Chance Gates' Blog

By Claudia Buck

RISMEDIA, July 7, 2010–(MCT)–Like carrying unwanted pounds, many college graduates pack on a hefty load of student loan debt during their four years.

And in a tough job market with no guarantees of steady income after college, it can be daunting for graduates to shed those extra dollars.

The median amount of cumulative loan debt among U.S. college undergraduates was nearly $20,000 in 2007-08, according to the most recent College Board data.

At the University of California-Davis, the number of students graduating with student loans is “trending up” each year, said Katy Maloney, interim director of financial aid.

Of 5,700 graduates in 2008-09, more than half — 52 percent — had student loans, both government and private. The average UCD student loan amount at graduation was $19,403, Maloney said, “and I know it will be higher next year.”

Not everyone owes, of course. Nationally, about 34 percent of 2007-08 bachelor’s degree graduates had no student loan debt, according to “Who Borrows Most?,” a national survey released in April by the nonprofit College Board.

And there are borrowing extremes, as well. Among the 2,985 UC-Davis undergraduates with student loans in June 2009, seven had racked up loan amounts of more than $100,000 each. (Most were out-of-state students who pay higher fees.)

“How much debt is too much is completely relative to the student,” noted Patricia Steele, an education consultant who co-authored the College Board study. “If you have no job, $2,000 of debt is too much. And for some students, $40,000 is not too much if they have family assistance or are gainfully employed in high-paying professions.”

Before graduation, most college students have a sit-down exit interview with their financial aid office to discuss repayment terms and options.

Generally, if you have a federal loan (not a private loan through a bank or other lender), you have a six-month grace period before you’re obligated to start payments. The repayment period can be anywhere from 10 to 30 years, depending on income, debt amount and other circumstances.

You should also check in with the National Student Loan Data System (www.nslds.ed.gov), which lists details on your federal loans. If you’ve accumulated multiple loans over many semesters, it’s a good place to get a handle on exactly what you owe and to whom.

“It should be your first financial pit stop” after graduation, said Reyna Gobel, a financial writer and author of “Graduation Debt: How to Manage Student Loans and Live Your Life.”

“While the economy is tough,” she noted, “graduates can take a deep breath because there are more repayment options than ever before.”

Standard repayment plans for student loans are 10 years. You should also consider a consolidation loan, which lets you combine multiple loans into one. For details, go to: www.studentaid.ed.gov.

Create an online chart or a file folder of all your loans. Keep track of all correspondence and phone calls with your loan providers. Take notes whenever you talk to lenders about payments or terms. If you change your address, phone or e-mail, don’t forget to inform your lender.

To find a monthly amount that suits your budget, try a repayment calculator, such as the one at www.collegeboard.com. For instance, if you’ve got a $10,000 subsidized federal student loan and have a job making $30,000 a year, the CollegeBoard calculator estimates you can pay $109 a month, assuming a 10-year repayment period of 120 monthly installments, with an annual interest rate of 5.6 percent. That’s about 4 percent of a $2,500 monthly paycheck.

Typically, it’s recommended that you pay no more than 10 percent to 15 percent of monthly income toward student loans.

And if you can pay a little extra each month or pay down the interest while waiting for your six-month repayment plan to start, so much the better.

“Don’t kill your budget to do it. It doesn’t have to be $100 or $200 a month … even $5 extra per month could save months off your total repayment time,” said Gobel, whose book charts how even small amounts — say $20 a month — can reduce the overall repayment time on a 25-year, $50,000 consolidated loan at 4 percent by almost three years.

Also, for many graduates, depending on income, interest on student loans is tax-deductible.

If you’re having trouble making payments, contact your lender immediately. Ask about changing your payment due date or repayment options, such as deferment or forbearance.

A temporary deferment can be granted, for instance, if you’re in graduate school, in a medical/dental residency or serving in the military. Certain economic hardships also qualify.

Forbearance lets you suspend payments up to one year, primarily for economic reasons, such as job loss or medical problems.

But keep in mind: Postponing payments will add to your overall debt. Under forbearance, for instance, your accumulated interest is added to your existing loan balance. Don’t use these options unless you really need them, say financial advisers.

The worst thing you can do with student loan payments is ignore them.

