Topics We’re Talking About: Nerding Out Over FinCon!!!

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Hello ReadyForZero readers! Hope you’ve had a lovely week so far and are prepping for an even lovelier weekend. This week, we’re talking about something pretty exciting in the world of personal finance: FinCon 2014.

I have a confession to make… I’m playing hooky. Well, kind of.

If everything has gone according to plan, that means I’m currently eating a beignet many, many beignets and chatting up personal finance bloggers in the beautiful city of New Orleans. Yep, that’s right – I’m attending the annual FinCon along with ReadyForZero’s content superstars, Ben and Shannon.

And besides beignets, there’s a lot to be excited about for FinCon this year! Jeff Goins, internet marketer extraordinaire, is the key note speaker and the accompanying line-up of presenters follows suit in awesomeness. Our friends Matt and Andrew over at Listen, Money Matters even spearheaded the impossible of creating a rap video about blogging and personal finance (and succeeded).

So What REALLY Happens If You Default on Your Student Loans?

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With many young graduates carrying anywhere from hundreds to hundreds of thousands in student loan debt, students are currently facing a mountain of a financial challenge. On top of already high numbers, student loan debt is a sticky kind of debt… as in it stays with the borrower or cosigner no matter what.

There’s no declaring bankruptcy should you find yourself in over your head.

There’s no ignoring bills if you can’t make the payments.

There’s no getting rid of it.

But what about when you simply can’t make payments on your loan? Beyond a late payment fee, continuing to let your student loan bills stack up will eventually lead to larger repercussions. Namely, student loan default.

Borrowers can default on a loan for any number of reasons. Some borrowers default because they’re financially unable to make payments. Others default unknowingly on a debt they didn’t know that they carried. But one thing remains true among all these possibilities: If payments aren’t received by your lender, your student loan will default. What exactly does that mean? Let’s take a look.

Defaulting on your student loan debt

Late payment timeline

  • As soon as you miss your first student loan payment, you’re considered delinquent. This status can act a bit like a red flag to both you and the lender.
  • After a payment reaches 90 days past due the delinquent status will be reported to the three major credit bureaus and a mark negative mark will be added to your credit report.
  • After 270 days past due, a student loan is considered to be in default. At this point, your debt will be put into collections and payment will be required from collections agencies.

Repercussions for defaulting on your student loan

Loss of eligibility for forgiveness plans
If you have federal student loans in default, you’ll lose protections such as federal forgiveness programs, forbearance, deferment, and access to different repayment plan options.

Lowered credit score (and resulting consequences)
The default will be noted in your credit report and will continue to be visible to lenders even if the default is quickly resolved. Keep in mind this hit on credit can impact your eligibility for loans, increase your mortgage rates, and even impact your future employment opportunities.

Collections fees
Once your student loans are turned over to collections, you’ll be responsible for any associated collections fees. These will be tacked on to your initial balance of principal and interest.

Tax Refund Offset
Should you fail to pay on your defaulted loans, you may have your tax refund applied to your student loan payment. This is an automatic process and one that can be particularly difficult should you rely on your refund or end up owing the IRS taxes.

Paycheck/wages garnished
The government may begin to collect payment by automatically deducting up to 15% of your paycheck. This will be used to pay debt collections fees, interest, and then principal of your debt. For more information on how this works, check out our post on wage garnishment.

Legal actions
If you continue to ignore your defaulted loan you may face even more serious legal repercussions. The government can sue you at any time after your student loan has reached default status.

Higher interest rates
Along with a lowered credit score you’ll also face the higher interest rates that often accompany a lower score. Since the mark of default can live for years on your credit report it’s a consequence that could potentially follow you for years.

What to do…

If you’re facing the possibility of default

There’s nothing quite so scary as receiving a bill you know you can’t pay. But despite the strong emotional response it instills, it’s essential that you act on the issue and explore your options. Rest assured, you’re not alone in your struggle.

