Liz Weston

Thursday’s need-to-know money news

June 5, 2014 By Liz Weston

Today’s top story: What can be learned financially during a parent’s last days. Also in the news: How to reduce your credit card debt through balance transfers, what new college grads should know about money, and should you buy life insurance for your kids.

5 financial lessons from a parent’s last days
What can be learned during a difficult time.

Save Thousands on Credit Card Debt with Balance Transfers
Playing the balance transfer shuffle.

What New College Grads Need To Know About Money
The “real world” is expensive.

Should You Buy Life Insurance for Your Kids?
Determining the best savings strategies.

Five Little Money Leaks That You Can Plug Right Now
Stopping the drips.

Wednesday’s need-to-know money news

June 4, 2014 By Liz Weston

Today’s top story: Financial moves to make in the month of June. Also in the news: What to do if you forgot to pay your taxes, hot to create the ideal household budget, and what you need to know about your future spouse’s finances before getting married.

The Financial Moves You Should Make in June
How to take the month by storm.

What to Do if You Forgot to Pay Taxes
Don’t panic.

A Guide to Creating Your Ideal Household Budget
Something all members of the house can live with.

Getting Married? 10 Things to Know About Your Fiance’s Finances
No honeymoon surprises.

Are Student Loans Worth it?
Weighing the short-term benefits and long-term costs.

How not to drown in student loan debt

June 3, 2014 By Liz Weston

I recently talked to yet another recent grad who owes six figures for an undergraduate degree. The ease with which young people can drown themselves in debt makes me furious.

And a lot of young people are having trouble paying this debt. The exact number of struggling borrowers is a bit of a mystery, as I wrote in this week’s Reuters’ column, “Confusing data flummoxes fixing of student loan defaults.” But it’s safe to say a sizable portion of borrowers is having trouble paying down their education debt.

A college education, or at least some post-graduate education, will be a virtual necessity if you want to remain in the middle class in the 21^st century. But believing that any investment in any education will pay off is naïve. The thing is, the colleges know better, or at least their financial aid staffs should. But their vested interest in selling educations typically means they don’t step in or even offer warnings as their teenage and twenty-something students pile on ridiculous amounts of debt.

Here’s what I wish every college student and every parent knew:

1. You should stick to federal student loans. These loans have fixed rates, tons of consumer protections and most importantly, limits on how much you can borrow. You typically can only borrow $5,500 for your freshmen year. You typically can’t borrow more than $31,000 for an undergraduate education. That makes it virtually impossible to take on too much debt as long as you get the degree. Can’t afford the education you want with just federal loans? Then you need to look for cheaper schools.

2. Steer clear of private student loans. Honestly, these loans should have warning stickers plastered all over them, like cigarette packs. The rates are typically variable, there are few options if you can’t afford the payments and you can borrow far more than you could ever repay. They should only be considered if the total amount you’ll borrow in both federal and private loans is no more than you expect to make your first year out of school.

3. Mom and Dad should not risk their retirement. Federal parent PLUS loans have some of the advantages of federal student loans. The rates are fixed and there are some repayment options (parents can choose extended, graduated or income-contingent payments, but not income-based or “Pay as You Earn,” the most helpful payment plans for overburdened debtors). But unlike federal student loans, there aren’t reasonable limits on what you can borrow. Parents’ ability to repay isn’t taken into account, and they can borrow up to the full amount of their child’s education. That’s a recipe for disaster. Parents should consider borrowing for college only if they’re able to comfortably repay the debt AND continue saving adequately for their own retirements.

4. You should get through school as fast as possible. If Mom and Dad are paying the bill in cash, then you can afford to party, pack your schedule with electives and switch majors 10 times. If your future self is paying the bill via loans, then you need to get your act together. Get help—find a mentor or advisor who cares about you enough to set you on the right path. The place to look is among your school’s best teachers. Ask around, because these teachers get talked about; take their classes; ask for their help.

Tuesday’s need-to-know money news

June 3, 2014 By Liz Weston

Today’s top story: What you need to know when negotiating with a debt collector. Also in the news: Quick ways to get your finances in order, how you may be unintentionally damaging your credit score, and what you need to know about funeral costs.

3 Things You Need When Negotiating With a Debt Collector
Know your numbers.

4 Quick Ways to Get Your Finances in Order
Start doing your homework.

Are You Unintentionally Damaging Your Credit Score?
Time for some mythbusting.

The Only 2 Things You Need to Remember About Funeral Costs
Don’t be caught off guard during a difficult time.

Is Your Student Loan Servicer Ruining Your Credit?
Know where your loans are.

How many borrowers struggle to pay student loan debt?

June 2, 2014 By Liz Weston

We know about how much outstanding student loan debt there is ($1.2 trillion, per the Consumer Financial Protection Bureau). We have numbers about how many borrowers default on their federal student loans (the two-year default rate is 10%, which means one out of 10 of borrowers who entered repayment in 2010-11 let 270 days pass without a payment, while the three-year default rate is 14.7%).

