Costly College Loans as Bad Debt

With more than $1 billion loans, the college loan debt has recently exceeded the credit card debt. Since borrowers cannot get rid of college loans, even in bankruptcy, these can be carried to their Social Security. The following is an explanation of how college loans can be a bad debt.

At present, student borrowers tend to be immature in terms of loans so they take on too much debt than they can afford. Fortunately, the Obama administration created a program that encourages colleges to ask the students answer a “shopping sheet”, which shows the actual cost of the debt.

According to Dawn Lockhart, CEO of Family Foundations, this program is a great idea. Family Foundations is a nonprofit organization that offers good consumer services in relation to credit counseling and has a history of excellent community service.

Lockhart added that the proposed checklist of college costs will be much better if it includes options on possible careers that indicate the likely income the student can expect to earn. One of the factors that can help lenders in deciding what loan to give is the income of the profession the student is pursuing.

For the moment, President Barack Obama has suggested using federal funding as motivation to encourage colleges to cut down on their costs. The president will be declaring Race to the Top, a new contest that grants funding to colleges that minimizes their costs.

Based on figures from the Wall Street Journal, student loan rates begin at around 5 percent. Consequently, families rely on other means to pay for college expenses, for instance, installment plans, low interest loans from colleges, home equity loans, and insurance loans.

However, it’s sad to know that college loans are now considered as bad debt to the extent that the nation’s top financial newspaper is trying to find ways to avoid them.

Decrease in Mortgage Lending

For the month of June, repayments of housing loans exceeded new lending for the first time since the same period of the previous year. Consequently, there was an increase in total lending to individuals by £0.3bn, which is the smallest increase in approximately a couple of years.

However, there was a decrease in the number of new mortgages approved for home buyers to 44,192, which is the lowest in 18 months. Moreover, approved mortgages but not yet lent decrease by 10 percent on June in the previous year.

In the previous week, the same figures were also issued by the British Bankers’ Association (BBA). BBA said that the decline in mortgage approvals was brought about by the wet weather in the month of June. Some events that also had an effect in the market include the Diamond Jubilee and Euro 2012 football tournament.

According to figures from HM Revenue and Customs (HMRC), although there was a decline in the lending activity, house sales across the UK increased for the month of June. Specifically, sales for the first half of this year was 11 percent higher compared with sales in the previous year.

This inconsistency is due to the fact that over 40 percent of home sales happen with no need for buyers to take on a mortgage. Therefore, completed sales can increase despite the decrease in borrowing.

Based on the recent figures from Bank of England, banks were planning to limit their mortgage lending much more in the following months, especially to borrowers with small down payments.

Due to the ongoing recession and euro crisis, a warning that lending might keep on declining this year was given by Mark Harris, chief executive of mortgage broker SPF Private Clients.

In addition, Harris said that although rates have dropped, loans with cheap rates are only available to borrowers that are capable of paying large deposits.

5 Lessons to Ensure Children’s Financial Independence

Over the past few years, there has been an increase in the number of adult children living with their parents due to financial matters. As a result, preparing them to be financially independent is currently an important aspect of parenting. The following are five key lessons to impart to children to make sure they will have financial independence in the future.

First, manage small, everyday financial decisions. Teach your children to ask themselves whether or not they need to buy something and whether or not it is the best deal. Once they have this state of mind, they will definitely save lots of money in the long run.

Second, get rich slowly. Social media and reality TV shows have caused recent generations to think they can become rich and famous in an instant but the truth is this cannot happen overnight. One example of earning money slowly is compounding interest rates, which could lead to good savings returns.

Third, teach them financial discipline at a young age. For instance, you can put a portion of their allowance into a piggy bank or savings account as soon as possible because this will teach them that saving a small amount regularly can add up instantly.  They will more likely adopt this habit when they eventually have jobs and established their careers.

Fourth, encourage your children to have the spirit of entrepreneurship. Although our society prepares us to be good employees, successful people in places such as Australia are entrepreneurs. Encourage them to put up micro businesses but do not finance their business venture.

Fifth, teach them the difference between good debt and bad debt. Good debt is taking on loans to develop appreciating assets and investments, while bad debt is using credit to purchase a depreciating item. Moreover, encourage the use of debit cards rather than credit cards.

The Difference Between Good and Bad Credit

It may sound unfair but the truth is, people with different credit standing are treated differently. For the most part, those with good credit are treated better than those with bad credit.

Individuals with good credit standing are offered store cards and credit cards without any interest on their payback. They may also be approved with car and home loans with a minimal interest of about 3%. Minimal or no interest at all translates to extra savings.

In the meantime, people with bad credit are faced with a different scenario. They are either rejected or charged with very high interest when they apply for loans or credit cards. In effect, they end up paying double the amount of their purchase.

One’s credit rating does not depend on the amount of income generated. A person with a very high income and some extra savings may still be turned down or required to pay high amounts of interest if his credit standing is not satisfactory. In the same way, someone who is not earning a lot but has an excellent credit rating may easily get a loan without making any initial payment or even paying any interest.

What all these simply means is that your credit rating is equally important than the amount of money you are making. Bear in mind that you will not be able to put your money to good use if your credit ranking is low. The worst part is, even with a high salary, you will be putting plenty of your money to waste just to afford high ticket items such as a car or a house.

Credit rating otherwise called FICO score is determined by three major credit agencies namely Experian, Equifax and Transunion. Your rating can fall within 250 to 900. Any score lower than 640 is considered fair while a rating below 600 is deemed poor. If you are aiming for good credit, obtain a score in the mid-600 or low-700. For an excellent rating, get at least a mid-700 ranking.

Reimbursement of California Payday Loan Customers

San Francisco’s local authorities have made public that thousands of consumers who are reliant on payday lending or short-term loans and check cash stores in the area can become entitled to a million bucks for restitution against predatory lenders who participate in illegal activities (even if this agency is one of the biggest lenders in the payday loan market).

For those who still have not been able to file any claims apart from the Money Mart located on a desolate place in Seventh and Market streets which is one of the many branches of payday store in the city, Dennis Herrera the City Attorney is now currently on the move to help.

According to Attorney Herrera, it would be unjust to allow the most vulnerably individuals to be harassed and taken advantage of by the stores. San Francisco is an affluent city and it is indeed sad to allow the rich and powerful to rip the rights of these average citizens.

Herrera is working alongside Jose Cisneros, the City Treasurer, in this campaign. On the year 2007, Herrera has filed a case against Money Mart and Loan Mart, two large payday loan companies under the charge of unfair business practices.

According to the City attorney the two agencies were charging too much for the interests because they have reached up to 400 percent. The case was settled through the charge of $7.5 million reimbursements and commitments from the two companies, this is to further eliminate disproportionate interest fees and penalties.

Now, customers of the two companies from California who had been granted loans in the years between 2oo5 and 2007 are entitled to reimbursements. The customers can only avail the reimbursements by Oct.1 of this year; the amount that you can claim is between $20 and $1,800. If you need to call the hotline for your settlement dial (866) 497-5497.