How to Avoid Default on Your Federal Student Loans

Today's guest post comes from Laura Edgar. She is a writer for NerdWallet, a credit card comparison company dedicated to helping young adults find the best student credit cards.

Have you heard the news? The number of people defaulting on their student loans is skyrocketing. According to the U.S. Department of Education, the number of people with education-related loan defaults rose to 8.8 percent in 2010, up from 7 percent in 2008. And this is only a conservative estimate, because it doesn’t take into account the number of students in danger of defaulting in the next few years. If you haven’t made your payments in a while, or are worried you can’t keep up, it’s time to take action. We’re know you’re probably 20-something and broke, but being 20-something and broke and in default is much worse. Whatever your financial situation is, you can still avoid default.

Why is it bad to default?

You may have heard that student loans are considered “good debt”. While it’s true that student loan debt is looked upon more favorably than other kinds of debt, missed payments are missed payments, and defaulting is still very bad, for multiple reasons. First of all, it hurts your credit score. You need good credit for more than just the best credit cards and loans – you may need it to get a job or rent an apartment (landlords and employers are increasingly factoring credit scores into their decision process). Second, student loan debts don’t go away, even if you declare bankruptcy, and the Department of Education has the right to seize your assets if you default (which we’ll get into in a bit). Third, if you default on your loans, you may never get one again. You’ll have to find another way to pay for school if you ever need or want to go back.

How does a loan go into default?

You are considered delinquent on your loan as soon as you miss a payment, and will continue to be until you bring yourself up-to-date on all payments. Your loan will default after you fail to make payments for 270 days, at which point your entire loan will be due in full. If you fail to make payments for 360 days, the loan is transferred to the Default Resolution Group. At this point, the Department of Education can do a number of things to collect on the debt.  They can take your tax return or government benefits, or garnish part of your wages, and they don’t need to take you to court first to do so. They can also sue you, but they probably won’t if you don’t have assets. Still, it’s good to know that they can, and since the normal stature of limitations doesn’t apply, they’ll have an unlimited amount of time to collect on the debt.

How can I keep up with my payments?

First of all, borrow responsibly! You’re borrowing from your future income here; that loan isn’t free money. Think of it this way: you’re hopping in a time machine, visiting yourself 10 years in the future, and asking them, “Hey, can I have $20,000?” Hopefully your future self can afford it. A good rule of thumb is don’t borrow more than you think you’ll make your first year out of school. This doesn’t work for everyone (lawyers typically don’t see payoff for at least a few years out of law school, for example), but it’s a good rule of thumb for most students.

Beyond that, you should also know when your payments are due. If you don’t receive a bill, it’s no excuse for non-payment. Make sure the Department of Education has your most current address on file, or better yet, go to the Direct Loan Servicing website and sign up for electronic statements, or an Electronic Debit Account. With this service, your loan payments get deducted from your checking account automatically, and you’ll get a .25 percent discount on your interest rate too. 

Can I make my payments cheaper?

Yes! Especially if you have multiple loans – see if you can consolidate them. You’ll only have to make one payment, and your new interest rate will be based on the weighted average of all your interest rates, without going over 8.25 percent. Consolidation is free and will lower your overall monthly payment costs. You can qualify for a loan consolidation even if you’re in delinquent or default status, so there’s no reason not to try.

Am I eligible for deferment?

Possibly, and it’s better to look into this sooner rather than later. A deferral puts your loan on hold until a later date, with no consequences. The Department of Education’s database of loan deferment forms is a good place to start doing research. Usually, you need to be enrolled in a federal program or experiencing severe hardship to qualify for a deferment. Are you on active duty in the military? Are you a working mom making minimum wage? Are you unemployed, too sick to work, or below the poverty line? Are you going to school more than half time, or enrolled in a residency program? These are just a few examples of situations that might make you eligible.

What if I still need more info?

If you can’t talk to someone at your school’s financial aid office, try going online to the Direct Loan Servicing FAQ page. Alternatively, you can also contact a Direct Loan customer service representative. For loan servicing, the number is 1-800-848-0979. For loan consolidation, the number is 1-800-557-7392. Good luck!

