I'm a firm believer in the importance of a good education. For most people, it's priceless. A good education can pay off for years and years - often in ways you don't even realize. And education doesn't always mean a college degree, or graduating from a prestigious prep school. Learning is something that can occur just about anywhere. But I'm not blind to the fact that there are good schools - and there are bad schools. And there's nothing wrong with parents wanting to do everything in their power to send their kids to a good school.

I get that.

Heck, one of the biggest reasons we moved to the town we currently live in is for the highly regarded school system. And a lot of my tax money goes into this school system. So it's not like this good education is entirely free. My taxes are definitely NOT cheap!

But going into debt for a kid that is 4 or 5 years old?

To me that is simply crazy!

Hey, if you've got the cash to buy a great education, do it. If you need to work 2 or 3 jobs to get your kids into good private schools, do it. If you need to move to a different town for better schools, do it. A parent has every right to give their child the best education possible. And if you need to take out loans for an 18 year old to go to college, do it. At least a kid this age can work to help pay for college, and (in most cases) they will graduating soon and will be able to get a better job, to pay (or help pay) off the loans.

I get that, too.

Again, going into debt for a 4 or 5 year old?

I don't get that. Not at all. Why not? Because it makes no financial sense to me. Sure, the article says a lot of these people taking out loans for fancy kindergartens make $150,000 a year or more. And if you take out a low interest student loan because you can earn more money in the stock market than you will pay in interest can make sense.

But how many of these people are really just "cash poor" and taking out these loans just for the prestige of keeping up with the Jones's? A few? A lot? Probably a lot of them! And no matter how much money you earn, debt is debt. Overextended is overextended. Cash poor is cash poor.

Now I'm not a financial planner. And maybe I'm not seeing this clearly. Or maybe I just don't understand what it's like to live the "upscale" lifestyle. And face the pressure of having to give your kids the best of everything.

But this also doesn't make sense in other ways.

• Like, what kind of message is it sending to your kids?

• Or, is this just another way to avoid having to do the hard parts of parenting.

I know, I sound very cynical. Well, I guess if I had the money, and I lived in an area where the "free" schools (meaning the public ones) weren't all that good, I might do the same. But the thought of taking out a loan for schooling that begins BEFORE a kid even starts first grade is just beyond my way of thinking.

What about you? Would you take out a loan for kindergarten? If so, why? And if not, what do you think about those people who do? I can't wait to hear your thoughts... ]]> Money Saving Tips http://www.debt-tips.com/blog/index.php?itemid=214 Thu, 10 May 2012 22:04:59 -0500 http://www.debt-tips.com/blog/index.php?itemid=212 Over the past four years, debt has become a hot topic in mainstream America. The U.S. government has borrowed over $2.5 trillion since the implosion of the Subprime Mortgage Crisis. This massive accumulation of debt by the federal government is not an isolated incident; unfortunately, the United States has a culture of indebtedness. Young people in America are expected, and even taught, that debt is a way of life.

Typical American youth are encouraged to go to college and/or get credit cards and incur huge debts. According to a report from the Institute for College Access & Success’s Project on Student Debt, the average college loan for students who graduated in 2011 was a staggering $25,000. During college young people are bombarded with credit card offers all over campus as credit card companies set up booths to lure in young consumers. The result is that the average undergraduate student carries $3,173 in credit card debt, according to Sallie Mae-a college financing company.

Upon graduation, students are then encouraged to buy a car on a loan, and just a few years later to take out a mortgage for a house. By the time the average American reaches the age of 30, it is typical to be carrying college loans, credit card debt, car loans, and a mortgage.

This debt trap is incredibly expensive, which is why many people end up trying to find debt relief. The amount of interest paid out to lenders is substantial. The best way to change this is to educate our youth. The reason that most young Americans fall into such a deep debt trap is because they are unaware of the negative consequences of debt. They simply see debt accumulation as a standard way of life. Unfortunately, many parents show their children very little about credit. Therefore, the way to steer a child in the right direction is to teach him or her real-life money management lessons. While the exact method that your family uses will depend on many factors, here are some tips.

