Six Years of Car Payments Sounds Like A Student Loan

I just saw a TV commercial where they were offering 0% financing on a new car for 72 months; that's right - six years. The rule of thumb is to never finance a car for more than three years or 36 months and keep the car for at least six years. If you do that and then continue the amount of the car payment into your savings account for three or four more years, you will be able to pay cash for your next car.

We all know that money is not free, so if there is cash back offer or 0%, pay cash and take the discount.

I don't know about you, but ten years to pay off my student loans seemed to take forever. I personally couldn't stand for paying for a car over a six year period.

The problem with debt is that you are pledging future earning to the banker. In simple terms, you are enslaved to your lender. Vehicles depreciate over time –a vehicle is not an investment. At least with your student loans, it's an investment that pays off.

When you are debt free, all the money you make is for you (and the government in taxes). Being free of debt liberates you to pursue your passions and work for less doing something you love.   When you can turn your passions into profit, you never have to "work" a day in your life.

Be careful of low monthly payments. Dave Ramsey says "poor people ask how much down and how much a month. Rich people just ask how much."  Here it to you becoming rich and debt free.

Filing Bankruptcy While Averaging $115,881 per Month?

Yes, this is what Warren Sapp, former NFL player and Dancing with the Stars contestant did on March 30, 2012.  Mr. Sapp filed for Chapter 7 in South Florida stating that he owes more than $6.7 million to creditors and back-child support and alimony.  His reported assets are $6.45 million.  What does this mean and how did it happen?

It happens because Mr. Sapp was spending more than he could afford, even more than his income of $115,000 a month.  Bankruptcy happened because of poor financial decisions, poor financial planning and thinking of the short-term, immediate gratification--not the long-term gain.  It happened because he was living life beyond his means.

Chapter 7 bankruptcy is also known as “straight” bankruptcy or liquidation and allows an individual to keep certain exempt property.    Assets are sold by a bankruptcy trustee to repay creditors and many unsecured debts are discharged.  Florida does not allow the bankruptcy courts to sell your home because the equity is protected by the Florida Constitution.  Florida also exempts IRS approved retirement and pension funds and personal property valued at $1,000 or less.  Chapter 7 bankruptcy also allows you to reaffirm your secured debt so you can keep your car, furniture or house by renegotiating with your lender.

For Mr. Sapp, he has 240 pairs of Nike Jordan shoes worth $6,500, a watch worth $2,250 and a lion skin rug worth $1,200 that will likely be liquidated by the bankruptcy courts.  However, his Super Bowl ring and 1991 national championship ring will not be auctioned off because he lost them.

Lessons Learned:

Ø  One can always spend more than he or she makes.
Ø  You need to have a budget and keep a spending limit to what you can afford.
Ø  When is enough ‘enough’? Really…how many Jordan athletic shoes do you need?
Ø  Review your values and make sure you are using money as a resource to reflect your values.
Ø  Live below your means; always pay yourself first and save at least 10% of your income.

If you want a pair of Nike Jordan shoes, contact the South Florida bankruptcy court!

Prenuptials for All?

‘Kobe Bryant's Wife to Get All Three Houses, Worth $18.8 Million’, ‘Mel Gibson Loses Half of His $850 Million Fortune to Ex-Wife in Divorce’. As these headlines spam the news, it gives us pause to consider, should prenuptial agreements be made a requirement prior to granting a marriage license? No one goes into a marriage thinking this has a 50-50 shot. Hurt is the last thing you want bring onto this special someone—but unfortunately, 50% of the marriages end is divorce – so many suffer significant financial distress in dissolution. It is especially difficult to stay civil during this time which is unfortunate to each other as well as impacted children, family members and friends.

