Deal with Your Debt: The Right Way to Manage Your Bills and Pay Off What You Owe (Liz Pulliam Weston)

Why do colleges cost so much? Large capital spending provide the best facilities, faculty, and sport centers and teams to keep wealth alumni donors happy. Universities hope to boost their national ranking by spending on high-speed internet access, new gyms, concert halls, and better student housing. Faculty salaries are expensive. The median salary for a tenure professor is $76,200. Many colleges are trying to shrink class sizes and reduce class loads so professors can do more research and bring glory to the University. What type of loans are available? A Perkins loan offers a 5% fixed interest rate and a maximum borrowed amount of $20,000. Stanford loan is a variable rate loan capped at 8.25% and a 4% upfront fee. How much should you borrow? None is the correct answer. If you don't have money then don't go to college. Save your money then go to college. If you yield to temptation and accept a loan then your loan payments once you graduate shouldn't exceed 10% of your expected monthly gross. You will have 10 years to repay the student loan. If you earn $40,000 then your payback will be 4,000 a year (10%) or about 340 dollars a month for a $26,000 dollar loan. The average undergraduate loan is about 26k. 50 percent of the student enrolled in college do not graduate and leave the college with heavy student debt. If you graduate making less than 40k the loan repayment amount will be overextended in ratio to earnings. Instead of 10 percent of your wages the loan will represent 15 to 20 percent. The heavier debt loan increases the risk of default. Contents......Page 8 Acknowledgments......Page 14 About the Author......Page 16 Introduction......Page 18 1 Isn’t Debt-Free the Way to Be?......Page 20 Debt Isn’t the Enemy......Page 21 Which Debts Should You Tackle First?......Page 23 Why Debt Management Sounds Strange......Page 24 When Debt Repayment Plans Go Awry......Page 26 Addressing the Ants as Well as the Grasshoppers......Page 32 Summary......Page 33 2 Your Debt Management Plan......Page 34 Get Intimate with Your Debt......Page 36 Which Debts Are Deductible?......Page 39 Am I Paying the Right Rate?......Page 40 Retirement Savings......Page 42 Financial Flexibility......Page 45 Save or Pay Off Debt First?......Page 46 Case Studies......Page 47 Create Your Game Plan......Page 50 Should You Pay Off Your Debt with More Debt?......Page 51 If You’re Already Drowning......Page 52 Step 2: Evaluate Your Options......Page 53 Step 3: Choose Your Path, and Take Action......Page 57 Summary......Page 58 3 Credit Cards......Page 60 Our Love Affair with Credit......Page 66 Overnight Rate Changes......Page 70 Fees and More Fees......Page 72 Balance-Transfer Roulette......Page 73 Gotchas for Those Who Pay Their Balances......Page 75 The Right Way to Pay Off Credit Card Debt......Page 77 Getting the Right Reward Card......Page 82 Shopping Tips......Page 86 4 Mortgages......Page 88 Myth #1: Real Estate Prices Always Rise......Page 89 Myth #2: A House Is a Great Investment......Page 90 Myth #3: Buying Is Always Better Than Renting......Page 91 Myth #4: Homeownership Comes with Great Tax Breaks......Page 92 The Right Reasons to Buy......Page 94 How Much House Should I Buy?......Page 95 What Kind of Mortgage Should I Get?......Page 97 1. Fix your credit......Page 103 3. Shop around for rates and terms......Page 104 4. Check out first-time home buyers’ programs......Page 105 6. Don’t pay junk fees......Page 106 When and How Should I Refinance?......Page 107 When Should I Prepay a Mortgage?......Page 109 Credit Limits......Page 110 Shopping Tips......Page 111 5 Home Equity Borrowing......Page 112 The Dangers of Home Equity Lending......Page 113 Home Equity Loans Versus Lines of Credit......Page 114 Questions to Ask Before You Borrow......Page 117 Credit Limits......Page 123 Shopping Tips......Page 124 6 Student Loans......Page 126 So, What’s the Good News?......Page 128 How Much Should I Borrow?......Page 129 Where Should I Get My Loans?......Page 133 What if It’s Already Too Late?......Page 135 What About Paying Off My Student Loans with Home Equity Debt—or Credit Cards?......Page 137 Credit Limits......Page 140 Shopping Tips......Page 141 7 Auto Loans......Page 142 How Cars Cost Us......Page 143 Why It’s Bad to Owe More on Your Car Than It’s Worth......Page 144 How Often You Buy Cars Matters, Too......Page 147 The Proper Role of Cars in Our Spending......Page 149 Ways to Keep Costs Down......Page 150 Credit Limits......Page 155 Shopping Tips......Page 156 8 401(k) and Other Retirement Plan Loans......Page 158 Types of Plans That Offer Loans......Page 159 The Real Cost of Retirement Plan Loans......Page 160 Cracking Your Nest Egg Early......Page 163 The Hidden Cost of Withdrawals......Page 164 Summary......Page 169 Shopping Tips......Page 170 9 Loans You Don’t Want to Get—or Give......Page 172 Three More Loans to Beware......Page 175 Why You Don’t Want to Cosign a Loan......Page 178 The Right Way to Make a Personal Loan......Page 180 Shopping Tips......Page 182 10 Dealing with a Debt Crisis......Page 184 Dealing with Your Creditors......Page 186 Dealing with Collection Agencies......Page 195 What if Your Creditors Won’t Budge?......Page 199 Summary......Page 200 11 Putting Your Debt Management Plan into Action......Page 202 Lower Your Interest Rates......Page 203 Track Your Spending......Page 204 Trim Your Expenses......Page 208 Look for Cash......Page 211 Sell Your Surplus Stuff Online......Page 213 Review Your Priorities......Page 214 Stay on Track......Page 217 Some Final Thoughts......Page 219 A......Page 220 C......Page 221 D......Page 223 E......Page 224 H......Page 225 I......Page 226 L......Page 227 N-O......Page 229 Q-R......Page 230 S......Page 231 T......Page 232 W-Z......Page 233

