How to Create a Comprehensive Budget

You may think you have a grasp on your financial health, and maybe you do. But when it comes to budgets, it’s a good idea to review and revamp regularly. It takes some responsibility and hard work, but creating a budget that accounts for all you spending and saving habits can really pay off. So gather your financial statements and check out the steps below to make the type of plan that will help you manage your money the best way to maximize your funds.

Calculate Your Real Income

You know your salary so you know how much you have to work with, right? Not necessarily. It’s a good idea to calculate all your sources of income — without leaving anything out. This includes tax refunds, gifts and bonuses. Next, you have to be sure you are using net income or the after tax takeaway pay amount when creating your budget so you do not spend more than you truly make.

Track Spending

After determining how much money you truly have to work with, it’s important to figure out how much money you are spending. Group and add up everything on your receipts and bills, creating and organizing a list of monthly expenses. Excel and other online tools can be helpful with this. While you can look over one month to get an idea, it will likely be even better to look at an average of six or even 12 months of spending. Be sure you don’t leave anything out, from the every-month predictable costs like mortgage and life insurance payments to groceries, utilities, birthday presents, retirement savings and debt repayment. Even if they are variable and will change each month, including everything can help you calculate a monthly average down the road (or you can use that average if you are tracking six or 12 months’ worth of spending).

Differentiate Needs From Wants

Now you can easily see where your money is going. Are you surprised? Then it’s a good thing you are making a budget! And this is where it gets personal. It is up to you which expenses are needs and which are wants. In general, basic needs include rent, groceries, work clothes, health bills, electricity and basic services. These are things you cannot go a month without. So that does not include a fabulous new pair of uncomfortable shoes, dinner and drinks with your friends on the weekend or a high-end vacation to Dubai. Those would be wants. These are the “extras” in life — and while they may be important to your happiness, they require a little more thought when it comes to budgeting.

Set Goals

Many experts suggest you spend 50% of your net income on needs and divide the rest (almost evenly) between wants and savings. But, budgeting is highly personal and you need to determine what you prioritize and how you want to live. If you place high importance on retiring early, you will likely put more of your monthly budget in that area than someone who places more importance on traveling in his or her youth. Think about how much cash after expenses you have, how much you need for retirement, any debt repayment you should be working on, and your likelihood of buying a home. It’s important to set attainable goals, calculate what it will take to get there, and create your own individual plan accordingly.

Make Adjustments & Review Often

Arguably the most important part of budgeting besides creation, reviewing your budget regularly can ensure you are sticking to the plan. You will likely need to adjust your budget and variable, “want” expense section if you are spending more than your income allows. Likewise, if you get a raise, you will need to decide what to do with this new money. In fact, if there are any chances in your income, rent cost, or even gym membership, it’s a good idea to edit your budget accordingly to make sure you are still on track for your financial and life goals.

You may also want to monitor your credit for signs of changes, especially if you’re budgeting because you’re trying to save up for a big purchase like a car or a home. Both of those purchases normally require a credit check (if you don’t pay cash), and building good credit beforehand can save you money in interest over the life of your loan. You can check your credit scores for free on Credit.com.

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This article originally appeared on Credit.com.

This article by AJ Smith was distributed by the Personal Finance Syndication Network.


What Is a Broker Fee?

The age-old question in real estate: Does it make more sense to rent, or should you be looking to buy your next property? If you have been renting for years, you may hear that you are missing out on a guaranteed investment and wasting money on rental fees. In reality, everyone’s situation is different and the decision to rent or buy depends on your personal circumstances. Regardless of which option you choose, you will likely incur a “broker fee” on your mortgage or new rental. Check out some more information below so you know what you are paying for — and can be sure you get it.

What It Is

A broker acts as intermediary between buyers and sellers (or tenants and landlords). This agent charges a fee for services like negotiations, sales, purchases, communication with lenders, delivery and advice on this transaction. In regards to real estate, this is the person that can help you find your rental or establish your mortgage if you are looking to buy.