Sweetheart day is just around the corner. Looking for the perfect Valentine’s gift? Just as every business partnership goes into a contract agreement with a dissolution (sell out, buy-out) clause, should every marriage engage in a prenuptial agreement? Do you state up front in an agreement the steps you will take to keep your partnership strong; but if all else fails, maybe the greatest gift you can give the one you love is a commitment to an elegant, fiscally responsible exit so you can remain friends (at least civil) after dissolution of the marriage. So much emotional and fiscal hardship takes place during a divorce. How much of that pain would be spared if in the bliss of every-lasting love, both parties contractually agreed to a fair dissolution option?

Your partner is your friend. Making a pledge to keep your partnership fiscally fit through thick and thin, could be considered a loving, caring Valentines gift --along with a small token in a Tiffany blue gift box. Something to consider.

Look Who’s Trying to Collect from Beyond the Grave

What happened to your debts when you die? As seniors increase their debt during retirement, you should know what happens to debts when you die.  According to FoxBuisness.com “Nearly 40% of all seniors say they have accumulated debt in their retirement years with no plans to pay it off in their lifetime.  Are the heirs and next of kin responsible?

There is not an easy answer and it all depends on the situation.  The first thing to do in all cases is to notify all creditors of the death. Normally, the estate and the executor who handles the estate will liquidate the assets, pay creditors and distribute the proceeds according to your last will and testament or it will be distributed according to state laws.

If there is not enough money to pay all creditors, the general order of who gets their money is:

1.  Funeral expenses, taxes and administrative fees

2.  Secured creditors such as mortgage loans, car loans, etc.  These creditors have the rights to the assets securing the loan.

3. Unsecured creditors…if there is any money left.  If there is no money left, the creditor will contact the co-signer and the co-signer is legally responsible for the debt.  If the debt was just in the deceased name, most credit card companies will write off the debt.

 

However, more and more credit card companies are outsourcing their collections and contacting the next-of-kin trying to collect based on “moral obligation.”  Saturday’sWall Street Journal has an article describing how collection firms are targeting survivors to try to collect at least some of the debt.  According to this article, “Collectors are starting to realize just how much money you can get from someone when they are at their most vulnerable.” Many survivors pay some or all of the debts just to stop the collectors from calling and bringing on recent memories of the deceased, even though they are not legally obligated to pay.

Here are some of the facts you should know:

• The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 prohibits creditors from charging late fees or annual fees during estate settlement.
• Not all monies are available to creditors.  Retirement accounts such as 401(k)s and IRAs don’t pass through the estate, but go directly to the beneficiary.
• Under the FairDebt Collection Practices Act , collectors cannot do the following:
•  Call before 8:00 a.m. or after 9:00 p.m.
•  Call at work if you ask them not to
• Harass you, use obscene or profane language or threaten the use of violence or other criminal means to harm you, your reputation, or your property
•  Conceal his or her identity on the phone
• Lie or falsely imply that you have committed a crime
• Disregard a written request from you to cease further contact
• Falsely represent the amount, character or legal status of debt
• Continue to contact you if you ask them in writing to stop

If you feel you are being harassed, contact your state’s Attorney General’s office and the Federal Trade Commission with the details of the phone call or harassing activity.  You may not be liable for the debt and you have rights to keep you from being harassed.

OWS: Repay Student Loans?

Occupy Wall Street (OWS) protesters have decided not to pay back students loans as a way to protest the high cost of higher education.  Is this a good idea?  Check out what Prof Bob has to say.

Is Student Loan Forgiveness the Answer?

President Obama announced changes to the “Pay As You Earn” plan on Wednesday, October 26, 2011 that would/could ease the repayment of student loans. According to the College Board, the average public in-state tuition rates are increasing 8.3 percent for the 2011-12 year.

President Obama pointed out that the average college graduate owes $24,000 in student loans and that the 2011 graduates have an average debt load of $27,300. USA Today reported that outstanding student loans will reach $1 trillion ($1,000,000,000,000) before the end of the year. Currently, student loan debt in America has surpassed credit card debt. Is this our next financial crisis?

