College students in debt

Two out of three college grads go into debt. They owe more than $19,000 in student loans.  So students of higher learning are already learning the bad habits of debt. I know getting an education is considered an “investment”, so don’t get me wrong I think student loans are a “necessary” debt. But it does put a huge burden on the student once they graduate. They hope they can find a good paying job to pay off the loans. The reality is most don’t.

Here is a listing of state break down provide by the AP.

California: 56.4 percent of undergraduates taking out student loans, $17,266 average total loans, $15,259 average federal loans.
Connecticut: 62.4 percent, $17,990 average total loans, $17,143 federal loans.
Delaware: 56.1 percent $16,473 total, $12,946 federal.
Georgia: 65.4 percent, $20,767 total, $18,505 federal.
Illinois: 63.2 percent, $18,788 total, $16,594 federal.
Indiana: 61.1 percent. $19,112 total, $17,566 federal.
Minnesota: 76.3 percent, $20,312 total, $16,406 federal.
Nebraska: 71.8 percent, $16,200 total, $15,373 federal.
New York: 67.2 percent, $20,838 total, $17,603 federal.
Oregon: 76.5 percent, $17,772 total, $16,641 federal.
Tennessee: 70.9 percent, $19,949 total. $17,852 federal.
Texas: 64 per cent, $18,508 total, $16,624 federal.
All states: 65.6 percent, $19,202 total, $17,022 federal.

MasterCard goes IPO

MasterCard goes IPO

What does this mean for people who have MasterCard? MasterCard raised $2.39 billion dollars in its initial offering this week. That’s a lot of cash. To give you and idea of how big this IPO was, Google raised $1.7 Billon in its initial offering.

So what does this mean for the average guy who has a MasterCard in their wallet? Well I guess this depends on your credit record.

If you have good credit it probably means you will get more great offers.

If you have bad credit it means they are now a publicly traded company that’s all about the bottom line. Which means they will need to make sure they stem any loses they face from late payments and charge offs. So I think you will see an increase in late charge fees, more aggressive collection actions and increase in interest rates on those who have less than perfect credit. But this is just a guess on my part.

By JOE BEL BRUNO of AP The reports the funds will be used in the following way; “MasterCard is expected to use its new status as a public company to expand globally, and move into higher growth businesses within the payment industry.”

Only time will tell. So please do all you can to get your cards current and paid off.

Debt is not the problem

Debt is not the problem

I found this interesting article written by Robert Kiyosaki, the author of “Rich Dad Poor Dad” in which he says debt is no the problem, it’s what you do with it.

I agree almost 100%. Here is his example. “My banker is my best partner,” my rich dad used to say. “He loans me 90 percent of the money and I control 100 percent of the property, 100 percent of the profits, and 100 percent of the tax breaks. All I have to do is find great investments he wants to be a partner in.”
Very true.

He goes on to say, “Between 1995 and 2005, savers — people who saved money in bank accounts or in mutual funds — were the big losers. They lost because the stock market crashed. Between 1995 and 2005, many of the debtors who took advantage of low interest rates to invest in real estate made fortunes in the biggest real estate boom in the history of the world.

Understanding how to use debt to increase their fortunes is another reason the rich get richer. “
Again I agree.

However, most Americans are not like Mr. Kiyosaki. He uses debt to by assets that normally appreciate. Most Americans buy things that only depreciate.

He also sites a booming time in Real Estate. What happens when you are leveraged to the hilt in hopes the real estate market will go up but it takes a nose dive? Much like it did in the 80‘s, you will be in bankruptcy court faster than you know it.

Debt can be used to obtain wealth but in my mind the faster you can pay off the debt the better.

Credit Card Tricks

I found this interesting article on Yahoo Finance about the confusion of Credit Card Statements. They are written to help squeeze every last drop of money out of your pocket. They have a trigger clause in there that allows them to increase rates if your credit history is poor even if your card is current and you have never been late.

I also found out that even if your payment arrives on the due date it could still be marked as late and you will be assessed a late fee. How? Well if your payment gets there late enough in the day it will not be counted until the next day. Making the payment “late”.

Linda Stern points out a couple “tricks of the trade”;

“If your credit history profile changes at all, they can view that as a signal to raise your rates. Over-limit fees. If you have a $5,000 credit limit and you use your card to buy something that costs $5,010, don’t expect the charge to be denied. Instead expect your issuer to charge you a fee of $30 or more. Maybe you think that’s worth it for the convenience.
Due times, not just dates. Many, if not most, issuers now consider a bill late if it arrives on the due date after a certain time of day — typically before the mail is delivered. Then you can get busted for being late, a situation that can jack up your rate to levels over 20 percent and add another $30 or more in fees.”