Update

So I didn't get the job I spoke about last week and I am very content. I've decided that whatever I do next it will be related to education. That still leaves me with a lot of options, but also helps me focus. I'm also not in any rush   to leave my current job. While I might be a bit bored at work, I work with amazing people it a great atmosphere. I can afford to wait and only apply to positions I really want. After a turmoil week I ended up in a good place!

On the budget front I pretty much can't spend any money until October 1st. We may have to get some groceries (which I will have to put on October's budget), but otherwise I should be able to make it no problem! 

Life is Good

Even though I have been grumbling quite a bit about my career and my choices, life is really good right now.

No longer being in class is amazing, even though it has made me a bit lazier. I've started yoga again and I'm really enjoying boot camp. Well maybe not during, but definitely how it makes me feel. I have an amazing husband who I get to see more often now that I no longer have class and he has a shorter commute. My best friend just had the cutest baby in the world and I am slowly reconnecting with some friends I neglected during the end of my studies.

I am still figuring out my life post-degree. I am still not running as much as I would like too and I haven't quite gotten back into volunteering as much as I used to do. Thinking about my career has taken up a lot of my time and energy and I need to start balancing my brain time with my personal life.

On the budget front I'm asking for a raise at work, but still waiting to hear the decision. If it happens it will be in my October paycheck (which comes at the end of the month). This month has been tight so I'm on a budget freeze until October. Basically, I'm trying to spend as little as possible until October 1st.

But overall, life is good.

photo by alancleaver_2000 

More on the Career Crisis

As you know I'm going through a career crisis at the moment. I'm trying to figure out what I want to do next and what field I want to be in. I've been in education now for seven years and I have a M.A. in the field as well. Right now I'm grappling with the question of whether I want to leave the education field.

For a while I really thought I wanted to leave. So I applied for a job at this place with an amazing mission. They do really great work and I think it would be very exciting to work there. However, their focus is not directly related to education. I have made it to the second step in the interview process and now I'm freaking out a bit. Am I really ready to leave education? Am I ready to leave a field I feel is incredibly important and that I've spent all this time investing in? Am I unhappy because of the field or because of my current work situation?

In an attempt to figure some of this stuff out I've been reaching out to various people and having conversations of potential career moves. I think I have realized that I can leave my "sector", but stay in education. So the question is - what should I do? Maybe I need a magic eight ball . . .

photo by alexanderdrachmann

I'm Tired of Tracking My Spending

There I've finally said it. I'm tired of tracking every penny. A lot of effort goes into managing your finances. There is the time it takes to determine your budget, checking in on your bank accounts, tracking your spending, and then reviewing your budget after each month. I'm sure you can think of many other tasks that go into personal finance.

Over the past few months I have stopped tracking my net worth. I'm still checking in on my accounts on a regular basis, but I've stopped entering the details into my spreadsheet.

I've also stopped creating budget categories. It seems that each month I create what I think are reasonable budget categories and then life happens and my money gets spent in different ways.

The biggest change to my budget tracking is that I've stopped tracking my cash. I used to keep track of every dollar I spent. If I spent a dollar at the vending machine - that dollar would go into my dining category. Instead I've switched to taking out $100 and putting it as automatically spent into my budget under the category cash.

The one thing I'm not tired of is tracking how much I spent. Without keeping track of how much I've allotted myself to spend and how much I actually spend I could easily and I mean very easily go over budget each month. So I haven't given up completely on budgeting or tracking my money. I just no longer track every penny.

At the end of the day, what matters is that I'm saving money and that I'm paying down debt. I've come to the point where I don't care as much about where my money goes as I do about the two goals above. I've always believed budgeting is an ongoing process and eventually I'm sure I'll want to track every penny again, but for now I'm happy with the change.

photo by jpmatth

Tips for Uninviting Guests from Your Wedding

Today's guest post comes from Mariana Ashley. She is a freelance writer who particularly enjoys writing about online colleges. She loves receiving reader feedback, which can be directed to mariana.ashley031 @gmail.com.