Budgeting and Making Payments

It is very important to learn the valuable tool of budgeting and making payments. Start by coaching your children about cash as soon as they are able to count coins. As they get older, have them preserve money every week towards buying something. This instills the fundamentals of financial savings from an early age. Start to develop a budget for your child, start by listing the expenses the child wants and which the child could pay with an allowance every month. As time passes, become more advanced- have him or her section their cash into several “accounts.” Have them put aside a part of their cash for long lasting financial savings, temporary financial savings, and immediate cash. Later on, use this basic budget to determine a minimum payment and an interest-only payment and write out the transaction terms, weekly transaction amounts, rate, and penalty fees for late payments between you. If the child is unable to make his or her payments, teach them how to negotiate reducing the minimum payments on the debt. You may call your credit card company and ask if you can have your interest rate reduced with a lower rate as an example on how to do it.

Lending

When the child gets older, discuss the importance of having good credit. Call your local community bank and ask the loan officer if he or she would take 20 minutes to meet with you and your child to discuss how a person applies and is approved or rejected for an auto loan, mortgage, or line of credit. This will show your child the real-life determinations of good credit. Make sure the loan officer walks through varying repayment plans, based on good credit and bad credit- so that your child sees the power of compound interest when it works against a person because of bad interest rates coming from bad credit. Explaining these principles is essential and offers an example of how a bank loan works.

After high school is the time to get an actual credit card. Getting a starter card and cosigning it with your child is a good way to establish a history of credit while discovering credit in a supervised environment. By cosigning, you may have all of their purchases analyzed. Use these years to show your child about more advanced personal finance principles such as credit card consolidation and cash-out refinancing.

By teaching about, and letting children experience, the fundamentals of money management firsthand- they will have a better grasp of the core principles of personal finance and be better prepared for their financial upcoming.

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This is a guest post written by Suzan Bekiroglu. Ms. Bekiroglu is a published author, freelance writer and editorial consultant. After receiving a Bachelor of Arts degree from the University of South Florida, she faced the mounting obstacle of paying over $24,000 back in student loan debt. Thus, she became determined to eliminate the debt and become very knowledgeable about money management. She seeks to educate others with tips on managing student loans and other kinds of debt, as well as in general personal finance and money saving tips. ]]> Credit Repair Tips http://www.debt-tips.com/blog/index.php?itemid=212 Tue, 10 Apr 2012 18:56:12 -0500 http://www.debt-tips.com/blog/index.php?itemid=211 The time when students could simply enroll in college, show up, get free books, get their degree, and head out into the world are long gone. While this may have been the case thirty years ago, it is now commonplace for the students of today to finish their college programs owing tens of thousands of dollars in education costs. These amounts of debt are not insignificant. Even though student lenders can be more accommodating than many others, debt is debt, and the more you have, the more it will work against you when it comes to your credit and future expenses. That’s why anyone with student debt should pay close attention to exactly that they owe and the best ways to go about paying down what’s been borrowed.

1. Find out Where You Stand

As soon as you graduate, or a bit before, you should look into the details of exactly what loans you have taken out in your name and when the payment dates are scheduled to begin. This will allow you to make a proper financial plan to cover them. Most federal loans come with a grace period of 6 months. Private education loans are all different, so check out your promissory note for upcoming payment dates.

2. Look into Consolidation

Consolidating your loans is a big decision. Consolidation basically combines any education loans that you have taken out and puts them together under one interest rate. When you consolidate, you will only have to make one monthly payment that will cover a designated amount for all your loans. This also locks in an interest rate that won’t change. The only problem is that consolidation does lock you into a particular rate. Make sure to do research on the best interest rates and when rates may go down before consolidating.

3. Get the Right Payment Plan

In order to set yourself up for successful repayment of your loans, you need to figure out which type of payment plan will be best for you. Some plans are set up to be graduated, which means that payments will start out very small (this is great for unemployed students straight out of college) and will gradually increase over time (hopefully as the student’s income also increases). Other payment plans simply designate one payment that will be made in the same amount each month until the loan has been paid off. Others start out larger and slowly decrease. Pay attention to the date of your required payments. If you know you will be getting paid on the first and fifteenth of every month, but your payment is due on the 30th, see if you can get it switched to match your incoming checks.