The highlights of the “Pay As You Earn” plans or income-based repayment plans are to:

·        Start this option is 2012 (vs. 2014)

·        Cap student loan payments to 10% of discretionary income (vs. 15% )

·        Forgive any remaining balance after 20 years (vs. 25 years)

·        Support consolidation of direct government student loans with government-backed private loans helping an estimated 5.8 million people. This would essentially allow refinance the private loans at lower government rates.

According to a White House fact sheet, a teacher $25,000 in debt and earning $30,000 a year will see their payments reduced to about $114 a month.

Student loans do not go away in bankruptcy unless under extreme circumstances and it looks like this could be one alternative to help people who have a lot of student loan debt. Current repayment plans include the options of 1) Standard Repayment plan of 10 years with a minimum payment of $50.00; 2) Extended Repayment plan if you have more than $30,000 in Direct Loan debt -repayment over 25 years; 3) Graduated Repayment letting you start out with low payments and increase your payment amount every two years; 4) ‘income contingent’ and 5) ‘income-based’ repayment plan.

As you take on student loan debt, you have to decide if and how you will be able to repay your loan. These new changes may not be right for everyone, especially if you do not have a lot of student loan debt and you get a high paying job after graduation.

Borrow wisely, study hard, have fun and pick the right repayment plan for you.

Bankruptcy and Student Loans

If you're having serious trouble paying back your student loan debt, bankruptcy is not a likely alternative for you. Student loans are usually not eligible for discharge from bankruptcy.

If you're having trouble making any of your payments, the first step is always to contact your lender, be honest and try to work toward a realistic payment plan. The lender would much rather be paid over a longer period of time then for you to default on repayment of your debt.

If your student loans are the largest part of your debt, you are better off to contact your student loan lenders and see if you can arrange an easier repayment plan or deferment of payments, over bankruptcy.

Bankruptcy filings stay on your credit report for 10 years and will likely limit your ability to get a mortgage, borrow money, or get a job. 

Student Loan Default Rate Increases

Is the education worth the debt?  Is it worth going an extra year so you can work while going to college and not take on debt? First, a college education is worth the cost, but you have to look at the potential ROI (Return on Investment).  Different careers pay varying wages. With higher earnings, you are able to pay back a larger student loan debt with fewer sacrifices. 

The U.S. Bureau of Labor Statistics (BLS) publishes an OccupationalOutlook that lists occupations, the education required, and the potential salary range.  According to the BLS, the high your education, the more money you will make and the less chance you will be unemployed.  Choose your education, career and debt load carefully.

The cost of an extra year of college could be more costly than taking out a loan and finishing on time. To calculate this cost, add together the cost of tuition and books for one additional year of college plus your potential future salary, and then subtract your current salary.  If tuition and books cost $30,000 and your future salary is $35,000 upon graduating, and you are making $15,000 now, that extra year cost you $50,000 ($30,000 + $35,000 - $15,000).  Can you better afford the fifth year of $50,000 or take out a loan to get done in four years?

Choose your institution carefully.  You may think that private 4-year colleges and universities are the most expensive but if you calculate the true cost (tuition, room and board minus any grants and scholarships) it might be close to the cost of a state school.  If adding in the cost of getting done in four years compared to five or six, and placement rates for their graduates, it may be less expensive to attend a private college or university.

You can also receive credits from your local community college and usually transfer the credit to a 4-year college or university.  If considering this option, talk to the college or university you are planning to transfer to make sure all of your community college credits count towards graduation.

Using the Federal data for the 2009 cohort, the highest default rate for colleges and universities offering baccalaureate or above degrees is for for-profit schools with a 15.4% default rate, followed by public colleges or universities at 5.2% and then private colleges and universities at 4.5%. Student loan defaults do not go away on your credit report.

Being a federal loan, the government has more power to garnish wages (up to 25% of your wages), keep your federal and state income tax refunds, take your future lottery winnings, and garnish part of your social security.  Student loans are rarely discharged in bankruptcy.  So once you borrow the money, you will have to pay it back! 

If you are having trouble making your student loan payments, check out www.studentloans.gov for information on deferment of payments. You can also check out a Wall Street Journal video for more information on student loan defaults.