How It’s Calculated

Broker fees are usually based on a percentage of the transaction or a flat fee determined by the broker and his or her firm. They can also be a combination of the two. Broker fees are often negotiable. Even if nothing about this is mentioned when you are quoted the broker fee, it’s generally a good idea to inquire about paying a lower amount. For rentals, the broker fee is often a month’s rent.

How to Handle It

While not always absolutely necessary, brokers can save you time and aggravation. They should have the expertise to advise you through the complicated process of home rental or purchase. In some cities, getting a rental property is pretty doable without one, while in others (like New York City) it can be hard to find a home without a broker. You can use online tools to help you work without them or even get advice on how to find the right broker for you. It’s a good idea to shop around different agencies or individuals before you commit, so you know you are getting the right representative you need in addition to the right home and price.

Now that you are equipped with a little more information on the fees you will be facing with your next property, you can figure exactly how much rental or house you can afford. A major factor in home affordability is your credit, so check your scores ahead of time (you can get two of your credit scores for free on Credit.com) to see where you stand before you apply.

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This article originally appeared on Credit.com.

This article by AJ Smith was distributed by the Personal Finance Syndication Network.


The Massive U.S. Government Hack: What You Need to Know

The U.S. Office of Personnel Management has just disclosed that hackers compromised what one would expect to be among the world’s most secure databases to steal sensitive information relating to some 4 million current and former employees.

Without divulging specifics, authorities are pointing the finger at hackers in China, according to media reports. The FBI has launched an official probe.

Malicious activity was detected in April, and the Department of Homeland Security affirmed last month that OPM’s data, which is stored in a shared facility at the Department of Interior’s data center, was compromised.

Another Day, Another Breach

Two big takeaways jump out of this latest high-visibility data breach disclosure.

First, the scale and scope of breaches has risen to a pitch where disclosing 4 million victims seems almost routine. In the granddaddy (thus far) of data breaches, Target reported losing financial transaction records for 110 million customers in 2014, followed by Home Depot, which saw data from 56 million credit and debit cards exposed. This year, health insurance companies appear to be under heavy assault, with Anthem losing records for 80 million employees, customers and partners, and Premera Blue Cross losing records for 11 million people.

Still, these latest victims aren’t 4 million garden-variety consumers. They’re federal employees, including some with high security clearances.  If the attack was motivated by nation-state cyber warfare imperatives, the collateral damage could be profound and lasting.

“This will call into question every government employee, since this information can be used by nation states and terrorists to identify and target those employees in order to gain access to sensitive environments and data,” says Eric Chiu, co-founder and president of cloud-security vendor HyTrust.

Kevin Epstein, vice president of advanced security and governance at Proofpoint, adds that simply having a current roster and knowing the chain of command in a federal agency is of high value to social-engineering specialists.

“It provides attackers with additional leverage to further penetrate targeted organizations,” Epstein says. “Phishing that comes from authorized managers and contains private details to legitimize the communication is far more likely to succeed in tricking the recipient into enabling malware or revealing proprietary information.”

Whoever stole the data is now in a great position to conduct cross-agency attacks, says Mark Bower, product management global director at HP Security Voltage.

“It’s likely this attack is less about money and more about gaining deeper access to other systems and agencies, which might even be defense or military data, future economic-strategy data, foreign political strategy, and sensitive assets of interest at a nation-state level,” Bower says.

If Feds Can’t Keep Data Safe, Who Can?

The second big takeaway is that if Uncle Sam’s human resource honchos can’t keep data thieves at bay, what chance do tens of thousands of small and midsize companies have to defend the small, but valuable, caches of data they each possess?

Along with the financial-services sector, big federal agencies have been in the vanguard of testing and buying the latest security technologies. Yet, in hack after major hack, the same lessons manifest. Technology alone isn’t the answer. A security mindset must permeate an organization from top to bottom. And that approach remains the exception, not the rule, in both the private and public sectors.