What we don’t know is how many borrowers struggle to repay their loans, falling behind and potentially trashing their credit, without actually defaulting. The U.S. Department of Education, which provides the default numbers, doesn’t provide statistics on delinquency. A recent study by the Federal Reserve Bank of New York used credit bureau records to put the “effective” delinquency rate at 31% at the end of 2012. The Fed researchers tried to figure out and subtract from the equation the loans that don’t have to be paid because the borrowers are in school, in grace periods or in approved suspension with forbearance or deferrals. They determined that of the rest–those borrowers who were supposed to be in repayment–nearly one in three was 90 days or more late with their payments.

Which is shocking, but it doesn’t quite match up with other studies and published statistics, student loan expert Mark Kantrowitz pointed out in my Reuters column, “Confusing data flummoxes fixing of student loan defaults.” A sampling of those other statistics:

The Federal Reserve Bank of Kansas in 2013 determined that 9.7% of student loan accounts at the end of 2012 were past due, but the delinquency rate was 23% once loans that appeared to be in forbearance, deferment or for students still in school were eliminated. Notice that this study looked at accounts (individual loans), of which the typical borrower has more than one. If one out of four loans (roughly) were delinquent, the proportion of delinquent borrowers would be expected to be smaller (perhaps much smaller).
Over a five-year period, the Institution for Education Policy (IHEP) concluded that 26% of borrowers were delinquent at some point and that another 15% had delinquencies that led to default. IHEP analyzed repayment data for nearly 1.8 million borrowers provided by five student loan guarantee agencies in 2011. Note, again, that what’s being measured is different from the New York Fed study. If one out of four borrowers had trouble paying their debt in a five year period, you’d expect the percentage in any single year to be substantially smaller.
A previous report by the New York Fed researchers found the total volume of delinquent student loan debt in the third quarter of 2011 was 21%, yet figures published by the leading student loan company Sallie Mae suggest a much smaller pool of troubled loans. The company’s most recent quarterly filing with the Securities and Exchange Commission showed that 85.9% of its federal student loans in repayment were current, with just 7.5% 90 days or more late. The delinquency rate for the company’s traditional private loans was 2.9%. Private loans overall comprise about 15% of outstanding student loan volume.

So, the statistics so far measure different things–borrowers vs. accounts vs. volumes of student loan debt–using different sources (data from credit bureaus vs. data from lenders vs. data from one albeit very large lender) and coming to different conclusions.

Why does it matter? Well, if most borrowers are figuring out ways to pay their debt down over time, then the available solutions for dealing with student loan debt are probably adequate for most. If a huge proportion are struggling, on the other hand, then it may be time to roll out additional help.

Because student loan debt isn’t just a problem for those unwise enough to pile on too much of it. Struggling borrowers with lousy credit are hampered in every area of their economic life and could even have trouble getting the jobs that might help them pay their debt (because many employers check credit as a condition of employment). A big chunk of borrowers who can’t buy homes or cars or get decent jobs could be a real drag on the economy.

Two months, ten countries–one carry-on

June 2, 2014 By Liz Weston

We’re heading off for a European sabbatical soon, and we know from previous trips that dragging along a lot of luggage is a bad idea. If you’ve ever tried to roll a heavy bag down a cobbled street, or had to haul it up five flights of stairs because your quaint rented flat had no elevator, then you understand.

But we’re going to be gone for nine weeks, exploring cities, beaches, caves and countryside. Packing just shorts and flip flops isn’t an option.

Getting everything I think I need into a carry-on has been an interesting challenge. It’s kind of like writing blog posts and 400-word columns for Bankrate and DailyWorth after having written mountains of 1,800-word pieces for MSN. You lay it all out, and then you edit, edit, and edit again. And then maybe you sit on it and squish.

Here’s some of the best advice I’ve found about packing light:

It’s worth it. No checked-bag fees, no long waits at baggage carousels, no lost luggage. The time, money and back strain saved are all well worth the effort of figuring out what to leave behind.

Everything should go with everything. So far, I’ve got the wardrobe down to one pair each of khakis, capris and shorts, in addition to the jeans I’ll wear on the plane. Five tops, two jackets, one sweater and one lightweight dress, plus a scarf or two, will allow me to create about 25 different outfits.

Think double-duty. My lightweight robe works as a swimsuit cover-up. My sandals work at the beach or a nice restaurant. My running shoes are low-key enough to work as casual dress shoes. Speaking of shoes:

Ease up on the footwear. They take up huge amounts of space. I’m trying to limit mine to the sneakers, a pair of black leather walking shoes and the flat-soled sandals.

Don’t bring what you’ll find there. I’m skipping most toiletries and hair appliances (which need adapters and converters to work over there, anyway). The hotels will have what we need and if they don’t, there will be shops.

Embrace digital. Not too long ago, every trip with the kiddo would mean packing a DVD player and DVDs along with books and games. I’d have a stack of novels and guidebooks. Hubby would bring much of the New York Times bestseller list. Now it’s all in our iPads.

If you’ve traveled long and light, I’d love to hear your trips for what to bring—and what not to bring.

UPDATE: We left for Europe with three carryons–and came back with two of them, plus two larger pieces of luggage. (One of the carryons, stuffed full of purchases, went home early with our niece.) My hubby’s penchant for buying big heavy art books, my daughter’s love of souvenirs and my flea-shopping habit quickly doomed the idea of traveling that light.

We should have consulted Will’s aunt, a retired travel writer, who roams the world with a medium-sized spinner. It’s big enough to bring what she needs but small enough for her to handle it without help.