4. Search Companies That Reimburse Tuition

There are many employers out there who try to recruit recent graduates in top fields by offering to reimburse tuition costs is they sign an employment contract for a year or two. This may not be your dream job, but if you have very high student loan debt, it may be something worth considering.

5. Sign Up for Automatic Payments

Regardless of the amount of your loans or the type of payment plan you decide to use, if you forget to make a payment, then that will negatively affect your credit rating, which will be used any time you want to make future decisions. Your credit rating will be checked when you rent an apartment, buy a car, or even apply for a mobile phone contract. Make sure you are prepared to cover the cost of your payments, and go ahead and schedule automatic payments right after graduations o you don’t fall behind.

6. If you’re in Trouble, Ask for Help

While private lenders are not always as forgiving, approved federal student lenders, like Sallie Mae, will not default your loan until you are at least 270 days behind schedule. You may fall into delinquency before that time, which will hit your credit a bit, but education lenders tend to allow for some padding before they run your credit through the ringer. In fact, many loan providers will allow graduates to apply for loan deferment. This means that your loans payments will be temporarily put on hold if you can prove that you do not have the means to cover them. If you are having trouble dealing with your loans, don’t hesitate to call your provider and ask about options to get help.

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This is a guest post by Nadia Jones who blogs at online college about education, college, student, teacher, money saving, movie related topics. You can reach her at nadia.jones5 @ gmail.com.

Image courtesy of imagerymajestic @ FreeDigitalPhotos.net]]> Debt Reduction Tips http://www.debt-tips.com/blog/index.php?itemid=211 Mon, 2 Apr 2012 19:21:00 -0500 http://www.debt-tips.com/blog/index.php?itemid=209 Many personal finance sites will give endless, though no less, great advice on how to save money. Whether it’s trimming your budget, opening a savings account, or beginning to invest money in stocks and bonds, if your read personal finance sites, chances are you know all there is to know about growing a nest egg. Still, even though we know exactly how to go about saving money, we don’t necessarily do it. The key, in my experience, has been to change my overall attitude toward money. Here are a few tips:

1. Understand that the future is not a distant mirage.

Recently, I read a fascinating article that outlined a study showing that native speakers of languages in which the future and present tense are explicitly differentiated tend to save less money for the future. The reason behind this phenomenon, researchers speculate, is that since the future is so starkly contrasted from the present, it seems almost unreal. While of course, this is merely a conjecture, it brings to light one the most important attitudes you must adopt in order to save money—you have to take the future seriously. If you conceive of the future as present that will happen to you all-too soon, then you’ll be more likely to understand the necessity of saving.

2. Reflect on past purchases that you thought were absolutely necessary.

This is one of the best ways to stop excessive spending in its track. Think about the last time you made a substantial purchase because you absolutely needed it. Now think about that purchase now. Did you really need it to live? How long did it bring enjoyment? Do you even use it now? Now that you have a new purchase you are considering, ask yourself the same questions. Is it absolutely necessary, and if not, will it bring you an enjoyment that seriously enhances your quality of life? If no to both, then think twice before spending. Use that money you would have spent on a frivolous purchase by putting it in the bank.

3. Consider what it is that motivates you to save or spend.

Those of use who spend money needlessly (i.e. most of us, most of the time) do so for various different reasons. Some are impulse shoppers, and some are not. Some will only buy items online, and some absolutely have to buy at least one thing when going for an innocent window-shopping experience. Consider what it is that motivates you to spend, and then find ways to alter this behavior. In the same way, consider what it is that has motivated you to save in the past, and try different ways to augment these behaviors.

