Having trouble keeping up with your student loan payments? Lower payments or no payments at all may be a phone call away. Read this press release from the U.S. Department of Education to find out how you may qualify for the new program.

U.S. Department of Education

For Immediate Release

July 1, 2009

Starting July 1, a new repayment option became available that makes monthly payments more affordable for Americans with heavy federal student loan burdens. The new Income-Based Repayment (IBR) plan protects borrowers by linking payments to income and family size. A related new program offers additional benefits to those working in public service jobs.

“We know many graduates are concerned about their ability to repay student loans in the current economic environment,” said U.S. Secretary of Education Arne Duncan. “This new plan addresses the issue head on by giving them the option of a monthly payment tied to their income.”

The new IBR program is available to borrowers repaying new and existing federal student loans (Direct or Federal Family Education Loans). Those with high student loan debt relative to their income are likely to be eligible for the IBR program, resulting in reduced monthly payments and, in some cases, no monthly payments.

For example, someone with student loan debt of $25,000 at 6.8 percent interest would have a monthly payment of $288 under the standard 10-year repayment plan. If the borrower were single with no dependents and had an Adjusted Gross Income (AGI) of $30,000, the monthly payment would drop to $172 per month, a reduction of $116 per month, or 40 percent under the IBR Program.

Payments are recalculated each year. The lower payments may result in longer repayment periods and increased interest charges. While individual lenders determine eligibility, borrowers can use a new IBR calculator to estimate monthly payments and eligibility. To apply for IBR, borrowers should contact their lender.

Borrowers who work in public service may be eligible to receive an additional benefit while using IBR: after 10 years, any remaining loan balance may be canceled. This Public Service Loan Forgiveness Program is available only in the Direct Loan Program to borrowers making payments while working full-time in schools, government or many nonprofit organizations. (Borrowers with Federal Family Education Loans can consolidate their loans into the Direct Loan Program in order to tap into this benefit.)

More detailed information about IBR and other repayment plans is available from the Department of Education at 1-800-4-FED-AID or www.studentaid.ed.gov. Click here for related video clips from Secretary Arne Duncan.

The best way for parents to instill good financial habits in teens is to lead by example.  By living within your means, spending conservatively and focusing on the long term building of wealth, you are providing good lessons for your teen. 

At the present time, only three states in the nation require students to learn basic financial management as a high school graduation requirement and 17 require financial management to be incorporated into other subject matter.  Therefore the burden of this important life lesson falls on parents. 

The most important topics to discuss with your teens include;

·         Budgeting basics.  Teach them to budget regularly by knowing how much money comes in and how much goes out.  Most teens have an income or receive allowance and have expenses like gas for a vehicle. 

·          Living within your means.  Peer pressure persuades many of us to fit into a group like wearing trendy clothing or having the latest designer cell phone.  Problems happen when people cave in to the pressure and do not prioritize their needs and wants.  Help your teen understand needs are things that are required to live and wants are things we desire that are not necessary. 

·         Banking.  Educate your teen on banking basics such as the differences between checking and saving accounts, writing a check, using the ATM, writing a deposit or withdrawal slip, keeping track of the balance and reconciling a bank statement. 

·         Paycheck information and deductions.  Discuss the difference between gross income which is what you earn before deductions and net pay which is what you take home after deductions.  Also discuss deductions such as Social Security, Medicare, Federal Income Tax and possible insurance premiums. 

·         Federal Income Tax.  As an employee, help your teen understand the purpose of the W-4 form on which they indicate the number of withholding allowances they will claim.  This will determine the amount of federal income tax withheld from their pay and will be reported by January 31 every year.  Some states also require income tax and will provide guidelines on calculating deductions.

·         Pay Yourself First.  Encourage your teen to take at least 10 to 15 percent or more of their income and place it in a savings or investment account.   Early saving habits help teens learn to achieve financial goals, be prepared for life’s unexpected moments, cover college expenses and even plan for their retirement.

If money management has always eluded you, it is critical that you work to improve your financial weaknesses.  One way to improve your financial habits is to take personal money management courses such as the Investing in Yourself series.  Money management courses will help you learn positive habits and, even better, demonstrate good financial practices to your young adult. 

