Ready to leave home after graduation? Not so fast!
Photo by: Robert Linder (Stock Exchange)

Inthe last few posts on UWSA, we’ve been talking about student debt. More than any other financial challenge, even high credit card balances, student loans and debt impact the lives of millions of young people on the long term. With tuition rising each year, and the job market unsteady, some experts are recommending systematic change to help students who are dealing with creditors and trying to establish themselves financially. Should college students consider staying at home a year after graduation?

Post-Graduation Options and Your Finances

In the U.S., there’s a long tradition of uprooting and moving far from home at a fairly young age, with college serving as a “practice run.” But many students do not now have the savings or job security it takes to make a down payment on a home and obtain a mortgage at favorable terms. Further, with friends in the same situation, roommates may not necessarily be able to keep up with their part of a rental agreement. What to do? Establishing yourself for about a year in your home community can help contribute to long-term stability, but it’s not the only route. Here are some options considered.

If possible, stay in school. One of the best places to weather a recession is in graduate school, especially if your agreement to attend is made before the economy “bottoms out.” Generally, universities sign contracts with graduate students that are binding and result in a substantial level of financial support, in exchange for academic progress and some teaching responsibility. This amounts to a secure “job” and, often, favorable living conditions in an area that benefits from the university’s presence. On the other hand, pursuing graduate study mid-recession can be more difficult.

Consider staying at home. Grace periods for student loans quickly expire, and can raise your monthly cost of living by hundreds of dollars. Seeking employment close to home can eliminate some recurring expenses and allow you to pay down common household bills like high credit card balances that might have built up during college, eliminating recurring payments. Temporarily staying at home may also count favorably in attempts to get consolidation loans, as you’ll have been at the residence for longer, and pay less. You’ll also have the benefit of being able to search for work in an area you’re familiar with; and should the worst happen and you find yourself underemployed, you’re likely to qualify for unemployment deferments for your federal student loans.

Evaluate the job market carefully. If you do plan to move soon after college, don’t rush! Network with former professors, bosses, co-workers, and other students to get leads for work. Narrow down your options by finding out the average rent and cost of living in areas you might want to live or might become employed. Consider seeking professional help from a career consultant to write and develop your resume and your interview skills. And save, save, save! It’s never too early, or too late, to begin building an emergency fund, and there are always unexpected expenses when you move. The best possible situation may be to start with a company “at home” and seek a transfer into your desired area in the future, after you’ve built up some social and professional capital at your workplace. Though this isn’t always possible, try to consider your options on the long term, with your budget in mind.

Bill collector acting like a pirate? The law's on your side
Photo by: Bill Davenpot (Stock Exchange)

Every day, thousands of Americans get calls from debt collectors.

If you’re in the middle of settlement, debt consolidation, or even in the early stages of seeking debt relief, you don’t deserve unwanted and harassing calls; and you don’t have to let them disrupt your life.

Today, we’ll discuss facts and resources to help you use existing consumer credit protection laws to your advantage and cut through the climate of fear that a small minority of abusive debt collectors create for hard-working people.

The Basic Facts on Debt Collection

Many major banks and other firms have their own debt collection wings which may be empowered to help you work with your creditor and develop payment plans and other strategies for getting your accounts current. However, depending on factors like your creditors’ policies and the age of the debt in question, many businesses “outsource” debt collection to a third-party agency.

“Debt buyers” may even purchase your debt from a legitimate creditor at a fraction of the debt’s value, in the hopes of profiting by collecting it. These agencies are less motivated to adhere to ethical standards in dealing with you; you are not their customer or client. Confusion or misrepresentation between creditors, third-party agencies, and payees can result n “zombie debts” that payees may be coerced to pay repeatedly. More on that later.

What Are Your Rights?

Under the Fair Debt Collection Practices Act, you can file a complaint against a collector for several violations. Here are some of the most common:

1) Repeated or continuous phone calls;

2) Use of abusive or vulgar language or threats;

3) Calling before 8 AM or after 9 PM, regardless of their own timezone;

4) Informing a third party about your debt;

5) Calling you at work after one warning against this behavior;

Furthermore, you have the right to request, in writing, verification of the amount that you owe and the name of the creditor. It’s advisable to send these requests via registered mail or care of a law firm; debt collection cannot continue after receipt of your verification request until after the information is provided in full. Making indisputable, written requests is a first step toward preventing “zombie debt.” You also have the right to request all communication in writing rather than by phone; but as individual collectors can often claim they were “not informed”, this should also be certified in writing.

A final option is a “cease and desist” letter, which requires the debt collector to cease communications after a final written notice that informs you of actions the collector may or will take. Written correspondence is the most direct way to deal with collectors; but if you are not ready to move to “cease and desist” or still need to gather more information by telephone, remember that in many jurisdictions you are permitted to record phone conversations as long as you inform your calling partner. Debt collectors, like many other businesses, often record calls for analysis; there is no reason you cannot gather information this way as well. If debt collectors refuse to speak to you “on the record” (and you should always be gathering records that will protect you against unlawful abuse!) they cannot continue harassing you, either. Be sure to get advice on the relevant laws, and be clear and upfront about your intentions.

How Widespread is Debt Collection Abuse?

Figures are hard to pin down, but it’s widespread enough to provoke revolt against unethical debt collectors. Over 8,000 violations of the Fair Debt Collection Practices Act were alleged in federal lawsuits over the course of 2009, and according to a recent Supreme Court decision, ignorance of the law is no excuse: collectors cannot be shielded from lawsuits by claiming they erred in interpreting the law. Plus, if a debtor wins a lawsuit under FDCPA, the debt collector may be obligated to pay court costs. More information and resources on the “debtor revolt” movement can be found in this recent CNBC article: “Learning How to Fight Back Against Debt Collectors.”