If you miss a payment — even one — you could get hit with late-payment penalties. And if you skip paying for extended periods, you could fall into default, which could damage your credit history and make it more difficult to get a credit card, finance a car or buy a house. A Stafford loan, for instance, goes into default if you don’t make payments for nine months.

Gobel, who racked up $63,000 in student loan debt years ago earning a bachelor’s and two master’s degrees, learned the hard way. She had a mix of 16 different loans after finishing college. But several years ago when consolidating them for a lower interest rate, she overlooked one and it went into default.

She’s now on track to get her interest rate cut in half — from 4 percent to 2 percent — after 36 months of on-time payments. That alone will shave about eight years off her overall 30-year repayment period, saving “thousands,” the Dallas-based author estimates.

Her hard-earned wisdom: “Don’t punish yourself. Learn how to manage your student loan debt. Think of it as one more thing, like an electric bill.”

STUDENT LOAN CHANGES
A number of changes to federal student loans went into effect July 1 for new and current borrowers. Among them:

—All federal loans are now direct from the U.S. Department of Education, rather than through federally subsidized lenders. (Private loans from banks and other lenders are still available.)

—Income Based Repayment (IBR) plans that launched last summer have been adjusted so that married couples with student loans will no longer pay higher rates than two single student borrowers. IBR is designed for those whose income is higher. Adjustments also have been made to accommodate those whose loan debt has increased since leaving school, often due to deferred payments.

—Interest rates on new subsidized Stafford undergraduate loans will drop from 5.6 percent to 4.5 percent. Existing Stafford loans with variable interest rates will also get a small rate drop.

—Pell grants, which are needs-based, have gone up $200, to $5,500, potentially reducing the need to borrow.

Source: Institute for College Access & Success

As a Reno/Sparks real estate professional, I encourage all questions and comments on the Reno/Sparks real estate market or any of the articles posted in this blog.  You can email me @  chance at ballard-company.com or http://www.myspace.com/chancegates

By Dan Serra

RISMEDIA, June 28, 2010–(MCT)–While most financial-savvy consumers do their best to avoid debt, one debt that is unavoidable to many families is a mortgage. Because many of us feel more in control of our home and expenses without a mortgage, a common question is whether to pay it off as quickly as possible.

The answer depends on each person’s financial situation. A mortgage can actually be a blessing to some.

For example, mortgage interest is tax-deductible. This deduction saves taxpayers about $103 billion a year, according to the U.S. Treasury. The benefit is less to owners of low- to moderate-valued homes who may not have much interest or enough to claim it by itemizing deductions. But for families with a higher net worth, it allows a tax savings and may encourage them to buy larger homes.

With tax brackets for the wealthy rising next year, this tax break becomes more valuable. When the break is included, a 6 percent mortgage could have a rate closer to 4 percent in reality. Calculate your mortgage’s effective rate by subtracting your tax rate from 100 and multiplying that number by the interest rate. For example, a 28 percent tax bracket with a 6 percent mortgage would result in (.06 x 72) to equal the equivalent of a 4.32 percent mortgage rate after considering tax savings if itemized. That helps the interest look less daunting.

In addition, with the possibility of investing with a goal of a 5 or 6 percent return, instead of putting that money into a mortgage the homeowner could get a return higher than the effective rate, which could help grow net worth. On the other hand, if the effective rate is higher, it may make sense to pay down the mortgage.

Another situation that makes paying off a mortgage attractive is for someone at risk of bankruptcy. Many states offer protection from creditors seizing a home to pay debts. If a home is paid in full, it is more likely the owner could stay in it if he goes broke, providing he can pay for the upkeep.

Money taken out for a mortgage also could reduce net worth later in life. The potential for higher investment returns are gone; that money will not be able to grow if investments grow over the long term. Not to mention having too much invested in a house. That could be detrimental at retirement. While we can get a loan for a house, there are no loans to finance retirement.

As a Reno/Sparks real estate professional, I encourage all questions and comments on the Reno/Sparks real estate market or any of the articles posted in this blog.  You can email me @  chance at ballard-company.com or http://www.myspace.com/chancegates

RISMEDIA, May 17, 2010–(MCT)–If you’re in debt as we head into summer, it’s time to start thinking about snowflakes.