A family vacation is a great way to unwind after a year of hard work and school.  Many people who are working to pay down debt and avoid the use of credit can no longer manage costly trips.  The good news is, with a bit of extra effort you can plan an affordable vacation that everyone in your family will enjoy and remember for years to come.   Here are a few tips and ideas to get you started:

 
Do your budget.  Know how much you can afford to spend on a vacation by creating a vacation budget.  This will prevent you from turning to costly credit for expected vacation expenses and other situations that may come up. 

Plan in advance.  If you start your vacation research early you are more likely to find special offers and get reservations at popular destinations.  Turn the vacation planning into a fun activity for the whole family by choosing possible locations, the length of your stay, the travel route and activities for the family. 

Make a list of the items you will need for vacation. These may include swimsuits, sun block, groceries, ice chest, etc. Purchase these items before you leave so you can shop at large retail shops and grocery stores. Any item you purchase at a camp store, or souvenir shop will cost you more money than necessary.

Choose something close to home.   Look for a great location within 300 miles or less of your home.   The closer you are to home the less you will spend on travel expenses. Think about this: to travel 300 miles in a car averaging 25 mpg it will cost you $30.24 (at $2.52 a gallon). Round trip that is $60.48.

Check out vacation rentals.  Believe it or not, most money spent on vacations is on dining out.  You may be able to find a reasonable vacation rental and save a lot of money by preparing your own meals.

Go camping.  If you love outdoor adventures camping is a great option.  Kids also love camping because it is fun, exciting and they get to make new friends.  Camping is the most budget-conscious way to have a great family vacation.  Many campgrounds are equipped with restrooms, showers and other services.  Remember to bring a pocketful of change for the showers!

An affordable family vacation can be more fun and exciting than an expensive one. If you put some effort into the planning process, you can have a perfect vacation with your loved ones and share some unforgettable life experiences.

Some resources;
www.Recreation.gov  to search national state parks for recreational activities and make reservations for campsites nationwide.

The Credit Card Accountability, Responsibility and Disclosure Act, recently signed into law, will provide new credit protections for consumers beginning in February 2010.   The act is designed to strengthen the credit market by ending unfair rate hikes, hidden fees, misleading practices and by adding transparencies and accountability.   Here are some highlights of the act:

Protection for students and young people
The act provides these protections for those under age 21:

• Ends prescreened credit offers to people under the age of 21 unless consent has been provided by the consumer
• Adults under 21 years old can only be approved for credit if they can prove income or have a parent or guardian cosigner
• Credit limits for students without a co-signer  will be capped at $500 or 20 percent of annual income, whichever is greater
• Credit limit for students with a co-signer are capped at 30 percent of income
• Colleges are required to publicly disclose any marketing contracts made with a card issuer
• Credit card companies are restricted from offering gifts to students on college campuses for filling out a credit card application

Protection for all consumers
The act extends the following bans, preventions and accountability for all consumers:

• No rate hikes in the first 12 months of a new account
• Promotional rates must last at least six months
• Creditors must provide 45 days notice before changing interest rates
• Payments and excess payments must be applied to balances incurring the highest interest rate
• Statements must be mailed to cardholders at least 21 days before the payment is due
• Card companies can raise rates due to late payments, but the rates must be lowered back if the cardholder is current on payments for six months
• Retroactive rate increases on existing balances due to “universal default” (late or missed payments with a different creditor) are banned
• Restricts retroactive rate increases due to late payments
• Prevents over-the-limit fees; cardholder’s must “opt in” to being allowed to charge more than their credit limit
• Opting in would allow the creditor to charge an over-the-limit fee
• Limits fees  on gift cards and stored value cards (such as prepaid credit cards, gift certificates and gift cards)
• Card companies are prohibited from double-billing determined by using the previous month balance to calculate interest charges on the current month
• Card issuers must display on account activity statement, how long it will take to pay off the existing balance and how much it will cost if the consumer only pays the minimum due
• Card issuers must display on account activity statements the payment amount and total interest cost to pay off the existing balance in 36 months
• Credit card contract terms and activity statements must be in language that consumers can see and understand

Whether you manage your credit and debt on your own or if you use a Debt Management Plan to repay debt, it is important protect yourself by:

•  Understanding how much your credit costs by knowing interest rates on all of your accounts
• Opening and reading all mail or email received from your credit card companies
• Making all payments on time, and
• Avoiding the use of credit by spending money you actually have

Additional information about credit counseling and debt management plans is available on the American Financial Solutions’ web site.