Small and midsize businesses are under intense attack. Cyber criminals can run automated attacks carried out by tens of thousands of infected computers assembled in powerful botnet armies.

Since the intrusion, OPM has beefed up its network security. But the hackers will likely adjust. OPM had previously been the victim of a cyberattack, as have various federal government computer systems at the State Department, the U.S. Postal Service and the White House.

Meanwhile, OPM will offer credit-monitoring and identity-theft services to the 4 million people affected.

“This breach should give all citizens massive concern,” says Richard Blech, CEO of encryption technology vendor Secure Channels. “The speed and velocity with which stolen data proliferates through the hacker black market means this data likely has already been exploited. New detecting and alerting tools mean nothing if the data is still stolen. The goal should be to leave data useless to the hacker when stolen.”

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This article originally appeared on Credit.com.

This article by Byron Acohido was distributed by the Personal Finance Syndication Network.


Why Do I Keep Getting Calls From Student Loan Assistance Companies?

Question:

Dear Steve,

I recently started comparing my student loan debt to the Picture of Dorian Gray. I was young and naive and wanted what I thought all people valued, an education. So I sold my soul to get what I wanted, blind to the implications that selling your soul can do to your mind and physical body. The only difference is Dorian Gray needed vanity above all else, I needed knowledge.

This comparison I keep to myself, I never talk about my debt, not even to my boyfriend of 5 years. I guess it’s what happens when you sell your soul, you’re too ashamed to tell anyone you would do anything to get what you wanted. Never considering what it would do to your future.

Now to the facts. I received my masters degree in 2013 realizing I’d never get a job in the field of my choice with a bachelors (which gave my $80,000 in my first round of debt from Sallie Mae). I needed a career to pay this off and the only way I could imagine a career was to get a higher degree. I ended with $124,000 of student loan debt, a waitressing job, and approximately 8 hours a day of applying for jobs.

I got my loans down to $108,000 by living with my parents and finding a career I love but barely helps. I put my entire paycheck toward my loans and work 2 part time jobs to live off of. That’s when I made my second mistake. My mother, who knew I was struggling asked how my payments were going. She was alarmed that I was paying up to 11% interest on one Sallie Mae private loan for $25,000 and said she’d do what she could to help me find a payment option with lower interest rates. That’s when last year she took a home equity loan out against her house, (for $100,000 at 1.99% intrest for 2 years) we closed out my staggering loans with Sallie Mae and the Department of Education and I now owe her everything. I’m now down to $85,000.

But, I’m getting solicited all the time by Loan Forgiveness Programs. And when they call me I tell them I closed out my loans with Sallie Mae and have a home equity loan paying off my student debt. I have all the paper work that proves that the $100,000 I took out (in my mothers name against her house) went straight to Sallie Mae. But they just say I can’t be helped and hang up. I want, and need, their help. I need someone’s help. My payment history proves that I will do anything to erase my debts. I want a future. I know so many young people that got half their debt erased through forgiveness lawyers and I want to have some burden relieved. It’s my mistakes that got me here but if there are programs designed to help then I should be qualified.

Can student Loan Forgiveness help me? Do you have any advice for my situation? I can send you all the files you need.

Thanks,
Liz

Answer:

Dear Liz,

Student loans are broken on so many levels. But let me first explain why you are getting these solicitation calls. And the answer is simple. They are trying to make a sale and get money out of you.

An exploding industry of debt relief companies, many who used to sell debt settlement services, think selling student loan assistance programs is the new fountain of gold. They will sell the hell out of these programs all day and all night, for an advanced fee and monthly payments for the next twenty years. It’s a scam so many people with student loan debt are falling for and sadly it’s one I’ve warned readers about for years. See Student Loan Assistance Rescue Scams On the Rise – Buyer Beware.