Introduction

If you're picking up this book, you're probably concerned about your debts.

If so, you're in good company. Half of Americans in a December 2004 Associated Press poll said they worried about what they owed, with 42% saying their debts caused them "a great deal" of stress. One in five said they obsessed about what they owed most or all of the time.

Some people have good reason to worry. They've maxed out their credit cards, or struggle with an unaffordable mortgage, or face repossession of their car. One in 10 Americans in the AP poll said they had missed a minimum payment in the past six monthsmda sure sign of major credit trouble.

If you're one of those folks, you'll find plenty of information in this book to get you back on your feet.

But you don't need to have overdosed on plastic to be concerned about your debt situation. Most people get little if any education about the right ways to acquire and manage borrowed money. They rely on lenders, family, friends to tell them which loans are "good" or "bad" and to advise them how much they can afford. Many veer between extremes, thinking debt is evil one minute and the next applying for yet another new department store card to get that 10% discount.

The typical book on debt, meanwhile, focuses almost entirely on how to pay it off and ignores when debt might actually be beneficial to your overall financial life.

In reality, debt can be an enormously helpful financial tool, allowing us to buy homes, get educations, and build businesses. Instead of sucking us dry, it can help give us the cash flow we need to grow ourlong-term wealth. But we need to know how to get it, when to get it, how much to get, and when it's time to pay it off.

This book is designed to help you identify which debts are toxic to your financial health and which actually help you get ahead. You'll learn the smart ways to deal with your debt, including which loans you should pay off and which you should keep. You'll discover how to manage your finances and your credit so that you'll be able to borrow all the money you need at the best rates and terms. In short, you'll be able to craft a sensible, workable plan to achieve your goals and truly deal with your debt.

So let's get started!

© Copyright Pearson Education. All rights reserved.

