What If I Were Debt Free?

Written by Brett McKay

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I’ve been tagged in the “What if I Were Debt Free?” meme by Rocket Finance.

What if I were debt free? Man, that’s a heavy question. I sometimes forget the reason that I’m doing this whole frugal living thing is so I can become debt free as soon as possible. I focus so much on the process of becoming debt free, that I really don’t think about why I’m doing it.

After pondering on this question for the past few days, the conclusion that I reach is that I wouldn’t do anything different from what I’m doing now. 

Even after the debts were paid off, I’d probably continue living frugally. Saving money isn’t the only thing that attracts me to frugality.  Frugality forces me to be creative and come up with new ways to do things. It’s something that oddly excites and entertains me.  So, I think I would have a hard time leaving that behind as soon as my debts are paid off.

I guess there is one change that would occur. With the extra money no longer going to pay off debts, I would increase the amount I’m currently investing to build up my retirement even faster. It would be nice to retire early and devote time to volunteering, my family, or a hobby.

OK, I guess its my turn to tag some people. Let’s see…. who to pester?

• Thrifty Penny
• The Good Life on A Budget
• Being Frugal

What about you all? What would you do if you were debt free? I’d love to read your visions of a debt free future, so drop a comment in the comment box.

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Laws Every Consumer Needs To Know About Debt Collectors

Written by Brett McKay

Here at The Frugal Law Student I constantly encourage people to avoid credit card debt as much as possible. Because credit card debt is unsecured, it can create the biggest problems for consumers.

If you fall behind on your payments, creditors will often hire debt collectors in order to get their money back from you. While the majority of debt collectors are civil when collecting your debt, many are abusive and coercive. Thankfully, we have the Fair Debt Collection Practices Act to protect consumers from these debt collecting bullies. But if you want to protect yourself with this law, you’re going to need to know the law.

Disclaimer: As of this writing, I am not a licensed attorney. I’m still in law school. I’ve taken this information the Federal Trade Commission’s website. This article is for general education only. If you need legal advice, consult a lawyer licensed in your jurisdiction.

• You can stop a debt collector from contacting you. Debt collectors can be a persistent bunch because their pay depends on whether they get money from you. However, many overstep the bounds of being persistent to being stalker-like. If this becomes a problem, write the debt collector a letter telling them to stop. Make sure to keep the copy of the letter for yourself. You should also ask for a confirmation when you mail the letter so you can have proof that the debt collector received the letter. Once the collector gets the letter, they can no longer contact you. However, this doesn’t mean your debt is gone. If you still don’t pay, a creditor can take you to court and sue.
• If you have an attorney, a debt collector MUST contact your attorney. If you’re behind on your debt payment, chances are you can’t afford an attorney. But if for some reason you can afford an attorney, make sure to direct debt collectors to them.
• Debt collectors cannot use threats of violence or harm in order to collect. If a debt collector happens to do this, make sure to record the day and time of the call.
• Debt collectors cannot publish a list of names of people who refuse to pay debts.
• Debt collectors cannot use obscene or profane language. If a collector does, make note of the date and time of the call.
• Debt collectors cannot repeatedly use the telephone to annoy you. Again, record the date and time of every call made to you by a collector.
• Debt collectors cannot call you before 8AM or after 9PM.
• Debt collectors may not state that you will be arrested if you don’t pay your debt.
• Debt collectors may not state that they will seize, garnish, attach, or sell your property or wages, unless the collection agency or creditor intends to do so, and it is legal to do so.
• Debt collectors may not state that you will be sued if you don’t pay your debts.

These are a few of the regulations that debt collectors must follow under the Fair Debt Collection Practices Act. See this link for a more detailed list.

What if you think a debt collector has violated the law?

If you think a debt collector has violated the law, you can sue them in a state or federal court within one year the date the law was violated. If you have a stong case, you can be rewarded damages plus up to $1,000. In order to make your case, you’ll need evidence. That’s why it’s so important to keep a record of all your interactions with debt collectors.

You should also report any problems with debt collectors to your state Attorney General’s office of the Federal Trade Commission. These guys will bring criminal charges against the crooked debt collector and punish accordingly.

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Featured Resource

When dealing with financial Laws it may be prudent a reputed Lawyer. If your personal or business credit is in dire straits, a Bankruptcy Attorney may be advisable. It is also smart to choose a specialist by state like a Florida Attorney for trouble in the sunshine state.

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What’s the Difference Between a Credit Report and a Credit Score?

Written by Brett McKay

You see the commercials all the time on TV. You call a 1-800 number and you get a free credit report. Then the commercial mentions something called a credit score. If you’re not paying attention, you might think that a report and score are the same thing. Well, they’re not. Today we’ll discuss the differences between a credit report and a credit score and why those difference matter to you as a consumer.

What’s a credit report?

Credit reports explain what you do with your credit. It states when and where you applied for credit, whom you borrowed money from, and whom you still owe. Your credit report also tells you if you’ve paid off a debt and if you make monthly payments on time.

Federal law mandates that all three major credit reporting agencies have to give you a free credit report each year. So, when those TV commercials talk about getting a free credit report, you’ll find out the information discussed above when you apply for one.