4. What are your life goals and how does money play into them?

Although I am a big proponent of saving, I do so only because I understand that money helps me and my nearest and dearest achieve their goals and live the lives they desire from now until the day they die. Money in itself is not valuable, just as saving for the sake of saving is silly. In order to truly motivate yourself to save, you’ll have to constantly examine and reassess your goals in life—professional, personal, familial. When you have a clearer idea of what you want ultimately in life, then you can being to understand how you can use money to help get you there.

Happy saving!!

This guest post is contributed by Angelita Williams, who writes on the topics of online courses. She welcomes your comments at her email Id: angelita.williams7 @gmail.com. ]]> Money Saving Tips http://www.debt-tips.com/blog/index.php?itemid=209 Sun, 11 Mar 2012 14:56:13 -0500 http://www.debt-tips.com/blog/index.php?itemid=205

Of all the debt relief options out there, debt settlement is still the most controversial, misunderstood, and confusing option. I got the following email just the other day:

"Hi. I am considering a debt settlement program and overwhelmed by the information and choices. Would love some advice."

Here's my response:

Hi, debt settlement is certainly a confusing option. Here are some points to think about:

1) Debt settlement is a legitimate option, and can save you a lot of money, but you need to be careful who you get help and advice from. You'll hear lots of "experts" tell you that it is a scam or a way to ruin your finances, but it is just one of several different options, all of which have their place but not all are the right solution for everyone.

2) You'll hear lots of horror stories from people who were "ripped off". Of course, some companies can scam you, so you need to do your research carefully. Check with the Better Business Bureau, ask the company for references, get everything in writing before you agree to anything or send in any money or documents. Lots of people who say they were ripped off probably just thought it was an easy way to get out of paying their entire balance, which it is definitely not.

3) It is definitely not right for everyone and definitely not an easy way to get out of paying your debt. So you need to understand what it is and how it works. Lots of people tell me they don't want to use debt settlement because it will "ruin my perfect credit". Well, you either need to be behind in your payments already, or you need to be in a position where you can no longer afford to make your payments and stop paying. If you are current, then creditors have no reason to offer you a deal! So, if that doesn't sound right for you, then settlement is probably the wrong solution.

4) Yes, it will damage your credit - being behind in your payments will hurt your credit, so will having a debt listed as "paid for less than full" which is what a settlement is. But having lots of debt also hurts your credit. And if you have so much debt that you cannot afford to buy things, credit really isn't that useful anyway. Most people don't think about their credit this way, but basically credit is used for borrowing money, and if you have to decide between saving your credit or saving yourself from financial collapse, which is more important to you?

5) You can even do it yourself. It sure helps if you know what you are doing, as it will save you lots of time, energy, and money. I only settled one of my own debts and didn't get such a great deal. But like anything you do yourself, you need to decide if you're better off learning how to do it yourself, or getting professional help.

Your thoughts? ]]> Debt Reduction Tips http://www.debt-tips.com/blog/index.php?itemid=205 Tue, 7 Feb 2012 20:48:34 -0600 http://www.debt-tips.com/blog/index.php?itemid=204

When you’re in school the thought of having money – any money – is usually a laughable novelty. What money you do have is usually spent on late night pizzas and scraping up rent. Then when you get out of school and you get your first “real job” where you actually are bringing in a decent paycheck that money goes towards acquiring all the things you couldn’t buy in college. Suddenly you can afford things – you don’t have to shop the clearance rack or order off the dollar menu. Rarely do young, aspiring professionals think about planning their finances because the thought of investing money or saving a portion each month doesn’t seem as important as buying your first brand new car, or closing on your first house. However when you’re young is the perfect time to get familiar with financial planning, and can be done rather easily and in ways you may not have thought of before.

1. Don’t get caught up in what you’ve been denied

When you’re in school and you’re living on Ramen noodles made from a coffee pot (you didn’t do that? Then you were better off than me…) and meager wages from a part-time job, it’s easy to get caught up in the mindset of “I deserve this!” once you start making money. This leads to fancy new cars, swanky living situations, and other luxuries that you weren’t previously able to afford. However before you start throwing money at expensive items you couldn’t buy before, take a step back and realize that the key to a sound financial future is being smart now. Focus on saving money and scaling back on debt before you rush out to buy that expensive new car.