Library Journal

Weston (Your Credit Score), a columnist and certified financial planner, asserts that for most of us, debt is a fact of life. Her aim is to help readers understand the different kinds of debt and how they may be managed for a healthy financial picture. She advocates a management plan in which individuals learn the specifics of their debts, take a big-picture look at their financial situation, and create a repayment strategy. She follows that with a review of mortgages, credit cards, student loans, home equity, auto loans, and loans against 401(k) and retirement plans. Weston explains each type of debt and outlines what borrowers must consider, including how much of a loan to take, choosing the lender, calculating payments, getting good rates, paying off loans, and refinancing. Weston also offers counsel on how to recognize a debt crisis and how to deal with creditors and collection agencies. Basic and clear, this is similar in scope to Jon Hanson's Good Debt, Bad Debt. Recommended for public libraries.-Joan Pedzich, Harris Beach PLLC, Rochester, NY Copyright 2005 Reed Business Information.

This is the eBook version of the printed book. If the print book includes a CD-ROM, this content is not included within the eBook version.Most people carry debt for most of their adult lives. Yet, most books on debt focus mainly on how to pay it all off, and live forever without it. Too often, following that advice leads only to failure. People either give up, or pay off the wrong kinds of debt. They strand themselves with too little flexibility to survive a financial crisis -- and land in bankruptcy court. They neglect saving for retirement, homes, or college, and end up poorer than they might have been. For most people, it's more realistic -- and smarter -- to control and manage debt effectively, rather than eliminating it completely. Debt Smart shows how. Award-winning personal finance columnist Liz Weston explains the rules and explodes the myths surrounding debt. Discover the crucial role debt can play in a portfolio, identifying debts that actually contribute to wealth and flexibility, while avoiding or eliminating “toxic” debts. Weston presents effective strategies for evaluating, monitoring, and paying every form of debt, from credit cards and mortgages to student and auto loans. She offers practical guidelines for how much debt one should take on. Find realistic (and often surprising) guidance on everything from home equity loans and 401K borrowing to small business loans. Most€people€carry debt for most of their adult lives. Yet, most books on debt focus mainly on how to pay it all off, and live forever without it. Too often, following that advice leads only to failure. People either give up, or pay off the wrong kinds of debt. They strand themselves with too little flexibility to survive a financial crisis -- and land in bankruptcy court. They neglect saving for retirement, homes, or college, and end up poorer than they might have been. For most people, it & rsquo;s more realistic -- and smarter -- to control and manage debt effectively, rather than eliminating it completely. Debt Smart shows how. Award-winning personal finance columnist Liz Weston explains the rules and explodes the myths surrounding debt. Discover the crucial role debt can play in€a portfolio, identifying debts that actually contribute to€ wealth and flexibility, €while avoiding or eliminating & ldquo;toxic & rdquo; debts. Weston presents effective strategies for evaluating, monitoring, and paying every form of debt, from credit cards and mortgages to student and auto loans. She offers practical guidelines for how much debt€one should take on.€ Find realistic (and often surprising) guidance on everything from home equity loans and 401K borrowing to small business loans Annotation Most people carry debt for most of their adult lives. Yet, most books on debt focus mainly on how to pay it all off, and live forever without it. Too often, following that advice leads only to failure. People either give up, or pay off the wrong kinds of debt. They strand themselves with too little flexibility to survive a financial crisis -- and land in bankruptcy court. They neglect saving for retirement, homes, or college, and end up poorer than they might have been. For most people, it's more realistic -- and smarter -- to control and manage debt effectively, rather than eliminating it completely. Debt Smart shows how. Award-winning personal finance columnist Liz Weston explains the rules and explodes the myths surrounding debt. Discover the crucial role debt can play in a portfolio, identifying debts that actually contribute to wealth and flexibility, while avoiding or eliminating "toxic" debts. Weston presents effective strategies for evaluating, monitoring, and paying every form of debt, from credit cards and mortgages to student and auto loans. She offers practical guidelines for how much debt one should take on. Find realistic (and often surprising) guidance on everything from home equity loans and 401K borrowing to small business loans "Live without debt? On what planet? For most people, it's just not practical. Here's the good news: you can manage your debt so it actually improves your financial well-being. You can pay off debts that are truly toxic and cut the costs of the debts you keep. You can keep debt from getting out of hand, and get smarter about every debt you incur from now on."--Back cover Isn't debt-free the way to be? Your debt management plan Credit cards Mortgages Home equity borrowing Student loans Auto loans 401(k) and other retirement plan loans Loans you don't want to get or give Dealing with a debt crisis Putting your debt management plan into action.