Just yesterday I saw a case where a woman was sold an income contingent repayment solution by one of these companies. The problem is she did not qualify for the promised low payment. So they enrolled her, without her awareness, into a graduated payment program. The kicker is the original sales pitch was that her student loans would be forgiven in ten years with low monthly payments. The reality is her student loans will be paid off in ten years under the program they enrolled her in. And her payment will rise.

And then there is the sales pitch most of these companies put forward that they can reduce your monthly payment. But what they don’t seem to tell people is why that can be a horrible idea and an expensive trap. Read this for details.

The reason you are getting calls is because there is a mailing list out there that was most likely originally generated from a credit bureau marketing list. The reason the commissioned sales person gives up when you explain your status is because they are dialing for dollars and they’ve nothing to sell you. Good-bye.

You should expect to see offers for such programs in your mailbox as well. If you get any, I’ll buy them from you.

While there are student loan forgiveness programs the most likely one loads of people qualify for is the Public Service Loan Forgiveness program. That program will eliminate your student loan debt after 120 on-time monthly payments as long as you work in a qualifying field and you have federal student loans.

If you did have federal loans that would have qualified, that ended when your mother lovingly paid them off. You would no longer qualify for any forgiveness program that comes to mind because your federal loans have been satisfied. Private loans do not qualify for forgiveness. Well that is unless you default on your private loans and settle them.

The only forgiveness program that you would most likely qualify for now is the Mother Loves Me Loan Forgiveness Program. But I suspect Mom is looking forward to having you repay the home equity loan.

This article by Steve Rhode first appeared on Get Out of Debt and was distributed by the Personal Finance Syndication Network.


Why Are Retailers Taking So Long to Upgrade Credit Card Readers?

Like a teacher dealing with a procrastinating student, it is tempting after all the delays with the implementation of new chip-enabled credit cards to say, “That’s it, no more extensions!” And that’s what it sounds like when the financial industry criticizes merchants for requesting yet another extension for them to convert to new-fangled EMV chip cards. But let’s keep things in perspective: Merchants are facing a serious expense, retrofitting millions of point-of-sale terminals. It’s no surprise they are behind. But behind what?

The October deadline set by the credit card associations isn’t about security. It’s about a liability shift. If it were really about stopping fraud, there’d be a whole lot more happening than forcing merchants to spend millions on chip card readers or face increased liability for credit card fraud.

To get you up to speed, recall that the U.S. banking system is finally on the verge of switching from old-fashioned magnetic-stripe credit cards to so-called EMV cards that come with security-enhancing computer chips. U.K. banks made this switch almost 10 years ago. Here in the U.S., it’s been stalled by a chicken-and-egg problem: Why should banks go to the expense of making new cards if stores don’t have the machines needed to read them; and why should stores spend the money on readers when consumers don’t have cards with chips?

Kicking the Can Down the Road?

The credit card associations have set about breaking this logjam by imposing a liability shift this October. Merchants who don’t have EMV card readers by then the will foot the bill for fraud conducted with magnetic stripe cards. That kind of liability shift is a huge deal for merchants — it could have a $10 billion price tag, according to PaymentsSource.com — and now that the deadline is almost upon is, some are begging for mercy.

In April, a retail organization called The Food Marketing Institute (FMI) — which represents thousands of retail food stores and pharmacies — asked for a delay of the shift into next year. Stores just aren’t ready, the group claims, according to the Wall Street Journal. There’s a backlog and delay of card-reading terminal orders; and no one wants confusion over new payment methods to mess up the holiday season. Wait till 2016, the organization has requested.

No way, responded the banking industry this week, in the form of an op-ed written by former Minnesota Governor Tim Pawlenty, who now heads the Financial Services Roundtable industry group.

“American consumers deserve to be protected with strong security measures and technologies, ensuring they remain confident in the payments system,” he wrote. “Further delay only gives cyber criminals more opportunity to victimize both American consumers and companies.”