These tactics are sad, but many credit card companies use them so fight back. Pay off your Credit Cards. Cash is their kryptonite!

IRS is cracking down on credit counseling services

The IRS is cracking down on some of the largest credit counseling services.
LAURIE KELLMAN from the AP reports the following:

“The Internal Revenue Service has canceled the tax-exempt status for some of the nation’s largest educational credit counseling services after audits revealed they exist mainly to prey on debt-ridden customers, Commissioner Mark Everson said Monday.”

For people in this industry or people who have used credit counseling this will come as no surprise. There are a lot of “sharks” in the water trying to take peoples money. Do a search online for Credit repair or debt consolidation and you will get many choices and many of those choices will be scams.

The IRS crack down validates much of what we have advised for sometime. Repairing your credit by getting out of debt is not easy and takes time, management, and personal responsibility.

The study took over 2 years and reviewed 41 companies. The other 740 companies will be reviewed for tax-exempt status. Nice to see the Federal Government standup for the little people.

Happy Mother’s Day!

Ok so you really want to make your Mother Happy? Why don’t you start attacking that debt and paying off your credit cards today? Show your Mom you are responsible and know the value of the dollar. Every dollar you pay off can at a later time be used to invest and earn interest. Your mother will be very happy to know you are building for your future. You should still get her the flowers. She is your Mother after all.

Plus you will get great satisfaction from earning interest rather than paying it.

Enjoy the day!

Bankruptcy filings soaring

For the first four months of 2006 the number of bankruptcy’s declined to a 20 year low. Maybe the new laws imposed at the start of the year really are working to stop the number of bankruptcies? Not so fast in the courts are now seeing 2000 new fillings a day. This is up four times the filling in November 2005.

Just making it

If you think your financial situation is touch check this out.

Tricia has 3 kids, 2 mortgages, 1 car payment … and a salary of about $31,000. While it’s not easy, she’s doing OK, thanks. Here are 15 lessons she learned the hard way.

You can find all 15 tips here, but here are a few of the highlights

Pay off debt weekly. Tricia has about $4,000 in credit-card debt on two cards. In addition to making the monthly minimum payment, she sends an additional payment each week. “Another good strategy is to add whatever interest you were charged that month to your minimums. Every little bit helps.”

Think different. “A big thing that’s changed over the last two years is the way I think of shopping and purchases. I used to be more impulsive. I’ve learned to ask myself: ‘Why do you need to buy that? Why does my kid need that?’ Give me a reason to spend the money. I’ve really learned the difference between necessities and luxuries.”

Never pay full price. “Clearance is my favorite word,” Tricia jokes. Her other trick for finding high-quality items at low prices: consignment shops. Now her daughter is a fan, too.

My Year Without Shopping

A year without spending, Judith Levin decided to live a very frugal life for a year and then recounts the details in her new book. I have not read the book so I have no idea if it’s worth buying, but I would say the premise is a good one when trying to cut your debt.

Cut out the things that are “luxury items” and take the money and apply it to paying down your debt.

Levin, states it was much harder than she thought. But she was able to cut her credit card debt in half. She allows learned controlling her impulse buys. These two lessons are fantastic to learn. For more on her book click here.

What makes up a credit score

What makes up a credit score?

Fair Isaac uses 22 pieces of data collected from the three major credit bureaus to produce a FICO score with the lowest possible score of 300 and 850 as the highest possible score. There are 5 categories used to determine your score.

• Payment history 35%
• Debt 30%
• Length of Credit history 15%
• New Credit 10%
• Types of Credit used 10%

The two largest factors in obtaining a good credit score is to make sure you pay on time and keep your debt load low. The sad reality is only 13% of all Americans have a FICO score above 800. This means many Americans are paying more money for the exact same items.

Car purchase example:

Very Good Score
Loan amount $35,000
Term: 48 months
Interest Rate: 3%
Payment: $775

Average score
Loan amount $35,000
Term: 48 months
Interest Rate: 9%
Payment: $871

That means the customer with an average score will pay $96 more a month for the exact same car. Over the life of the loan that extra $96 equals $4608 extra!

So what’s next?

Pay on time! Take action to reduce your debt. Don’t just pay the minimum on your credit cards. Get focused and realize the lower your FICO score the more you will pay for items bought with credit or loans. This is like being a second class citizen right here in the Untied States of America. It’s time to fight back.

• Pay on time!
• Take action to reduce your debt. Don’t just pay the minimum on your credit cards.
• Don’t close old accounts.
• Don’t open new lines of credit.

It takes time and discipline to increase or maintain a high credit score, but the cost of not doing so is dramatic. A higher FICO score is in reach. Begin with the four “next steps” listed above and over time your score should improve.