There is no time more exciting and stressful in a young couple's life than their wedding. Planning and putting on your wedding should be a time of celebration and love. Of course, there is going to be a certain amount of stress and craziness involved with planning your wedding. There's just no way around it really. You are throwing the biggest party of your life for sometimes hundreds of your friends and family members. While this will no doubt be one of the most memorable moments of your life, the planning process can take its toll. One of the biggest stressors inherent in planning a wedding is deciding upon a guest list. Not only can your guest list complicate things socially, it can also be a huge factor in the exuberant cost of your wedding. Sometimes things just get a little out of hand and you are faced with the dilemma of needing to uninvite some of your guests. While this can be difficult, it doesn't have to be painful. Follow these few tips for uninviting guests to your big day:

Communicate with Your Fiancée

The first step in the process of uninviting a guest to your wedding is discussing the situation with your hubby or honey to be. You should sit down with your fiancée and lay out all of the options available to you both. If you know who you would like to uninvited, you should discuss how uninviting that individual will affect other guests at your wedding. Hopefully, the guest that you have invited will understand that this is your day and will not create any sort of drama or tension. However, it is important to understand and prepare for anything that could happen. Discuss with your fiancée which one of you should do the actual uninviting. Obviously, if the friend or family member is from your side of the guest list, you should be the one doing the uninviting.

Meet with the Person if Possible

If the individual you are having to uninvited from your wedding lives in the same city as you, you should try to meet with them in person to discuss things. Meet for lunch or at a coffee shop with them. Make sure that you dedicate enough time to really discuss things with your friend or family member. Don't pick a place that is distracting or difficult to concentrate in for your meeting. If you cannot meet with the person face-to-face, you can just make a phone call to them. But, if at all possible, try to discuss things in person.

Talk with the Person as Soon as Possible

One of the most important things to consider when uninviting someone from your wedding is the timeline. Make sure that you let the person know that they will not be attending the event with a reasonable amount of warning. Do not tell the person a week before the wedding that they are not going. People buy outfits for weddings, make hotel plans, and ask for days off of work. Make sure that you give that individual enough time to reconstruct those few days that have been planned around your wedding. Although it can be difficult, try to let the individual know that they are no longer invited to your wedding as soon as possible.

Explain the Situation Honestly

Yes, this is a tricky and uncomfortable situation. However, your friends and family members will understand if you have to uninvited them because they know you and love you. Explain to the uninvited guest why you have to cut down your guest list. Oftentimes, couples will have to slim their guest list because of financial complications. The more guests you invite, the more expensive your wedding is going to be. If you have to uninvite some people from your list because your guest list has just become too large, explain the financial issues to them. Being completely honest with your guests is certainly the best option.

Sometimes we forget to factor in the little costs of things for our wedding. We don't realize how over budget we are until it is nearly too late to cut back. In this case, uninviting some of your guests can be a necessary step to reducing the financial burden your wedding may bear. Don't let a little snafu like this ruin your big day. 

Manage Your Life

I came across a blog post from Martin Yate on managing your career today. Yate suggests that you "[m]ange your own life as if you are your own boss and agent."

Right now this makes a lot of sense. The article goes on to suggest that you do the following:

Research & Development . . . continually monitoring employment market demands for your profession insures your future with consistently in-demand skills.
Marketing and Public Relations . . . help establish credibility for the professional services you deliver
Sales . . . stay current with proven strategies to sell your products and services, including resume, job search, interviewing, negotiation, and all the other tools of career management.
Strategic Planning . . . develop strategies for growth with a current employer, times strategic career moves that take you to new employers, monitors the health of your profession, and makes plans for career change with timing that keeps you in control.
Finance . . . As a good consumer, you have been raised to live in debt. You need a financial strategy to ensure you invest in your future success, rather than fritter away your income on the instant gratification drummed into your head by 24/7 media.