Pawlenty has a point, in that herding all the cats involved in the payment chain is a Herculean task that requires several organizations to make a leap forward collectively. One delay leads to another, and another, and so on. And merchants did have four years to prepare for this day.

But the switch to EMV never really took on the seriousness it has today — and it may have never occurred at all — until Target was hacked at the end of 2013. Only then did merchants and banks really commit to the change. So it’s a bit unfair to suggest stores have been twiddling their thumbs for four years.

What’s Still Missing

Then there’s the pot-kettle element. Two things will conspire to make October 2015 not really a noteworthy date in the history of credit card fraud fighting after all.

First: America’s banking system is not migrating to the safer “chip and PIN” system that Europe favors, which requires consumers to enter a numeric code at checkout. Here, we will implement chip and signature. However, signatures are essentially meaningless and provide no fraud protection.

This is a half-measure. Yes, requiring chip cards will basically end card-cloning, because criminals can’t really manufacture fake chip credit cards the way they make fake magnetic stripe cards today. But criminals will still be able to physically steal the cards and use them. The strong two-factor “something you have and something you know” security will be downgraded simply to “something you have” security here. Meanwhile, chip cards will still have magnetic stripes that can be used anywhere those are still accepted, which will be many places. For example, gas stations have been granted an exception until 2017, because the expense of breaking concrete and changing out pump card readers is prohibitive. Given the high degree of fraud at gas stations, old-fashioned credit card fraud isn’t really going anywhere any time soon. The chip and signature decision led Walmart’s Mike Cook, assistant treasurer and a senior vice president, to call the switch “a joke.”

Second: The bigger issue is card-not-present fraud – mostly online fraud. Criminals will still be able to take a stolen account number and use it to buy things online as they do today. No difference. The card associations are hard at work on implementing a new system for online purchases that employs tokens, which would obscure actual account numbers. Tokens help the shift to EMV make sense. Without them, criminals just refocus their attacks, which is what happened in the U.K. after it switched to chip cards. Here’s the data from a report published earlier this year by Tristan Hugo-Webb, who is Associate Director of the Global Payments Advisory Service for Mercator: Counterfeit card fraud shrunk — from 27% of all fraud in 2003 to 13% in 2013. But card-not-present fraud, which includes online and telephone sales, climbed from 29% of fraud in 2003 to 67% in 2013.

While token technology is slowly making its way into the marketplace, chiefly through mobile payments, it is nowhere near the ubiquity required to end old-fashioned online credit card fraud.

So what’s the hurry? Yes, it’s good to move forward, and yes, merchants need to be nudged forward. But more carrot and less stick might be a wise approach. American Express is offering merchants $100 to upgrade to EMV. That’s nice, but the total price tag is estimated at $2.6 billion. Target alone is reportedly spending $100 million; even a tiny shop might pay $2,000.

It seems reasonable to give them a few more months before dropping the hammer. Hey, consider that more time to implement tokens.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its affiliates.

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This article originally appeared on Credit.com.

This article by Bob Sullivan was distributed by the Personal Finance Syndication Network.


How to Decide When to Retire

We all may know that it is smart to start saving for retirement early, but does this mean we actually do it? Retiring from the workforce means entering a new phase of life. It can be both scary and empowering. No matter how or when you get there, it is important to be prepared. Since most of us probably want to reach retirement or at least semi-retirement sooner rather than later, we need to use the right measurements that help determine exactly when you can call it quits on your day job.

Healthy Retirement Accounts

First and foremost, you want to have enough money to last through your golden years before retiring. Some people may be OK leaving their full-time jobs with the expectation that they will continue to work at least part-time. Others may want to know they can live until 95 without ever worrying about bringing in more income from work. How much you need to save for retirement will depend on your specific goals. For most people, this means a combination of accounts including individual retirement accounts, 401(k)s and — if you are lucky — pensions.