Talk to your lender about changing your repayment plan to one that makes sense with your financial circumstances. They’re there to help guide you in your repayment and can answer any questions you might have. Beyond answering your questions they can also tell you if you qualify for programs like the Income Based Repayment plan or Pay As You Earn plan. These plans can lower your monthly bill to a number that may feel more manageable.

If you’ve already defaulted on your student loans
Take action as soon as you can. While it’s scary to receive calls from debt collectors it’s also empowering to take charge. Be the one to make the call, start the conversation, and begin exploring your options.

The agency or lender may offer a few possible options, including:

Depending on your current financial situation you might find yourself positioned to benefit from one more than the others. Go into the conversation prepped with your financial stats and account information. Your lender or debt collections agent will be able to talk you through the process of working through the tasks ahead and setting up a plan that you can manage.

Don’t let default upset your financial future

Default is a real financial challenge but it doesn’t mean that all is lost for your financial foundation. The key to avoiding or bouncing back from default is to maintain contact with your lender or servicer as soon as you anticipate any financial challenges. Keeping the lines of communication open will help you to maintain your sense of direction and to help you carve out your plan of action. Above all, remember, you’re not alone. For a closer look at the experience of defaulting on student loan debt, check out one woman’s personal story of student loan default shared via The Billfold.

Image Credit: tinylittlerocks

3 Tips For Dealing With Cognitive Overload

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Have you ever watched the show Hoarders? Maybe you haven’t had the desire to actually sit through a cringe-worthy episode, but your television screen may have been momentarily littered with someone else’s belongings while channel surfing.

The thing is, these people’s homes are so littered with stuff that even the smallest and most basic tasks seem next to impossible. Going to sleep at night entails finding a safe pathway through the 7 foot-high piles and clearing the bed of debris. Cooking dinner generally can no longer be done (except sometimes through a microwave), so each meal feels monumentally difficult to prepare. Forget about keeping track of important documents, even ones threatening to declare the person’s home uninhabitable from the city government where they live.

Your home, while cluttered from time to time, most likely will never reach critical mass like these people are dealing with.

But let me ask you this: how is your financial house looking? Is everything accessible, easy to manage, and easy to see…or does it look more like it belongs in an episode of Suze Orman: Hoarders?

The reason why I ask is because of something called “Cognitive Overload”. This phrase describes what hoarders, people in financial messes, and people spending 10+ hours straight on the internet feel: bombarded with too much stuff and information so that nothing is actually absorbed. In other words, it’s a state of complete overwhelm.

If you’re dealing with cognitive overload when it comes to your finances, I’ve got some tips for how to get over the feeling of overwhelm and into the realm of purposeful action.

Are You Making These 6 Major Credit Card Mistakes?

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Despite great claims to make life easier, credit cards often have a way of making life more difficult. Much more difficult in many cases. Credit card companies make a lot of tempting promises but the truth is: these promises aren’t guaranteed to pan out. Using a card to buy a new gadget gives you the freedom to add material goods to your life, but we often forget one thing – until paid off, these are essentially borrowed items.

Additionally, 0% APR deals eventually expire and unless you can pay off your balance that means you’ll be making interest payments on your borrowed cash.That financial freedom that credit cards seem to offer can just as easily be turned into a financial cage.

On top of it all, many consumers aren’t even aware of some of the sneakier details that are keeping them in debt. That’s why it’s crucial to understand the terms behind your plan to avoid prolonging your repayment.

Here are 6 mistakes to avoid as you assess (or reassess) your relationship with credit cards:

Wage Garnishment Puts the Brakes on Financial Recovery For Many Americans

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Back when I was dealing with credit card debt, I earned very little money for where I lived. So little that I had to live on a peanut butter and jelly budget to make any headway towards payoff at all. But still, I knew I was lucky – simply because I was still earning enough to actually pay over the minimum.

Unfortunately, not all Americans are quite so lucky – especially those with families to raise. High interest rates paired with other financial obligations are causing many to not only feel financially pressured by debt but to fall behind on payments as a result. But falling behind on payments, it turns out, is only the beginning of the trouble.