There are several sites out there from which you can get a credit report. FreeCreditReport.com and AnnualCreditReport.com are examples of those sites.

What’s a credit score?

You credit score is determined by the information in your credit report. Credit scores are used by companies and banks to evaluate the potential risk posed by lending consumers money. Your credit score determines if you qualify for a loan, what your loan’s interest rate will, and what your credit limit is.

The company that came up with the idea of a credit score was the Fair Isaac Corporation. That’s why you’ve probably heard credit scores referred to as a FICO score.

Credit scores range from 500 to 850. If you have a FICO score of 500, you’re going to have a hard time trying to get a loan extended to you. Even if you manage to get one, the interest rates will be high. Any score above 720, you’ll receive the best rates available.

Unlike credit reports, which are free, credit scores cost you money to get. They cost about $15 to get access to and you’re given the offer to purchase your credit score after you get a credit report. Bankrate, however, offers a free FICO score estimator. The estimator asks you 10 questions about your loans and credit card balances and then spits out an estimate for your credit score. While not 100% accurate, you’ll at least have an idea of where your score is at and make adjustments in order to improve it.

How your credit score is determined

When coming up with your FICO score, credit reporting companies look at several factors. In no particular order here are some of those factors:

• Payment record. If you have a record of bills being paid late, your credit score will go down.
• How much credit you have and how much credit you’re using.
• How long credit accounts have been open. The longer you have a credit account, the better your score will be.
• “Hard” Credit Pulls. A pull is a type of inquiry into your credit. Hard credit inquires are made by lenders for the purpose of extending you credit. Inquires by lenders lower your score because lots of hard inquires is a signal that you’re looking for loans and are possibly a poor credit risk.
• Signs of responsibility and stability. Pay your bills on time, keep your job for longer than two years, and enjoy a higher credit score.

Summary

OK, so the difference between a credit report and credit score boils down to two things: a credit report shows what you’ve done in your credit history; a credit score determines your creditworthiness. A credit report is free; a credit score costs money.

There, now you know the difference between the two. No more getting confused when those commercials come on.

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Additional Resources

There are many ways in which your Credit can be effected, from various bill Payments, like car loans and heating bills to your Business Credit Cards. Your credit score can even be influenced by store credit and Gas Cards that you may have for miscellaneous purposes.

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Students Turning to Private Loans to Fund Education

Written by Brett McKay

The New York Times recently ran an interesting article about students using private loans to pay for school. Education costs are getting more and more costly each year. Unfortunately for American students, the amount of federal financial aid stagnanted. As a result many students are turning to private lenders to fund their education.

According to the College Board, private student loans have tripled in growth in the past five years. During the 2005-06 school year, American college students borrowed $17.3 billion from private lenders. Unlike federal loans that have mandated interest rate, private loans carry rates that can reach up to 20%. Additionally, private loans don’t have limits to the amount of debt students can take on like federal loans do. Consequently, many young people are overextending themselves.

Last month, it came out that private loan companies like Sali Mae were basically paying off schools to steer students towards high interest rate loans. Many students would go to their school’s financial aid office thinking they were getting low interest federal loans. It isn’t until they graduate and start getting their bills do they realize that they actually received a high interest private loan.

Another problem with private student loans is that the rate is variable. Unlike federal loans which are locked in at a low rate, private lenders can change their rate whenever they want. Many students go into private loans thinking they’ll have one rate, but a few years down the line, they might see themselves paying more.

What Can You Do to Avoid Being Swindled?

There are few things you can do to avoid the private loan bait and switch.

• Ask what type of loans you’re getting. Don’t assume just because you fill out a federal financial aid form you’ll be getting just federal loans.
• Read the paper work clearly. Before you sign anything, make sure to read the paperwork. Make sure that you’re just receiving federal aid and not private loans. If you have any questions, ASK them.
• Take the least amount of private loans as possible. If you do have to dip into private loans, take the least amount as possible. Learn to stretch your dollar. Live frugally.

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[tags]New York Times, student loans, debt[/tags]

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Interview With Austin Groothuis of CALI’s Pre-Law Blog

Written by Brett McKay

This week’s interview is with Austin Groothuis from the CALI’s Pre-Law Blog. Austin is a third year law student at Chicago-Kent. In addition to writing for CALI’s Pre-Law Blog, Austin is also the Communications/Marketing Coordinator for Computer Assisted Legal Instruction (CALI). (What a busy guy!)

1. How much student debt have you racked up during undergrad and law school?

I have just under $100,000 in combined school debt. I have paid for all of law school and virtually all of undergrad/graduate school plus cost of living during those times on loans/scholarships/or money I earned working while in school. I’ve had very little outside financial help so loans have really added up.

2. What action or habit do you think saved you the most money while in law school?

A lot of things combined. I buy all of my books used online at Amazon Marketplace or Half.com and then resell them at virtually the same price. It’s quite a racket the law school bookstores and casebook publishers have going on. I try not to participate in it as much as possible. I wrote about this on my blog here:

Cost of Text Books In School

Whenever I need something new I’m freakishly insistent on getting the best price through research online. Basically all of my gifts for Christmas this year were bought on deal websites and over half of them had rebates involved.