The idea of “snowflaking” is to make small debt payments, often on a credit card balance, more than once a month.

These snowflakes become part of your debt snowball, a technique by which you pay the minimum monthly payments on all debts except one that you focus on. As you pay off that debt, apply all the money you were paying on it to your next debt, which pays off that one faster, and so on. It creates a snowball effect, as if a snowball was gaining speed and rolling downhill.

The benefit of using snowflakes and a snowball is becoming debt-free quicker and paying far less interest. You’ll even be motivated and help your credit score. This is one time when “throwing money at the problem” works.

Here’s how to use snowflakes, also called micropayments, and why those in debt should consider it:

—Call your card company: Most allow you to make many payments in a month for free. Call the phone number on the back of the card and ask about your issuer’s policy. “The majority of the major issuers will allow you to do this,” said Bill Hardekopf, founder of credit card comparison site LowCards.com.

—Use regular snowflakes: Set up additional automatic payments to your credit card company. For example, if you get paychecks weekly or biweekly, make payment on the payday. One painless strategy is to pay half your usual amount biweekly. This amounts to 13 monthly payments in a year, instead of 12. “And all of that extra payment goes to pay off the balance. It doesn’t go to interest,” Hardekopf said. “So, your balance will come down faster.”

—Use irregular snowflakes: Hardcore snowflakers make many small payments in a month. If you skip a $9.46 lunch out at work, ship that amount to your credit card company. Work two hours of overtime or get a tax refund? Slap it against the debt. The point is to immediately make a payment with extra money or cash you saved.

Besides erasing debt quicker, snowflaking makes sense for other reasons.

—You’ll save on interest: Most credit card companies assess interest daily on unpaid balances. So paying early saves weeks of interest charges. Month after month, savings add up. And the quicker you get rid of the debt, the less interest you pay.

—You’ll gain motivation: Making more payments forces you to think about your debts more often and gives you a more frequent thrill from seeing balances dwindle. If you want more motivation, focus the extra payments on debts smallest to largest. That allows you to pay off a few quickly, which can be a big emotional boost, like losing a few pounds in the first week of a diet. If you’re more the mathematical type, pay off debts from highest interest rate to lowest.

“If you feel, ‘Hey, I’m cutting into this,’ you can gain momentum psychologically,” Hardekopf said. “You might think, ‘I’ll skip going to dinner this week and take that 20 bucks and tack it onto my credit card payment.’ “

—You’ll improve your credit score: For those who carry balances, paying off debt quicker improves their credit score quicker. You might avoid late payments because you’re more focused on the debt. Multiple payments can also help those who don’t carry balances. Your credit scores are partly calculated on how much of your available credit you’re using at any time. If you use $4,500 of a $5,000 available limit, you’re penalized by credit-scoring models regardless of whether you pay the balance at month’s end. By making multiple payments, you reduce your credit-usage ratio, which accounts for 30 percent of your FICO score.

As a Reno/Sparks Nevada real estate professional, I encourage all questions and comments on the Reno/Sparks real estate market or any of the articles posted in this blog.  I can be reached by email chance@ballard-company.com

These days one of the biggest impediments to closing a Reno/Sparks real estate sale can be the buyer’s ability to get a mortgage.

Here are some tips for anyone who hopes to land a loan:

• Turn to the government. The biggest source of loans these days is the Federal Housing Administration (FHA) and the Veterans Administration (VA). These programs accept borrowers with lower credit scores and allow them to put down as little as 3.5 percent of the purchase price.

• Document, document, document. Borrowers will need bank statements, brokerage statements, W-2 forms and tax returns.

• Boost credit scores. Borrowers should avoid having more than one-third of their maximum borrowing capacity outstanding on one credit card. If necessary, rotate the debt among several cards.

• Work your connections. Comparison shopping is easy online, but if your customer has an established relationship with a local bank, suggest they try that lender first.

Source: BusinessWeek.com, Christopher Palmeri (01/23/09)

Being a Reno/Sparks real estate consultant I always appreciate any question or comments on the Reno/Sparks real estate or any of the articles I post.

Send all questions to chance@ballard-company.com

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