The lifeline of debt can be long and haunting. And recent studies show the end of that lifeline (wage garnishment) is picking up speed – especially for those with consumer debt.

Looking For Motivation? Get Specific With Your Goals

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Ever since I was young, I remember my parents getting together with the same group of friends every New Year’s Day to create vision boards. They would spend a few hours sorting through magazines, selecting pictures associated with the things, people, and experiences they wanted to usher into their lives in the upcoming year; and then they would have something to refer back to until next year.

As I got older, I followed suit: creating a visual snapshot of what I wanted out of my life, something I found much more meaningful and fulfilling than listing resolutions that would inevitably make me feel like I had already failed before I even began.

I still create those boards and I think they are beneficial in honing in on what I believe would add meaning and value to my life. But, when it comes from the picturing stage to the planning stage to the realizing stage, writing down goals – precise goals with actions steps and numbers attached – is always what gets the ball rolling for me.

How to Choose a Legitimate Credit Counselor

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Do you feel overwhelmed by your debt situation? Plenty of organizations exist to help those who don’t know how to handle their credit, feel confused about where to start repaying their debt, or don’t understand what steps they need to take to become financially secure.

Unfortunately, not all credit counselors act in your best interest. It can be difficult to sift through information provided by companies promising to help consumers. What should you look for when choosing a counselor? And how can you tell if an organization exists to help others, not themselves?

If you need help managing and reducing your debt, our comprehensive guide on how to choose a legitimate credit counselor is a good place to start.

Why You Should Never Feel Self-Conscious About Being Frugal

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I’ll admit upfront – I’m usually “the frugal” one in any given group. Aside from working at a company that lives and breathes personal finance, I’m also not a big spender by nature. In that way, it’s been easy to maintain my frugal tendencies. Though my affinity for saving isn’t something I’m actively spieling about in everyday conversation, it definitely manifests in my actions. Unfortunately, there’s a common theme I’ve noticed as the frugalista figurehead – frugality isn’t always given the high-five of awesomeness in social settings.

It’s not easy to stand by your tendency to save when others around you are putting on the pressure to spend. On more than one occasion, my decision to save rather than spend caused me to feel judged or isolated from others – even when my saving strategy had zero impact on another person’s life or experience. During those times I also felt the need to excuse my desire to save and defend my frugality.

Topics We’re Talking About: Environmentally Friendly Budgeting

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Hello ReadyForZero readers! Happiest of Fridays to you. This week, we’re talking about: the Earth. Saving it, of course.

For my undergraduate degree, I went to UC Santa Cruz, a school known for its natural beauty, copious number of banana slugs, and an environmentally minded slant. Truth be told, it’s garnered a reputation for being a bit of a hippie school.

Truth be told, I went to more than one drum circle during my years there. But beyond partaking in that unique style of creative energy, my time at UCSC also exposed me to just how much of an impact we individually have on this earth. Boom went my brain, day after day. This new learning led me to change some of my daily habits accordingly.

I became an avid follower of the reduce, reuse, recycle mantra. Green products were slowly introduced into my apartment. Little by little, I started to alter my lifestyle to incorporate a bit more environmental awareness. The best part of the process was when I noticed another, unexpected repercussion: I was also saving money. Turns out DIY has both a financial and environmental benefit. That made some of the initial environmentally switches fairly painless. 

$18 Billion in Student Loan Debt Threatening Livelihood of Senior Citizens

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When I first graduated from college, I loved to joke that I’d be in student loan debt forever. After all, graduating with tens of thousands of dollars in debt with a degree in comparative literature pretty much meant I was on a long road to my eventual payoff.

Of course, my joke ended up making light of what has become a very real – and very scary – situation for today’s senior citizens. As much as I joked about being in retirement and in debt, there are many out there who are facing that reality. In fact, today’s senior citizens now owe $18 billion in student loan debt.

Since I’m not a fan of reporting scary news just for the sake of it, let’s talk about two things: (1) how senior citizens facing this debt can carve their way out of it, and, (2) how today’s young adults can ensure that they don’t suffer from the same fate.