Penalty-Free Income

Since many retirement savings vehicles assume you will work until you turn 60, you can face an early-withdrawal penalty for taking funds before you hit that milestone. Know where your money is, which funds have penalties for taking money early and how much of your money is in those particular accounts. And remember that while your retirement funds may come with penalties for early withdrawal, there may be other assets you can liquidate without penalty. For example, if your retirement plan involves lots of travel, you may decide to sell your home to access that equity since you won’t be living there for most of the year anyways.

A Plan

When you are determining this, you are starting to formulate a plan. You may be able to still retire in your 50s if your first withdrawals are from accounts without penalties for early withdrawals. You can also plan when to start taking your Social Security benefits based around the other income streams you will have in retirement. While you can start receiving benefits when you are 62, the longer you hold off (until age 70) the more money you will receive each month.

Financial Freedom

The easiest litmus test to see if you are ready for retirement is financial stability. If your savings have exceeded your retirement goals, you have adequate insurance coverage, are debt-free and know that you can continue to afford your lifestyle even if you leave the rat race, you are truly ready.

It is not always clear when the right time will be for you to retire, but it’s important to have an idea of what you want and are capable of so you can save and spend accordingly.

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This article originally appeared on Credit.com.

This article by AJ Smith was distributed by the Personal Finance Syndication Network.


Why You Can’t Afford Your Dream Home

Does it seem like everyone around you is buying a home and you can’t figure out how? Or that buying a home is the next rational step in your life, but there is something (namely, money) holding you back? You are not alone. There are plenty of reasons why you may not be able to afford buying a home and it isn’t necessarily a bad thing.

1. Renting Is More Manageable

People tend to assume that buying a home is always a guaranteed moneymaker and thus more financially prudent than renting. However, the decision of rent vs. buy is not that simple. The appeal of renting — like lack of maintenance responsibility and expenses, fixed monthly cost, no taxes, lower insurance premiums, and greater flexibility — may be what is keeping you from buying your dream home. It’s a good idea to weigh the options carefully before deciding what is right for you and your family.

2. Too Many Expenses

Paying for a home is expensive. It is likely the single largest financial decision you will make in your life. Even if it seems like covering the down payment is possible, it’s important to calculate the monthly mortgage and see if that is realistic. And do not forget about closing costs. These are required at the home purchase (though some lenders allow you to roll the closing costs into the mortgage, this means you pay interest on that additional amount) and often total up to 5% of the home’s price. Whether due to the recession, high student loan balances or investment performance, you might not have all the money you need upfront to cover a home purchase. If you just can’t stomach all these costs, you might not be in the right financial or emotional place to buy a home.

3. Neighborhood Inflation

It turns out that a lot of homeowners want to live in a neighborhood with a good school system, low crime rate, available transportation, necessity access and cultural attractions. Homes in these neighborhoods are going to be more costly, and if you are unwilling to compromise on location, you just may not be able to afford a house … yet. In this case, you may choose to wait until you’ve saved up enough money for what you really want.

4. Out of Balance

It’s not you, it’s the market. The number of households in America is increasing, availability is low and the prices of homes are rising, yet the number of homeowners continues to decrease. This is especially true in certain locations. As a result of the housing crisis and recession, many potential homeowners are choosing to rent because they cannot afford a home or do not trust real estate as a good investment. You can see how much home you can afford using this calculator. A big factor in determining home affordability is your credit, so make sure you know where you stand. You can get copies of your free annual credit reports at AnnualCreditReport.com and you can check two of your credit scores for free on Credit.com.

The most important thing to remember is that if you cannot afford a home, it’s not a good idea to buy one. This will usually lead to more financial stress down the road.

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This article originally appeared on Credit.com.

This article by AJ Smith was distributed by the Personal Finance Syndication Network.


I’m 58 & Have $65K of Student Loan Debt. What Can I Do?