The concessions seek to provide debt relief for consumers without sufficient income to be successful on a traditional DMP. Without these special concessions, many consumers may be forced into bankruptcy. Those creditors supporting the Call to Action include American Express, Bank of America, Capital One, Chase Card Services, Citi, Discover Financial Services, GE Money, HSBC Card Services, U.S. Bank and Wells Fargo Card Services.

For more than 40 years, credit counseling agencies have been able to help consumers avoid bankruptcy and repay their debts through DMPs. Credit counselors work with a consumer’s creditors to arrange a DMP, which provides payment concessions, including waiving late and over the limit fees and a reduction in overall interest rates.

As the economy has tightened, fewer consumers have maintained enough income to be eligible for or to maintain a traditional DMP, often leaving bankruptcy as the only option.

The new concessions offer two new tiers of eligibility designed to make DMPs more accessible to a greater number of consumers. Additionally, under the new concessions, consumers are encouraged by their creditors and the credit counseling agencies to create savings accounts for financial emergencies.

“These concessions will make an important contribution to our ability to help more consumers weather the current economic uncertainty, and emerge on a stronger financial footing,” said Henry (Hank) Keaton, president and CEO of American Financial Solutions, and Vice President of AICCCA.

“We applaud the creditors who have taken this very constructive step in partnership with the credit counseling industry to help consumers in difficult circumstances,” he added.

Additional information about credit counseling and debt management plans is available on the American Financial Solutions’ web site.

Education is the first line of defense against fraud and deception; it can help you make well-informed decisions before you spend your money. Today’s exercise, read up!

Fair Debt Collection Practices Act (FDCPA):

The law outlines consumers’ rights to dispute overdue bills placed with collection agencies, an original credit using a different name to collect the debt, or a lawyer collecting a debt for a creditor.

The FDCPA prevents debt collectors from using unfair, abusive, or deceptive practices to collect overdue bills. Some regulated practices include:

• A collector can contact you in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m., unless you agree.
• A debt collector also may not contact you at work, if the collector knows that your employer disapproves of such contacts. A collector should not make excessive calls to you.
  You can stop a collector from contacting you by writing them a letter, but if the debt is yours, you still owe it and the original creditor may sue you for repayment.
• A collector is prohibited from intimidating the consumer by threatening to notify his employer or friends that he has not paid his bills. A collector can only contact third parties to find out where you live or work, but cannot disclose that you owe money to anyone other than you or your attorney.
• A collector may not attempt to collect more than what is owed.
• A collector may not use offensive language to force a consumer to make payments.

Fair and Accurate Credit Transactions Act:
This act replaces the Fair Credit Reporting Act and provides for everyone to receive one free credit report per year from each of the three major credit bureaus, TransUnion, Experian and Equifax. To access your free report, visit www.annualcreditreport.com or call 1-877-322-8228. It also provides for increased accuracy in reporting, prevention of identity theft and restricts the marketing of financial products using sensitive information that is shared with affiliates.

The Truth in Lending Act - is designed to protect consumers in credit transactions by requiring clear disclosure of key terms of the lending arrangement and all costs.

Equal Credit Opportunity Act – This law stops a creditor from discriminating against a consumer on the basis of age, sex, or marital status, reliance on income from a public assistance program, and race, color, religion, or national origin.

Fair Credit Billing Act (FCBA)

This law protects you against billing errors and provides a system to dispute them.
The FCBA settlement procedures apply only to disputes about “billing errors.” For example:

• Unauthorized charges. Federal law limits your responsibility for unauthorized charges to $50;
• Charges that list the wrong date or amount;
• Charges for goods and services you didn’t accept or weren’t delivered as agreed;
• Mathematical errors;
• Failure to post payments and other credits, such as returns;
• Failure to send bills to your current address - provided the creditor receives your change of address, in writing, at least 20 days before the billing period ends; and
• Charges for which you ask for an explanation or written proof of purchase along with a claimed error or request for clarification.

To take advantage of the law’s consumer protections, you must:

• Write to the creditor at the address given for “billing inquiries,” not the address for sending your payments, and include your name, address, account number and a description of the billing error.
• Send your letter so that it reaches the creditor within 60 days after the first bill containing the error was mailed to you.