In Conclusion …

No one claims that consumers should be exempt from legitimate debt. But debt collection is now a profit industry, with more involvement by “middlemen” than ever before, and more complex relationships between the parties affected. Don’t get taken advantage of: protect yourself with a vigorous understanding of your rights, and the services of a financial adviser and legal counsel where necessary.

Photo by: Sanja Gjenero (Stock Exchange)

In today’s tight consumer credit market, it’s harder than ever for someone starting out on the road to financial responsibility to establish strong credit; and even with new legislation intended to protect credit-holders, the stakes may very well be higher now than they were twenty, ten, or even five years ago. A few key credit facts can go a long way toward helping teens and young adults establish a positive credit history that works in their favor when it’s time to start making big decisions.

Here are some useful credit tips to help the youngster in your life avoid debt as an adult.

1) You Don’t Have to Use Credit Cards to Start a Credit History

To get credit, you have to have a credit history. This might seem like a baffling contradiction at first, but remember that keeping current accounts other than credit cards can also start the ball rolling on documenting your responsible financial behavior.

Credit cards offered to students and others with weak or nonexistent credit history are often fraught with hidden perils and predatory terms that might activate unexpectedly. Collaborating with responsible adults to put another account in a teen’s name, such as a secondary telephone, builds credit and good budgeting habits at the same time.

2) Student Debt is a Different Animal From Credit Card Debt

Student debt is the “other” major category of debt that’s most likely to influence a young person’s life. If student debt climbs out of control, it can’t be eliminated by bankruptcy, and may make debt consolidation more complex, as — from year to year and semester-to-semester — it may come from multiple creditors. Student debt can easily grow beyond expectations, as payments do not occur until after graduation, but interest continues to accrue as balances mount “behind the scenes.”

Be exceptionally wary of private student loans, and double-check all information from a university’s financial aid office; a few of these have been implicated in collusion with private lenders who advertise on campus. The old age “trust, but verify” applies here. A student should never sign a promissory note without the input of a responsible adult, and preferably not without consulting an independent financial advisor first. Neglecting this step (tempting when “everyone has student debt”!) can have decades-long consequences!

3) Getting a New Credit Line is a Double-Edged Sword

Opening a new credit line temporarily reduces your credit score, but when managed effectively, larger, value-added credit lines open greater opportunities and establish more trust. No matter the size of your overall credit holdings, you should strive to use only a fraction: the ratio of your total credit line to your current balance is one of the most heavily-weighted factors in your credit score. This leads directly to the next point:

4) You Don’t Have to Use Credit Cards to Grow Credit, Either

Once you have an established credit line, you do not need to actively use it to maintain a credit score. Most creditors will eventually close a line of credit that goes unused for a prolonged period of time (a year or more) but any transaction, no matter how minor, will keep the account alive; and, if paid off right away, it can only count in your favor.

Often, credit lines will grow without much use; but you should always be aware of this, and be aware you can refuse credit line increases and revert to your previous limit if you wish. If creditors make changes to your account you are not comfortable with, those with negligible balance have added clout for negotiating, refusing, or just going elsewhere.

The credit landscape is evolving along with the legislation that impacts it; but the basic facts about credit cards remain the same. Used responsibly, consumer credit can be part of an enriching financial strategy, and it’s never too early to start setting good habits.

Too Much Credit
Photo by: Andres Rueda (flickr)

Looking through some of our older articles on UWSA I found some on the subject of Debt Stacking. A few people have asked me whether this is a good idea, and whether it does what it says for people. I’ve never used debt stacking myself, though it is really just a high tech way to follow through on making sure you’re not paying a bunch of extra fees and interest to maintain multiple credit lines. That is a pretty common sense part of maintaining your credit rating. Here’s a little on making debt stacking work, and seeing if it’s right for you.

Firstly a little on what debt stacking is. The basic concept is that once you pay off a debt with a monthly payment you continue to apply the money previously allocated to the monthly payment to the payments for other debts. If you’re trying to get out of debt it’s pretty obvious that is a good idea. What is not obvious is which debts to apply the freed up money to.

Mathematically if you want to get out of debt faster there is a relationship between both the amount of a monthly payment, the balance, and the interest rate. No I don’t know the formula off the top of my head, but there are a lot of computer programs that do, and will allow you to input basic information about your debts and spit out the order in which to pay them off or ’stack’ them.

Tip number one would be not paying a lot for a program; if the goal is spending less repaying your debt and getting out of debt faster burning a bunch of money on a program doesn’t make sense. There are free tools out there to figure this information out, and sometimes professionals will offer that information free of charge or at a reduced fee as well.

One thing debt stacking does do is to avoid what is called ‘the shotgun approach’ to repaying debt. This is where one month you put a little extra on one bill, and next month you do another. Using that approach is a great way to maximize how long you stay in debt.

Tip number two, which is true of any debt repayment strategy, is stick to the plan. The benefits of debt stacking can be great, and include very reduced interest on one’s debts. These benefits drop fast though for every month you don’t make the payments in the manner suggested. If you cannot do this by yourself debt consolidation with a credit councilor or debt consolidation service might make more sense.

Debt stacking can be really helpful in repaying debt, and save you a ton of money. It is also usually free and because generally you are not modifying your repayment plan significantly it can help build your credit rating as well. The key is keeping to the plan, and knowing your limits. As always though the plan only works if it works for your.

Too Much Credit Photo by: Andres Rueda (flickr)