2. Repaying debt from school

The sheer magnitude of the debt acquired to go through school can be overwhelming and it seems like the smart thing to do would be to pay it off as quickly as possible. However before you jump into paying off debt you need to take a look at the interest rates on your debt – if you have a low interest rate then you can pay back the debt over a longer period of time and focus on investing elsewhere, whereas if the interest rate is on the high end it would make more sense to focus on paying off the debt before worrying about other investments.

3. Break it down into 1/3’s

When you do start making a more substantial income try to break those paychecks down into 1/3’s… Save 1/3 of it, spend 1/3 of it, and use 1/3 of it to pay off debt. This way you’re covering several bases at once. It can be hard to put money into a savings account each month, so one thing that helped me was adopting the mindset that depositing money into savings was just another bill I had to pay. By thinking of it that way I’ve gotten into the habit of transferring money over to savings each month without even thinking about it.

4. Plan ahead

You need a clear idea of how you want to allocate your finances so that you can best decide how to save and invest. Do you want to have enough money saved to pay for your kids’ colleges up front? Do you want to retire at a certain age? Do you want to achieve a certain amount of money in savings? Specifically defining your goals will help you figure out the best way to work towards them.

5. Give yourself a limit

Each month allocate certain amounts of money towards different categories. By giving yourself limits on what you can spend you’re less likely to go overboard. Designate a certain amount for groceries, gas, bills, savings, and fun so that you cover all the inevitable costs but you also are able to spend money on yourself. This way you won’t feel deprived and end up going on a spending spree. Taking the time to identify your financial goals is important for everyone – whether you’re bringing in a substantial income or not. Starting out with your financial goals when your career is also starting out will help you gain financial independence and security much quicker than waiting until you’re already bringing in a steady income.

This is a guest post from Laura Backes, she enjoys writing about all kinds of subjects and also topics related to internet service in my area. You can reach her at: laurabackes8 @ gmail.com. ]]> Money Saving Tips http://www.debt-tips.com/blog/index.php?itemid=204 Sun, 29 Jan 2012 19:51:41 -0600 http://www.debt-tips.com/blog/index.php?itemid=201
This is the sixth article of the A-B-C's of credit and debt. Today is F for Free advice.

If you can get something for free, you should do it, right?

Well that all depends. Free beer - that sounds great! But a free puppy - well, that could be lots of fun. And it could be LOTS of work and cost you lots of money! It all depends on which one you end up with more of - fun or work. So, free isn't always great. And free isn't always free.

When it comes to financial advice, there's free ADVICE. And then there's FREE advice. Big difference!

There's been a lot of talk recently about the pre-paid debit card from financial celebrity Suze Orman. That's what got me thinking about this entire free advice thing. Let me say for the record that I'm not opposed to any of these financial "experts" you see on TV. They all have their areas of expertise. And I'm sure most of what they say is good, honest advice.
But I'm just a bit skeptical when they try to be everything to everybody. If I have car trouble, I bring it to my mechanic. But if I get into an accident, I bring it to the body shop. They both know about cars. So why doesn't my mechanic do body work? And why doesn't the body shop do brakes and oil changes?
Because they each provide service on the type of work they do best.

Again, free financial advice can be great - but only if it is good advice for you and your situation. Uncle Joe might be a great guy. And he might know a lot about making money or saving money. But just because something worked for him doesn't mean it will work for you!

When is free financial advice good financial advice?

Let me give you a few examples to make my point a little more clear:

Suze Orman and the other TV "experts"

• Suze Orman is a financial planner by trade. She helps people who already have money to find ways to make more money. Great profession. And she is probably very good at what she does. So if you have money you need to invest, or learn about estate planning, tax shelters, and things like that, talk with a financial planner.
  
• But helping rich people get richer is a lot different than helping people struggling to get out of debt. Both rich people and struggling people need help with money. But these are 2 entirely different situations. With 2 entirely different solutions. Just because someone is trained on building wealth, investing with mutual funds, and protecting your wealth from Uncle Sam does NOT mean they know about the best ways to pay off debt, avoid bankruptcy, and fix your credit problems. Her advice is free. But is it the best advice for someone with debt and credit problems? Not always.