I sold my car last year to save money on maintenance, gas, random fees, and inevitable street cleaning tickets in Chicago. I just don’t need it in the city.

Although I don’t know what I’d do without my girlfriend to chauffeur me around the city at times. She has a real job and a car so, obviously, part of my advice is get to get a sugar mama (don’t worry, she never reads my stuff).

And most importantly, I opted to take a full-time job with CALI and switch to school part-time in the middle of my second semester. This extended my time in law school. But it literally cut my debt in half. That’s right, I’d be looking at upwards of 160k in debt had I not taken this CALI job. Amazing. It really saved me.

3. If you have student loan debt, when would you like to pay it off? How do you plan on reaching your goal?

It’s going to be a real long-term thing that depends on how much I make, what career path I choose to take, and what kind of family decisions I make (dual income? children? where to live?).

Optimistically, I think the best case scenario is 15 years to pay it back. But I could see using up the whole 25 or 30 years. I’ve never really sat down and thought of a schedule because I just can’t get a grasp on what my life looks like and what opportunities will be presented to me after I graduate.

4. What other personal financial goals have you set for yourself?

Don’t default on my loans and never have to ask someone for financial help.

5. What is your weakness in regards to your personal finances and how do you think you can improve it?

Eating out and the Starbucks across the street from work/school. I’m at work and school all day so it’s just too easy to not make a lunch the night before and worry about lunch the next day.

And it’s not like I’m addicted to Starbucks. But paying 4.50 for a latte once or twice a week at most really burns me just due to the fact that I’m paying infinitely more per gallon for coffee than what I paid for gas. But I really do love the mocha. It’s a bad habit but at least I don’t smoke!

6. How do you manage your finances? Is there a particular software you use to keep track of your money?

I do everything online. I don’t have to keep balances because I pay all my bills online and my bank transactions are reflected really quickly in my online checking account. I haven’t written more than 2 or 3 checks in the past 2 years.

My credit card (which I pay in full from month to month) is through the same bank and I can access that info easily and simultaneously with my checking.

I have an HSBC personal online savings account that pays 5+% and has no fees for transfers to and from other accounts and no minimum balance. Compare that to the less than one percent you might find at your local bank. It’s awesome.

7. What do you think is the biggest money mistake law students make?

Not understanding the way law school and legal jobs work. I think a lot of future students rely on the average salary of a school or become star struck by the numerous law firms paying 150k+ salaries and sending out press releases every time they increase starting salary. So students think they can go to any law school and rack up a ton of debt because they will be able to pay it off in 5 years with a $160,000/year salary.

But go to a non-elite school and at most only 10-20% of students even have a shot at big paying jobs. And nearly all non-big firm jobs with opportunities for graduates pay an amount much less than $100,000, let alone $160,000. I’ve written about this several times on the Pre-Law Blog including here:

The Chances of a Six-Figure Salary Out of Law School

and here:

Another Post On The Cost of Law School

and here:

How High Associate Starting Salaries Affect Law Schools…

8. Do you have any suggestions to other law students regarding their personal finances?

Besides the sugar mama thing, huh? Don’t carry credit card debt. Don’t spend more than what you can pay in a month on a credit card bill.

Read The Frugal Law Student blog. No joke. There are also several other money saving tips sort of blogs out there that are good to read.

Not so much for law students, but those thinking about law school, understand the risks involved in choosing certain schools and in choosing to go to law school at all. Read some of what I’ve written about this above for a start. Make sure you weigh the risks vs. the benefits before you decide to go to school/ where to go to school.

Good luck!

Thanks, Austin, for that awesome interview! Head on over to CALI’s Pre-Law Blog. Austin has supplied some great information for those interested in attending law school and those who are already in law school. Make sure to sign up for his RSS feed as well.

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[tags]CALI, Austin Groothuis, law school, debt, personal finance[/tags]

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My Experience With Student Loan Consolidation

Written by Brett McKay

This is a sponsored post

Let’s face it. Education costs have gone out the roof. Consequently, most students are forced to take out student loans or receive some other type of financial assistance during college.

I’ve been taking on financial aid since undergrad and overall the experience has been good. Signing up for financial aid is very easy with FAFSA. It takes about 30 minutes of your time. Whenever I did have a question, I was able to quickly find an answer on their webpage or by visiting the financial aid officer at my school.

In addition to student loans, I’ve also received grants from the government and tuition waivers from school. My only beef with government grants is that they don’t give money to graduate students. It’s in the best interest of the country to help doctors, lawyers, and other graduate students pay for their education, especially when such students plan on working in the public sector.

Part of my plan to pay back my student loans is to consolidate them. I’ve already consolidated my undergrad loans with the student loan consolidation program. I went with Nelnet because they sent me the most mail. Another student loan consolidation program is with financialaid.com. Make sure to shop around different companies to find the best student loan consolidation program for you. But make sure to consolidate. It makes paying back much easier and you can often get a reduced rate.

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