower credit rating and multiple late fees; at worst, it means legal action against you and worse credit than you had originally. It would have been faster, easier, and much cheaper to file bankruptcy instead.

Dealing with debt can be stressful, but turning such an important aspect of our lives over to people we do not know is a big risk. It's great to get outside help, but not if it costs you hundreds or even thousands of dollars that would be better spent on paying off your current balances.

Source: National Association of Responsible Lending and Investment

Posted by Steven Rothberg, CollegeRecruiter.com on July 17, 2006 at 7:43 AM | Leave a Comment (0)

If you are struggling to afford just the minimum payments on your credit cards, you are not alone. A large percentage of the people you pass on the street each day as you go from class to class are suffering under the weight of the exact same stress. They are also concerned about upcoming (or past) due dates and an ever-increasing credit card debt balance.

You don't have to continue to lose sleep worrying about your debts, but you do need to take action—today. Little by little, one-step at a time; you can change your credit situation from an ongoing nightmare to a bad dream of the past.

Scrutinize Your Expenses

Hard as it may be to face, until your credit card debt is paid down to a manageable level, you will need to start living frugally. Start by keeping a daily expense log, detailing everything from your morning coffee before an early morning class to the monthly electric bill. Then go through this list, line-by-line, and determine which expenses can be eliminated and which can at least be decreased.

Look for New Money

Consider getting a job or if you have one take a second job like tutoring on weekends, or baby-sitting. Look around your home for clothes, furniture, or other items that you can sell, either in the classifieds or online at sites like Ebay. Return unnecessary recent purchases for credit back to your card.

Stop Using Your Cards

It is nearly impossible to significantly lower your debt if you keep adding onto it each month. At the very least, take all specialty and department store cards out of your wallet and store them in a safe place (or cut them up entirely). Before you charge anything to a card from now on, ask yourself if it's really necessary, and if there's any way to either not make that purchase or to delay it until you have enough funds to cover the cost.

Pay Off Your Highest Interest Rate Cards First

After you've pared down every possible expense, sold what you could, and sought out new sources of income, determine how much you have left at the end of the month in excess of all your minimum payments. Then apply all of the excess funds to the card with the highest interest rate, and continue to do that until that card is paid off. Start the process again with the second-highest rate card, and so on. This will pay off your debt the fastest.

Call and Ask

If you need to send a payment in late, call and let your credit card company know. Customers who communicate honestly receive better treatment. It never hurts to call and ask if your interest rate could be lowered; even half of a percentage point can make a big difference for someone living month-to-month.

Your credit card company may also have some sort of hardship program in place for customers who are temporarily unemployed or who are dealing with a serious illness. If you think you may have a hardship case, again, call and talk to someone. You may qualify for a lower interest rate or a few months of grace.

-- Source: National Association of Responsible Lending and Investment.

Posted by Steven Rothberg, CollegeRecruiter.com on July 9, 2006 at 6:21 PM | Leave a Comment (0)

One of the best ways to save for college is through a Section 529 college savings plan. Recent tax and regulatory changes are making these savings accounts an even better choice. The plans, named for a section of the U.S. tax code, are tax-favored programs set up by states to help families save for tuition, books, and other such expenses related to going to college. Savings in 529 plans grow tax-deferred, and withdrawals are tax-free when used for educational expenses.

Now, as reported by ABC News, the plans are getting even better as Maine and Kansas appear to be at the head of a trend by giving state income tax breaks to families which make a contribution to any 529 plan, even those sponsored by other states. If your family has not yet started a 529 plan, now is the time.

Posted by Steven Rothberg, CollegeRecruiter.com on July 6, 2006 at 3:12 PM | Leave a Comment (0)

Believe it or not, most colleges salivate at the prospect of a needy student with a 529 Savings Plan. It enables these “poor” institutions of higher learning to reduce financial aid dollar for dollar and enrich their billion dollar endowment funds.

529 Savings Plans are a financial hazard to the average family, and must be avoided at all costs. In the financial aid formulas, students have no asset protection allowance, and the following are considered student assets: cash, savings accounts, stocks, bonds, savings bonds, mutual funds, UGMA, UTMA accounts, a farm, a business, mortgages held and the net value of any real estate owned.

For college year 2007-2008, 20% of every dollar they have will be lost in financial aid. However, if the student is about to enter college and is unfortunate enough to have a hefty bank balance or brokerage account, it already cost them 25% or 35% in lost financial aid, depending on the college. Parents are more fortunate; they’re only assessed at 5.6% over their allowance which increases with age. Example: older parent age 48 in a 2 parent family = $45,000; a single parent age 45 = $19,700.

If a family will qualify for financial aid, and most do, then those with money in 529 Savings Plans face a far worse fate - all that money (often $100,000 or more) which could have been legally repositioned into financial vehicles that are not included in the financial aid formulas, will all be spent, often before graduation.

A number of states have made contributions state-tax deductible with North Carolina and Pennsylvania next in line. But here’s the rub. A 529 Savings Plan is considered a parent asset when calculating financial aid eligibility, and families will lose 5.6% of the value every year in financial aid. What’s worse is that colleges treat money in a 529 Plan as a resource, reducing financial aid dollar for dollar.

When confronted with the facts, financial aid officers nationwide have made comments such as: “Depending upon the value, there will be annual distributions to pay for tuition and fees.” “Our calculations may vary from year to year.” And this disturbing remark from a prestigious school in New England: “Financial aid is not the issue here, paying for the student’s education is.”