• Writers are typically good at taking a bunch of facts, quotes, and news items and making them into a good story. Their talent is to make the story interesting enough for the average person to read and enjoy.
  
• But writers are typically not experts in the field they write about. They may shave some experience. Or they may just be interested in the topic. Or it might just be their job. Or they might be like the TV experts from the point above. So, just like cooking isn't simply about taking a list of ingredients and throwing them together, neither is taking a bunch of facts and quotes and making them into expert advice. Not that the writers are useless. But their writing can't always be taken literally as "advice" especially when it comes to finance.

• Online message boards are a great way to get information on a particular strategy or company, from someone who used that strategy or company. If you want to know about Company X, reading what other people have to say about them can be helpful.
  
• Just keep in mind that one person's experience does not always translate into every person's experience. So while Susan from Dallas might have had a bad experience, realize you are not necessarily getting the entire story. Her goals, her situation, and her understanding of the company or service might be quite different from yours. Ands her expectations might be entirely different, too (with debt relief, expectations are often quite different!) So there is nothing wrong with gathering information, but don't make your decision based on one bad comment.

• Ads are a great way to learn about different products, services, and companies that can potentially help us solve a financial problem. You've probably seen many different types of debt problems - personal debt, business debt, tax debt - and many different types of solutions - debt consolidation, debt settlement, bankruptcy. So advertising can be informative.
  
• But ads can also be misleading. Even if a company is completely "above board" the ad probably won't give you all the details. And can leave you thinking "hey this is right for me" even if it is not. Sure, you can call the company. But unless they somehow can't make money from you, they're going to do what they can to sign you up.

This is the fourth article of the A-B-C's of credit and debt. Today is D for Don't.

Who do you turn to for money advice?

• A friend in the financial industry?
  
• Late night TV shows on money?
  
• Newspapers (online or print) like the Wall Street Journal or New York Times?
  
• Websites like MSM Money?
  
• Financial bloggers who have some real-world experience?
  
• Nobody - you learn for yourself?

When it comes to debt, it seems like EVERYONE has an opinion! Well, you know the old saying about opinions, right?

"Opinions are like a#$%^@#$, everyone has one..."

The problem is that most opinions probably have some basis in truth. Yet none of those opinions contain the EXACT advice you need to fix your particular money problems, or manage your money properly. Sure, some of them may be correct. But some may be lies. And some may contain "partial" truths just to get you to buy something. Others are the blabber from an expert who needs to say something, but comes without any real experience or knowledge.

So when you hear advice about getting out of debt and fixing your credit problems, BE CAREFUL! Don't believe everything you hear.

Here are some guidelines when getting advice on fixing your debt and credit problems:

DON'T believe everything you hear from "the experts".

Most of the financial experts you see on TV or read online are true financial experts - but usually in some type of financial field other than debt and credit. Sure, they know about some of the rules the debt relief companies must follow. And they know about general financial principles. But most of them have never been in debt. Or had credit problems. And there are lots of little tips that you just can't know about unless you've been through it. Here's an example - most of them will tell you that all credit problems will remain on your credit report for 7 years. Technically, this is true. But there are legitimate ways to get the bad credit fixed faster.

DON'T believe all the ads from the debt relief & credit repair companies.

Many debt relief companies advertise that they'll help you reduce your debt by 40-60%. But what they don't tell you is that it involves using debt settlement. Now, I used debt settlement so it is a legitimate option. But, it's not right for everyone. First, you need to be behind in your payments - or stop paying. Second, you need to have a lump sum to pay off your bill when the settlement is reached. In some cases, this works out for the better. But if you think that they can reduce EVERY debt by more than 40%, well, that's just wrong. And then there's the catchy tunes from the FreeCreditReport.com ads - which isn't really free, by the way. Here's my take on FreeCreditReport.com.

DON'T believe your cousin Joe or neighbor Susan.

