Rutgers Graduate Student Program-03-14

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Information about Rutgers Graduate Student Program-03-14

Published on March 7, 2014

Author: BarbaraONeill


Dr. Barbara O’Neill, CFP® Rutgers Cooperative Extension

When you invest, compound interest is your friend :-) When you pay interest on credit cards and loans, compound interest is your enemy :-(

 Start with rent, utilities, food, car payment, gasoline, cell phone/internet…and everything else  Add child care?  Add student loan payments  Add credit card payments  Say goodbye to budget flexibility including…  Build-up of emergency savings  Early build-up of retirement savings  Any “fun” money

 Getting a loan to repay existing debt  Charging more each month than payments  “Juggling”  Using credit card cash advances for bills  Consumer  Being  Calls (rotating) payment of bills debt-to-income ratio > 20% at or near maximum credit limits and letters about overdue bills

 Early - Begin paying late penalties    Pay minimum due A month or 2 behind Later - Bills are months overdue    Difficult to pay minimum Creditors are making contact Final - Court proceedings threatened/pending  Wages subject to garnishment  Secured items (car, etc.) repossessed

 Cap total student debt at (or below) the expected first year salary for a job in student’s field of study  Keep debt low enough so you don’t spend > 10% of post-graduation pre-tax income on student loan bills  Future artists and musicians would be wise to borrow less than future engineers and computer scientists  Future public servants might have some flexibility with loan forgiveness programs

 “It depends”  There are no set annual or aggregate limits for Direct PLUS loans  Consider supply and demand for field of study  Consider typical career trajectory patterns and future income increases  May be best not to exceed year 5 to year 10 postgraduation income DLB0703Attach.pdf

 When your “future self” benefits from purchases made by your “present self”  Example  Builds equity over time  Example  #1: Mortgage for Home Purchase #2: Student Loan for Education Potential for higher future income  Need to view ALL debt from a ROI perspective

 It depends…  Convenience users pay no interest and fees and earn valuable rewards  “Revolvers” pay interest/fees on unpaid amounts  For revolvers, credit card debt is like a “tax” on future income to pay for current consumption  Interest adds to the cost of goods and services, especially when minimum payments are made

 Extend term of the loan (e.g., 72-month and 84-month car loans)  Leads to being “upside down” for long time period  Mortgage ARM loans with low “teaser” rates  Interest-only loans  “No payment until November 2014” offers  Make only the minimum payment due on credit cards


Suggested Activity: Compare Credit Cards Card 1 Card 2 Card 3 APR Annual Fee Minimum Pmt. Penalties Late Fees Cash Advance Resource: 16

 Contact lender about loan repayment options  Visit Federal student Aid Web site to explore options:  Contact  Do a non-profit credit counseling agency a PowerPay debt reduction analysis  Embrace frugality

 Budget Counseling – should be a nominal cost  Debt Management Program (DMP)  Must incur no further debt and surrender credit cards  Administrative fee charged for cost of repaying bills  Will only take on clients with ability to repay debt  Some states license credit counseling agencies National Foundation for Consumer Credit 800-388-2227 or


 Print out repayment calendar for three repayment options (assumes no new future debt):  Highest interest rate first (in sequence)  Lowest balance first  Shortest payoff term first  Can add one-time or periodic additional payments (e.g., bonus, tax refund, etc.)  Time and interest savings will vary according to length of debt, number of creditors, APRs, etc. 21

Name of each creditor  Balance owed  Monthly payment (minimum or above)  APR (interest rate) 

Personal Experience: Four bags @ $5 = $20 40 usable items @ 50 cents (jackets, shoes, suits, pants) 18 other items donated to Fire Department clothing box

 Borrowing obligates future income to support today’s spending  Lower monthly payments usually mean that you pay more interest over the life of a loan  Your past debt payment history is your “financial reputation” and affects future credit opportunities 25

  Information and balance payment calculator   User-friendly credit card information   Semi-annual credit card survey results   Annual credit card survey results 26

By Consumer Federation of America 27

• • • • • • • • Overview of the Financial Aid Process 1:48 Myths About Financial Aid 2:57 FAFSA Overview 2:09 How to Fill Out the FAFSA 2:57 After the FAFSA: What Happens Next 3:02 Responsible Borrowing 2:20 Repay your Loans 2:21 How to Manage Your Student Loans 2:28

 Do both!  Example: 75% debt repayment and 25% saving  Opportunity cost of not saving and investing early is huge  For every decade that one delays saving, the cost of reaching a financial goal TRIPLES!  Compound interest is not retroactive!

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