Send your letter by certified mail, return receipt requested, so you have proof of what the creditor received. Include copies (not originals) of sales slips or other documents that support your position. Keep a copy of your dispute letter.

The cost of credit is not as easy as simply knowing the interest rate. Knowing how to calculate the APR will place you in a better position to choose the appropriate credit for your needs.

The Annual Percentage Rate (APR) is the cost of credit (actual interest rate) measured on a yearly basis and is expressed as a yearly rate.

Here’s how to calculate the APR;
On credit card billing statements, the interest is expressed in two ways, as a Periodic Rate (monthly or daily) and as the Annual Percentage rate. The monthly periodic rate is the annual percentage rate divided by 12.

The example below shows how the APR affects the cost of credit.

Calculate Monthly Periodic Rate on a yearly APR of 18%:
APR (18%) ÷ Months in the Year (12) = 1.5%

Calculate the Monthly Interest Rate using a Monthly Periodic Rate:
Average Daily Balance ($100) x Monthly Periodic Rate (1.5) = Monthly Interest Rate ($1.50)

Calculate the Daily Periodic Rate:
APR (18) ÷ Days in the Year (365) = Daily Periodic Rate (.05)

Credit is a convenience; you can enjoy your purchase while you’re paying for it, or you can make a purchase when you’re lacking ready cash. There are strings attached – it will cost you.

Credit costs do vary a lot depending on the interest and other finance charges.

Take our Credit Reality Quiz to truly understand the cost of credit.

It’s your money so when choosing a credit card it is important to pay attention to and compare the following features:

Annual Percentage Rate (APR): When evaluating credit card offers it’s important to understand the difference between the interest rate and the APR. The interest rate is the percentage of the loan amount that the bank is charging you to borrow money. The APR includes other costs of the loan (the upfront fees, annual fees, etc.) and calculates them as a yearly percentage of the loan amount. Because of this, APR is a more accurate representation of the true cost of a loan. The lower the APR the less you will be charged for using the credit card. Compare APR’s carefully and choose a card with a low rate. Be aware that credit card companies do not need a reason to raise interest rates and will check your credit periodically to determine your continued credit worthiness.

Annual Fees: Typically, you will want to avoid cards with annual fees. The annual fee is simply charged for the privilege of having a credit card. There are many credit cards available that do not charge annual fees, yet offer good APR’s and other benefits.

Late Fees: Almost all credit card companies will charge a fee if you are late (even by one day) or miss a payment. Late fees are as high as $39 and can even cause you to be over-the-limit if you are near your credit limit. This will result in more fees. Avoid these charges by paying your bills electronically or mailing payments at least 10 days before your due date. A lender will usually raise your APR if you are late making your payments.

Over the Limit Fees: It is important to pay attention to your credit limit and avoid exceeding it. Most lenders will allow you to charge slightly more than the limit, but it will cost you. Over-the-limit fees may be as much as $39. In addition, lenders may increase your APR if you exceed your limit. It is better for your credit and your pocket book if you keep your credit card balances within 1/3 of the available credit limit.

Transaction Fees: Many creditors charge transaction fees for certain things – the most common is for cash advances. There are two ways cash advances cost you more: the first is the fee charged at the time the cash advance is taken. The fee may be 3% to 5% of the withdrawal or a flat fee. The second cost of the cash advance is the APR; it is usually higher than it is for regular purchases. The higher APR will often remain in effect until the entire balance is paid off.

Grace Period: The grace period is the period in which no interest is charged if the entire balance is paid off before the due date, usually 21-25 days. This only applies if the amount is paid in full each month. If you run a balance on your card, the grace period does not apply.

Balance Computing Technique: This is the method by which the creditor calculates the finance charge. The most commonly used method is the average daily balance. To calculate this, each daily balance is added up and divided by the number of days in the billing cycle. Some creditors will compute your average daily balance over two billing cycles.

It is important to study the terms and conditions of credit cards and loans. Monitor any changes carefully and try to pay your balance in full each month to avoid paying interest or finance charges. Never make late payments, charge over your credit limit or miss payments. If an emergency occurs and you are unable to make your monthly payment, contact your creditor immediately and try to make an arrangement with them.

Use the Credit Card Comparison Chart to understand the different costs associated with credit offers.