What is a good tool to help manage my debt?

According to a 2012 Sallie Mae report, “How America Pays”, 35% of students borrowed education loans to pay for college and, although credit card ownership has decreased recently, 35% of undergraduates have a credit card.

Credit is an important financial tool that students need to learn how to manage wisely. Learn more about how credit card debt can affect you now, as well as in the future by watching the recorded webinar, “Staying on Good Terms: Credit & Debt“.

Credit Management Tool: Use powerpay.org to help you manage your credit, pay down debt and plan your spending. This website was created by Utah State University Extension and WebAIM.org.

To learn even more about how to manage your finances while in college, including what to look for in a financial institution, you can watch another recorded webinar, Cash at College: Spending, Saving & Student Loans.

credit

Credit Cards vs. Debit Cards: What are the pros and cons of a credit card and debit card? What are the differences between them?

A credit card is a small plastic card issued by a bank, credit union, or other financial company which allows you to purchase goods or services on credit. The financial company usually establishes a credit limit that has the potential to increase or decrease depending on your spending habits and if you make payments on time. On a positive side, credit cards have a few advantages. In general, a credit card can be looked at as a 30-day, interest-free loan, as long as your monthly bills are paid off in full. Your credit card will allow you to begin to establish a credit history.

On the other hand, credit cards usually have high interest rates that will go into effect if you don’t pay a bill on time or don’t pay a bill at all. The interest amount accumulates over time, depending on how long it takes you to pay off the debt. Credit cards also are very vulnerable to fraud. It is important to monitor your purchase history, usually through a monthly paper or electronic statement. Monitoring helps you notice fraudulent activity. Lastly, if payments aren’t submitted on time, your credit history will be negatively affected, hurting your chances for future loans and other financial options to be issued to you.

A debit card is also a small plastic card that allows the holder to purchase goods and services, but it is usually issued by a bank or credit union. These cards are usually linked to a savings or checking account, where you will deposit funds for usage on the card.

Debit cards have several advantages that may be appealing to you! When you use a debit card, you are only allowed to spend the amount of cash that is available in your checking or savings account. (If have overdraft protection and you spend more, there may be immediate fees.) With this in mind, there is usually no need to carry cash as this is an equivalent. There are no interest rates ever associated with debit cards, due to the fact that you are spending your own money as opposed to taking a loan out with credit cards. Debit cards also have no effect on your credit history as there is no credit being used. Taking this into account, anyone who has a checking or savings account is able to sign up for a debit card, making it a viable option to consumers.

On the other hand, debit cards come with possible overdraft fees, which are put into effect if you spend more than what is in your checking or savings account associated with your debit card. If you choose a debit card, you are also required to remember a PIN number to make any transactions with the card. This PIN number must be kept confidential at all times!

Surely, several differences exist between credit and debit cards. If you have a credit card, monthly bills can be accessed electronically, or you can choose to have them mailed to you. On the other hand, debit cards have no monthly statements, which means you must keep track of your own expenses via your checking or savings account. For credit cards, there is a liability limit of $50. More often than not, you are not held liable for fraudulent activity. Furthermore, there is a lot less fraud protection with debit cards. There is a liability limit of up to $50 if you report in within two days of noticing the fraud. But your liability increases to more — or even everything in your account — depending on how quickly the fraudulent activity is reported.

 

Written by Joey Gangichiodo, Financial Wellness Peer Educator, December 2014. Reviewed by Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension.

What happens to the interest on my federal loans while I’m in school?

All federal student loans have a variable or fixed interest rate that is set by Congress. The interest rate will vary depending on the type of loan you borrow and when the loan disburses. In most cases, if you have borrowed a loan since 2007, your loan will have a fixed interest rate. This means the interest rate will remain the same for the life of the loan or until it is completely repaid.

The amount of interest that accrues (accumulates) on your loan from month to month is determined by a simple daily interest formula. This formula consists of multiplying your loan balance by the number of days since the last payment times the interest rate factor. The interest rate factor is determined by dividing your loan’s interest rate by the number of days in the year. (Federal Student Aid)

Simple daily interest formula:

Outstanding principal balance
X number of days since last payment
X interest rate factor
= interest amount

Interest will accrue while you are enrolled in school. However, if you have a Federal Direct Subsidized Loan, the government will pay the interest that accrues while you are in school as long as you are enrolled at least half-time.

If you borrow a Federal Direct Unsubsidized Loan or Federal Direct Grad PLUS Loan you will be responsible for paying the interest that accrues while you are enrolled in school. Students enrolled half-time or more do have the right to receive an in-school deferment from their loan servicer. Students are still responsible for repaying the interest that accrues, but the payments are not due during the deferment period. Interest that accrues during a student’s deferment will capitalize (be added to principal amount borrowed). Capitalization occurs at the time you enter repayment and results in a higher amount to be repaid.

Written by Josh Keen, Office of Student Financial Aid

Staying on Good Terms: Credit & Debt (Recorded Webinar)

According to a 2012 Sallie Mae report, “How America Pays,” 35% of students borrowed education loans to pay for college and, although credit card ownership has decreased recently, 35% of undergraduates have a credit card. Credit is an important financial tool that students need to learn how to manage wisely. Learn how credit card debt can affect you now as well as in the future through this webinar.

University of Illinois Extension, along with the University of Illinois’ Student Money Management Center, hosted the webinar “Staying on Good Terms: Credit & Debt” on October 21, 2014. The FREE webinar focused on understanding credit, comparing costs of credit, and managing debt effectively. Watch it below!

Borrowing badgeThis is a Borrowing Badge eligible program, so make sure to take the quiz after watching to get credit!

“Staying on Good Terms: Credit & Debt” is part of the Get $avvy: Grow Your Green Stuff webinar series.

 

Written by Andrea Pellegrini, University of Illinois USFSCO Student Money Management Center

What information should I consider before borrowing a student loan?

Student loans are a common and convenient source of funding used by more than half of the students at the University of Illinois to help pay for their education. Many students do need to borrow and consider this a wise investment in their future. Before borrowing a student loan, consider this important information:

  • Borrow only what you need and can reasonably repay.
  • Develop a realistic budget and consider ways to lower your costs.
  • Research the average pay of your chosen field to know if your projected earnings will be enough to repay your student loans.
  • Keep track of your loan debt (principal and any accrued interest) so you will know the amount you will have to repay.
  • Know that repaying your student loan on time can help establish and maintain an excellent credit history.
  • Be aware that student loans are in your name and affect your credit history, so you should know and understand the obligations.
  • Unlike other forms of consumer debt, student loans cannot be discharged through bankruptcy except under extraordinary circumstances.
  • If you fail to make a payment on your student loan for an extended period, your loans may be placed into default.
  • A default on a federal student loan will require payment of additional costs, including collection costs, attorney’s fees, court costs, and additional interest. These costs may substantially increase the amount owed on your student loan.
  • No statutes of limitation apply to the collection of federal student loan debt. This means that your student loan debt may be collected many years, or decades, into the future.
  • The IRS may seize your tax refunds to repay a defaulted federal student loan.
  • Your future wages may be garnished to repay a defaulted federal student loan.
  • Your Social Security benefits may be garnished to repay a defaulted federal student loan.
  • Any disability benefits you receive may be garnished to repay a defaulted federal student loan.
  • A default on a federal student loan may result in the denial or revocation of a professional license, such as a license to practice medicine or law.

Written by Josh Keen, Office of Student Financial Aid