Julie is a 58-year-old teacher working in a high-needs school, with college loan debt that just keeps on growing despite the monthly payments she’s making. She recently described her situation on the Credit.com blog. Here’s what she told us:

I’m 58 yrs old, started with $43,000 student loan debt. I deferred for probably 12 years as a single parent… my loan debt grew to $58,000– I started repaying with monthly payments of $451… but because interest accrues daily even in repayment, even with a steady on-time payment the balance keeps growing– it’s Very Discouraging,,, and may I say Disgusting….. I am a teacher, and I work in a district that is 75% or more free & reduced (lunches) — but my loans were taken out before a certain year and I cannot qualify the the current loan forgiveness program …. My balance is now at $65,000 and I don’t know how to get this off my back!!! I’m starting to feel desperate….. and am considering selling my house to get out of this debt.!!! I am working full time, but I’m not getting any younger, and I need a new car but with the monthly payment for student loans, I’m worried about a car payment also. Any suggestions would be welcomed!

We reached out to Gordon Oliver of Cambridge Credit Counseling, one of several such services that now offers help with student loans. Oliver told us that Julie’s situation, frustrating as it is, is not uncommon.

What typically happens, says Oliver, is that student loan borrowers who can’t pay call their loan servicer to see if deferment is an option. If it is, the servicer says so and then reads a statement warning that interest will accrue and the balance will increase. But for a borrower in over their head, everything after “yes” may sound a little like adult conversation does to Charlie Brown characters.

Deferments, says Oliver, should be seen as short-term relief while the borrower comes up with a plan to actually attack the debt and pay off the principal. Without a plan to pay off the debt, a consumer risks falling into a deeper situation than they can afford, and stand to ruin their credit in the process. (If you want to see how your student loans are affecting your credit, you can get your free credit report summary on Credit.com.)

But when a consumer asks to delay payments, the phone representatives who work for loan service providers are not going to go out of their way to delve into the problems that surround the need for deferment or forbearance, Oliver said. “At some point, consumers run out of these options and then never have the deferment or forbearance to turn to if their economic situation changes for the worse or key circumstances change.”

And on the subject of changing circumstances, Oliver said the repayment plan that works best for an individual can change with changes in economic status. While balances on student loans cannot typically be negotiated down (though it does sometimes happen), like some other forms of consumer debt, they can often be managed. But the choices can be confusing, and so can knowing which one is best for you at any given time.

Do I Have Other Options?

Of course, you want to eventually make some progress paying down the principal balance. But if the monthly payment is temporarily unmanageable, it may be wise to take advantage of breathing room. Deferment or forbearance can give you that breathing room.

So can income-based repayment, but that program carries an added benefit. If you stick with that program, balances left at the end of 10, 20 or 25 years (depending on your eligibility) will be forgiven. The kinds of loans eligible for IBR and its newer cousin, Pay As You Earn (PAYE), include Stafford loans, Perkins loans, Graduate PLUS loans, Supplemental Loans for Undergraduate Students and federal consolidation loans. (But, as Oliver points out, there is a downside: income-based repayment can actually allow your balance to grow, and you have to re-qualify every year.) Loans that are not eligible include Parent PLUS loans; loans in default, garnishment or judgment; alternative education loans; consolidated loans that include a Parent PLUS loan; and private loans.

In Julie’s case, Oliver would recommend that she talk with a student debt counselor, especially because she is considering selling a major asset (her home) to solve the problem. He said Julie should know what all her options are before she decides.

Student loan counseling through credit counseling agencies is relatively new, and credit counselors have only recently begun to specialize and to seek accreditation in that area. Oliver says it’s helpful to seek out a nonprofit agency whose counselors have been certified through a student loan course through the Financial Counseling Association of America. Debt can be overwhelming, and if you decide to go the route of getting assistance, do your research (here are some questions you can ask to help you choose) so you go with a source that is knowledgeable and reputable, and can properly address your individual needs.

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This article originally appeared on Credit.com.

This article by Gerri Detweiler was distributed by the Personal Finance Syndication Network.