I'm sure they are nice people. And they might have some good ideas. But first of all, they don't need to know anything about your finances. And second, chances are that they have enough of their own problems. And even of they did have some good advice, who knows if it would even fit YOUR needs or solve YOUR problems. Let them brag, let them complain, let them think they have all the answers. And then walk away and find your own solutions.

DON'T give out your personal info unless you check it out very carefully.

This one should be obvious. But sometimes it is tempting to just believe what people tell you. Sadly, this can get you into big trouble. Before you sign up with any financial company (and this goes for debt relief, credit repair, mortgage, investment, or anything that deals with your money, social security #, or your personal data) do some research first. Check their Better Business Bureau rating. Type their name into Google and see what other people are saying. Read the paperwork before signing it. Use your common sense...

Finally, DON'T forget that if it sounds too good to be true then it probably is!

There are no easy ways to being rich. There are no quick ways to making lots of money online. There are no shortcuts to getting out of debt. There are no secrets to fixing years worth of credit problems in 30 days. However, there are legitimate ways to achieving each of these - but most take a good amount of effort. So the next time you read or hear about something that sounds so much easier/faster/cheaper than you ever believed possible ... be careful!

Overcoming financial problems is not easy. But it is possible. If you use some common sense, if you are prepared to do some work, and if you come up with a plan and stick with it.

Thanks to Tom at Canadian Finance Carnival for including us in the latest blog carnival.
]]> ABC's of Debt & Credit http://www.debt-tips.com/blog/index.php?itemid=195 Mon, 19 Dec 2011 19:09:07 -0600 http://www.debt-tips.com/blog/index.php?itemid=192

Recently, renowned NYU professor and activist Andrew Ross encouraged students to sign a petition promising to default on their student loans in solidarity against rising student debt. Associated in part with Occupy Wall Street, Ross claimed that if enough students defaulted together, it could meet the protestors’ ostensible demands of across-the-board student debt relief, free education, and other such cosmic improbabilities. If Ross understood for just a second what would actually occur if any graduate forewent their legal contract to repay their loans, maybe he would think twice about encouraging others to destroy their financial futures. For those not in the know, there are quite a few consequences when you default on your student loans. You essentially run the risk of:

1. Losing your federal benefits

Although it is illegal for the government to take away your Supplemental Security Income, once you default on your student loans, it’s possible for Uncle Sam to take away a portion, up to 15% of your social security retirement and disability.

2. Losing your tax refund.

If you default on your student loans, you can kiss your tax refund check goodbye. After six months of non-repayment, which is the standard for considering your loans to be under default, the government can put a hold on your tax refund check until your loans are paid back in full or until you agree on a repayment plan.

3. Taking a cut from your paycheck.

Yes, the government can even start taking money out of your regular paycheck. Called “garnishing,” the Department of Education and the loan guarantee can take a certain amount of your paycheck, which can be up to a little over $200 dollars out of your weekly wages.

4. Having any professional licenses revoked.

If you are in a profession which requires a license, such as any of the various medical or legal professions, you could stand to have your license revoked. This may entail being fired from your job and not being able to practice your profession elsewhere.

5. Trashing your credit score.

This, of course, goes without saying. Although having a poor credit score is not the end of the world, and you can certainly work to raise it again, the going will be very tough. Having a poor credit score can destroy your chances of ever buying a house, securing more funds for education, or making other important purchases later down the line.

6. Being sued by the Department of Education.

You read that right. If you default on your loans, the government will go as far as to sue you to get their money back. The Department of Education can extract funds from back accounts, property, and other assets.

Of course, it’s unlikely that you’ll cavalierly join Ross’s call to default on your student loans. If you are defaulting out of necessity, however, there are different options that you should look into. Communication with your lenders is key, as they can adjust repayment plans to accommodate you. Whatever you do, don’t simply stop repaying without letting anyone know! It will come back to haunt you.

This is a guest post by Mariana Ashley, a freelance writer who particularly enjoys writing about online colleges. She loves receiving reader feedback, which can be directed to mariana.ashley031@gmail.com.