As readers of my blog I assume you are already interested in or taking control over your fiances. However, I sometimes forget about how important it is to be aware and in control of my career. The money that I save and budget comes from my professional life. In that sense, I should be aware and in control of my professional life as much as I am of my fiances. I often think it is too easy to just let things slide and forget that everyday you spend in a job is an investment in yourself. If you get to the point where this investment doesn't seem to be making sense then it is time to reevaluate. It is an interesting way to look at your life and career.

picture by Rosa Say

Boot Camp

I started a boot camp on Monday and it kicked my butt! It is sad how out of shape I have become over the past two years. I would normally never sign up for a boot camp. It is not that I have an aversion to working out, it is more because the cost is normally $250 and up. That is more than I'm normally willing to spend. However, I'm taking this course for $100. It runs for four-weeks, three days a week and was only $100. Thank you groupon.

I find groupon's can be dangerous. You either get a great deal out of them, or you buy something you will never use and waste your money. I try to be very careful to only purchase item that I will use, but every once in a while I let one go to waste. Not very frugal of me!

My goal with this boot camp is to kick start an exercise routine, and to build strength in my upper body. If I happen to tone down my love handles - well that is an added bonus! Even though I'm very sore today I'm really glad that I've committed to this class. I can easily talk myself out of working out when it is only me. But, I hate missing any class. So the chance that I will finish this through is very very high. $100 I'm happy I spent.

picture by scruffdog1231

My Professional Life

Every so often I find myself rethinking and examining my professional life. I like to call these moments my career-crisis times. Having just completed a degree I am once again at that point. There are a couple issues that are driving this career-crisis:

• I've realized that there is little room for growth in the career path I've chosen. And I want career-growth.
• I've also realized that I've spent the past five years developing "soft skills". In other words I don't have "skills" that are easily transferable to other fields. For example I'm not an accountant, in IT, or even have specific marketing skills.
• And of course, money has become an issue in both my short-term and long-term thinking. In terms of compensation I feel very under-valued at work. In the long-term when I look at my life goals I realize that I want a standard of living that staying in my current field may not provide. 

A wise professor recently told me that I need to spend the time to decide exactly what I want to do next, because eventually it becomes difficult to start over. Kids, mortgages and life eventually get in the way.

I had hopes my career-crisis moments had ended, but since they haven't I have been trying to figure out what my next moves are. I've been reaching out to people in different fields and spending some time looking at job openings to get an idea of what is out there. I also need to spend some time looking at what I've accomplished and through that what skills I have. 

I'm frustrated that I'm in this position again, but frustration will only take me so far. I have to put in the time to figure out what is next. 

This is an article on Disaster Preparedness Financially - How Much Do You Really Need?

Guest Post:  A financial counselor from Sydney, Thomas Savage also contributes content for creditcardcompare.com.au, an Australian credit cards comparison site, offering terrific balance transfer deals for switching over to new card companies.

It takes only a few minutes of research to discover many ways to prepare your household and family for a natural disaster. However, most of these articles talk about such things as first aid kits and how much water your dog needs. What about your financial needs?

In the wake of a disaster, you may find that there is no working ATM within reach and your credit card may not work. If you also have no power with which to cook, you can end up in a sticky situation - no ability to cook, and even if you can find a restaurant that's open, nothing to pay them with. Although you should definitely have emergency stocks of food, there are situations when what you really need after a disaster is cold, hard cash. Your emergency kit, therefore, should include a cash stash. Look at how much you normally spend in three or four days, then double it.

The second issue that can hit many households after a disaster is loss of income. Not everyone has a job that pays them for time off. If you are self employed and lose power to your home office, you may not be able to work for several days. Ensuring that a few days off work will not result in a disaster is also handy for those times when a nasty cold confines you to your bed or even if you need a burnout break. Make sure there is always enough at hand, easily accessible, to cover a week's lost income.

The worst case scenario in terms of one's job situation after a disaster is if one's job itself is washed away, blown down or shaken to pieces. If you work retail or fast food, you may have no protection if your place of employment is destroyed. A common recommendation is to have enough in savings to cover a year without income, but this is often impossible for those in lower paid jobs. Coming up with an action plan if you lose your job abruptly is, in any case, useful for anyone as anything can happen, sometimes overnight. Is there anyone you can contact for an emergency loan?