The First Thing to Do If a Debt Collector Sues You for Student Loan Debt

With student loan balances continuing to climb, student loan default has increasingly become a problem for consumers, and in addition to the problems default causes on its own, it brings along another unpleasant experience: debt collection.

The rise in student loan debt has resulted in more lawsuits against borrowers for failing to pay, often leading to judgments against the borrowers. Judgments typically lead to wage garnishment and credit damage (in addition to what’s already been suffered by not repaying the loans), making it even more difficult for the borrowers to regain the financial stability necessary to catch up with debts that are practically impossible to get rid of.

This issue becomes more problematic when you factor in the possibility that these lawsuits come from entities without the right to collect these debts in the first place. In a recent article, Bloomberg described a system in which debt ownership is repeatedly transferred and lawsuits come about from entities that may not have the right to sue borrowers. Still, if borrowers don’t question the lawsuits and fail to show up in court, judges rule in favor of the creditor and issue default judgments against the borrowers.

Whenever you’re dealing with a debt collector, and especially if you’re being sued over a debt, the first thing you should do is request verification of that debt in writing. It’s one of your consumer rights in regard to debt collection, but it’s something many people overlook, either because they assume it’s legitimate and can’t do anything about it or they don’t know otherwise. The collector should be able to provide you details on the debt and how it got to the point of needing to be pursued legally.

Checking your credit also needs to be at the top of your to-do list when dealing with debt collectors. It’s important you know how the debt is being reported and that is done so accurately, because collection accounts and judgments have a seriously negative impact on your credit scores. You’re entitled to a free annual credit report from each of the three major credit reporting agencies through AnnualCreditReport.com, and you can get two of your credit scores for free on Credit.com, updated every 30 days.

If ever you have questions about how to deal with a debt collector or if you legitimately owe the debt, seek the help of a consumer attorney — you should be able to find someone to review your case for free.

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This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.


The Average Credit Card Limit Is Dropping: What It Means for You

One of the best ways to improve your credit score is keep your debt levels as low as possible, and your efforts will be greatly helped by having high credit card credit limits, while keeping your balances extremely low. The higher your limit, the easier it is to do that.

The trick is you have to get an issuer to give you a high credit limit, and at the start of this year, new credit cards came with lower credit limits than they did at the same time last year, according to data from credit bureau Experian. Average credit limits on new cards were down for all consumers, even those with the best credit, but cardholders with bad credit saw the greatest decline in credit limits.

In the first quarter, banks opened $77 billion in new credit card accounts, up from $71 billion in the first quarter of 2014, but the average credit limit was down about 11% from last year. Experian broke down the average credit limits on new credit accounts by VantageScore 3.0 risk tier.

Super Prime (781-850)

Average credit limit per new account Q1 2015: $9,543
Average credit limit per new account Q1 2014: $9,604
Change: down 0.6%

Prime (661-780)

Average credit limit per new account Q1 2015: $5,209
Average credit limit per new account Q1 2014: $5,382
Change: down 3.2%

Near Prime (601-660)

Average credit limit per new account Q1 2015: $2,277
Average credit limit per new account Q1 2014: $2,497
Change: down 8.8%

Subprime (500-600)

Average credit limit per new account Q1 2015: $966
Average credit limit per new account Q1 2014: $1,171
Change: down 17.5%

Deep Subprime (300-499)

Average credit limit per new account Q1 2015: $509
Average credit limit per new account Q1 2014: $686
Change: down 25.9%

Paying your credit card balance in full each billing cycle helps keep your credit utilization rate low — it won’t perpetually creep up until it has become out-of-control debt — but having the ability to pay your bill in full isn’t necessarily the way to decide how much you should charge. From a credit score perspective, it’s more important you use as little of your available credit as possible. Many experts recommend keeping your credit card balances at less than 30% of your overall available credit, though those with the best credit scores keep their utilization to less than 10%. You can see exactly what your credit utilization is by getting two of your credit scores for free every 30 days on Credit.com.

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This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.