The sad truth is that literally tens of millions of dollars a year are unnecessarily wasted because families are not made aware of the consequences when setting up these accounts. Additionally, numerous brokerage firms have been sued and suspended for misrepresenting 529 Plans in general.

Posted by paylessforcollege.com on July 5, 2006 at 4:15 PM | Leave a Comment (0)

Pity the poor student who dedicated several years of blood, sweat and tears to the Red Cross, YMCA, Kiwanis, Rotary, or any other non-profit organization, only to see all their well deserved scholarship money evaporate into thin air and wind up in the bank account of their alma mater. That’s right! Virtually all organizations that award students private scholarships make a fatal error in having the check made payable to the student and the college. In that way the colleges consider it a resource to help pay for a student’s education.

By the end of the school year most awards banquets are held, and worthy students are honored with these various scholarships. Very often their name appears in the paper as a recipient for all their hard work and dedication. Since the organization is primarily giving this money to be used for a student’s education, they innocently ask the family where the student will be attending, and make out the check to both parties.

Most schools send out their financial aid offers between January and April, with a May 1st decision date. Now, enter the “poor” institutions of higher learning. What a kick in the teeth it is to find out when a revised award letter arrives, that the school’s aid has now been reduced dollar for dollar, based on the amount scholarship received! It’s usually listed as “private scholarship,” “outside aid,” or very often, “other.”

But these greedy schools already laid the groundwork for this theft months earlier. Those students who applied to any of the 225 elite private and state colleges that require the CSS Financial Aid Profile financial aid form may have already indicated they would be scholarship recipients. Section F, Question 26i asks for the dollar amount expected from student resources for the school year such as “grants, scholarships, fellowships, etc,” and they must be listed individually in Section P.

The majority of schools that only require the FAFSA (Free Application For Federal Student Aid) simply send out a questionnaire asking about private scholarships. They’re less devious, but just as deft.

Who in their wildest dreams would have ever thought that colleges would stoop so low and play such a dirty trick? Truth be told; it’s all about the money, and have no doubt about it. Every year there are billions awarded in private scholarships, and who benefits; none other than these “poor” institutions of higher learning enriching their billion dollar endowment funds at the cost of their deserving students.

The best way for a family to avoid this catastrophe is to personally discuss this sordid state of affairs with the scholarship committee either at the time of application or well in advance of their announcing the awards. In that way, the check can be made payable to the parents instead of the student! If that fails, then ask the organization to defer sending the student the check until after they go off to college.

Posted by paylessforcollege.com on July 5, 2006 at 2:31 PM | Leave a Comment (0)

Contrary to popular belief, much of that anticipated debt can be legally eliminated, and before it’s too late. While so many families stress out over the prospect of how much they and their student(s) will incur during the college years, there are a number of strategies, all legal, to make any college affordable.

Sadly, most families are not aware of the fact that in the financial aid formulas, students have no asset protection allowance. The following are considered student assets: cash, savings accounts, stocks, bonds, savings bonds, mutual funds, UGMA, UTMA accounts, a farm, a business, mortgages held and the net value of any real estate owned. For college year 2007-2008, 20% of every dollar a student has will be lost in financial aid. However, if the student is about to enter college and is unfortunate enough to have a hefty bank balance or brokerage account, it already cost them 25% or 35% in lost financial aid, depending on the college!

Parent assets are subject to a different formula, and it also depends on which school the student is applying to. For financial aid purposes, there are 2 categories of schools: Category 1 includes a few state colleges plus approximately 220 private schools. In addition to the FAFSA, they also require the CSS Financial Aid Profile. If you thought the FAFSA was difficult, this form is a nightmare, and pity the poor family that’s divorced, separated, owns a business or a farm! These colleges take into account all of the above plus Education IRA’s, and 529 Savings Plans. Category 2 schools (all the rest) only require the FAFSA and exclude the value of the primary residence and a farm, if the family lives on it.

When is comes to financial aid assessments, parents are more fortunate; they’re only assessed at 5.6% over their allowance, which increases with age. The asset protection allowance for a 2 parent family, older parent 48 = $45,000; a single parent age 45 = $19,700.

All that may appear depressing, but here’s the good news: with proper planning students and/or parents can legally become penniless in the blink of an eye, and all their money can be repositioned into financial vehicles that are not included in the financial aid formulas. The result can often get these families, with students about to enter college, more financial aid for the 2nd semester, but if that tactic fails, then surely for the sophomore and ensuing years. What a relief to know that!

Numerous strategies exist which have literally saved families millions of dollars over the years, and they include: the ambiguous non-custodial parent strategy, which has reduced the cost of college in some cases by as much as 90%; the winter clothing allowance for students from the South attending college in the frigid North netted one student an additional $2,600; the “no work” work-study award has been worth as much as $8,000 by graduation, and for virtually any student, even those with no financial need, appealing an unappealing financial aid offer and negotiating for the best possible financial aid package has produced incredible results. It‘s just like buying a new car - you don’t have to pay the sticker price. One other strategy few families are aware of is Professional Judgment. This comes into play when there has been a significant change in family income, assets, marital status or health.

Posted by paylessforcollege.com on July 5, 2006 at 12:06 PM | Leave a Comment (0)