What if it is your home that is destroyed? Do you have insurance? When a 5.9 earthquake hit Virginia in the summer of 2011, many buildings were damaged. Although most of the damage was minor, homeowners, business owners and the Diocese of Washington came face to face with the fact that most people in the area did not have earthquake insurance. A small rider would have saved them a lot of money. Make sure you are covered for all of the common disasters that might hit your area and consider adding earthquake and flood insurance. Both of these can hit anywhere.

One last tip. Do you know where the second-nearest bank branch to you is, so you can go there if the nearest one is closed? A lot of people only ever go to their 'home' branch. Knowing how to get to one a little further away during a power outage could be an almost literal life saver.

Building my Wardrobe

I ended up purchasing both pairs of pants this weekend. I love the really skinny black pants and they will look great this winter with boots. I decided to go with another pair of black pants (rather than the pinstripe) in the other pair. At $35 a pair I spent $70.

I'm often accused of wearing too much black, and I am trying to colorize my wardrobe. However, there are some items that I think you need in black. Black pants go with everything, as does a black coat, shoes and a cardigan  Plus I never get tired of black! So in the long run I'm hoping these items will become staples in my closet. In the meantime, I'm still on the look out for a good pair of black flats. I have time, as I've spent enough of clothes this month they are going to be a purchase made in September.

We have been getting a ton of rain in NYC this week and I've been lacking rain boots since mine sprung a leak last fall. I bit the bullet and bought these:

Tretorn Kelly Rubber Boot

I bought them in brown for $52.

So yes, I'm done with clothes shopping for the month!

Classic Items on the Cheap

There are only a few items on my "classic wardrobe" list that I still need to get: black flats, loafers, rain boots, wide belt, dressy tank, black cigarette pants, khaki trousers, and a cotton mini skirt.

The hard part is finding these items at prices I'm willing to pay:

In black flats there are:

$34.99 Restricted

$38 White Mountain

$69 Nine West

Of course I like the most expensive pair best. So for now I'm going to continue to keep my eye out and hopefully I'll come across a pair that I love and that fit my budget!

Good options for black skinny pants are:

$35 really skinny pants from Gap

$35 slim crop pinstripe pants form Gap

The catch is that they are on sale for $35 until Monday. So maybe I should dive into this purchase now!

My Own Classics

I came across this fun list of 50 classic items for your closet:

Now of course the frugal part of me doesn't agree with everything on this list. For example, I do not need two cashmere sweaters, but what I do need is a basic black v-neck and a black cardigan.

So without further ado this is my list of classic items for my closet (the items crossed off I already have).

Shoes  

• black flats
• loafers
• sneakers
• sandals
• black pumps
• tall boots

Accessories

• a light summer scarf
• shawl
• sunglasses
• umbrella
• rain boots
• tights
• work purse/bag
• weekend purse
• evening clutch
• casual tote
• skinny belt
• wide belt

Baubles

• pearl studs
• pearl necklace
• watch
• fun long necklace
• bracelets you can layer
• gold studs

Tops

• black v-neck sweater
• black cardigan
• classic white t-shirt
• long sleeved tee
• cotton oxford 
• tunic
• silk or light blouse
• dressy tank
• camisole

Pants

• boyfriend jeans
• skinny jeans
• black cigarette pants
• khaki trousers

Skirts and Dresses

• little black dress
• fun day dress
• shirt dress
• pencil skirt
• cotton mini skirt
• a-line or bell skirt

Outerwear

• rain coat
• wool coat
• fall coat
• blazer

As you can see I have a love of black. It is true I wear too much of it and I'm purposely trying to wear more color. However, I still think some black staples should be a apart of your closet. They are always classic and match with everything. There are a couple things on this list that I have been wanting for a while. Ever since I had to retire my black flats I have been on the look out for another pair. Of course, my frugal self doesn't let me buy anything that isn't on sale. I also really need rain boots. 

Next I have to try and find some of these items for less!