Posts Tagged "debt"

bank cartoon

Credit Unions a Popular Antidote to Fraud

The 1980s featured bankrupt Texas savings and loans. Then, in the mid-2000s, Countrywide failed to clearly disclose to customers the spike in their subprime mortgage payments in year 3. In 2016, 5 million customers learned about their fabricated Wells Fargo accounts. And last year, Equifax breached 140 million customers’ privacy.

No wonder people are flocking to the friendly credit union in their church, labor union or workplace.

The widespread fraud reports making headlines with regularity have fed a perception that “fraud happens in the banking world and a lot of it goes unpunished,” said Mike Schenk, senior economist for the Credit Union National Association (CUNA).

“It’s not just Countrywide as an abstract concept. It’s that Countrywide put people into these toxic mortgages to make a buck.”  The 2008 stock market and housing crashes, fueled partly by the collapse of several subprime lenders, hammered this point home.

credit union table

CUNA has a bold marketing message: credit unions care more about their customers than impersonal banking behemoths. Schenk said he has the evidence to prove credit unions are benefiting from Wall Street’s financial shenanigans: membership increased an “astonishing” 4 percent in 2017, as the U.S. population grew less than 1 percent.

Of course, most banks aren’t bad guys, and they provide services that small credit unions can’t.  Banks frequently upgrade their technology – Bank of America’s ATMs are cutting edge. Large banks also have much larger networks of ATMs and branches, and they can service the large corporate accounts credit unions aren’t equipped to do.

So, what do credit unions do better?  Here are their three big advantages: …Learn More

spring break

New Use for College Loans: Spring Break!

Yup, more than half of college students are using some of their student loan money to pay for spring break.

It’s the peak season, and 21st century ingenuity is being applied to the age-old problem of paying for college trips to popular, sunny climates like Miami and Cabos San Lucas in Mexico’s Baja Peninsula.  LendEdu decided to do a survey to answer a question that Mike Brown put so succinctly in his blog:

How can “so many students living on a shoestring budget afford to go on a not-so-cheap weeklong getaway”?

The mechanism allowing this can be found in college financial aid offices, which funnel loan money directly to students after, wisely, deducting tuition and fees.

Fifty-one percent of the students who were surveyed are financing their beer, hotels, and air fares with another popular source: parents. Spring break is typically paid for with whatever they can scrape together from parents, loans, and part-time jobs – frequently in that order.

LendEdu, a New Jersey credit card and student loan refinancing firm, hired Pollfish for its March survey of 1,000 college juniors nationwide who have student loans and are planning spring break 2018.

Brown is 24 and earned his University of Delaware degree in 2016. His parents paid for his Cancún trip during junior year, and he did not have to use his loans, which he’s still paying off.

“If my parents found out I was using that loan check to pay for spring break, they would’ve had a couple words with me,” he said.Learn More

Boomers’ Mortgage Debt Predicament

You’re not going to like this, baby boomers.debt_home

You have more debt than the two generations born during the early Depression and World War II, much of it compliments of the mortgage bubble that financed your larger, more expensive houses. The housing bubble popped in 2008, but the mortgage on the new house or perhaps a second mortgage continues to plague many.

It should be no big surprise that a new study finds the “substantial” debts taken on specifically by those born in the late 1940s and early 1950s will gobble up more of their not-always plentiful retirement income.

“The evidence clearly shows that many Americans” on the cusp of retiring “continue to be burdened by debt and to be financially vulnerable,” the researchers said.

The lead researcher, Annamaria Lusardi at the George Washington University School of Business, is a national expert in financial literacy. As part of her study, she also wanted to understand how these early boomers manage their debts.  It turns out that people overburdened with debt more often have lower levels of financial literacy. However, debt is also an issue among older workers in poorer health or those who’ve seen their incomes decline, which is fairly common over 50. …Learn More

Employers Chop Down College Loans

Edward, Ashley, and Kirby Cash

Edward Cash would really rather spend his hard-earned paychecks from the Memphis Police Department on his daughter than on humdrum necessities like student loans, replacing a broken-down car, or saving.

“I need money, as much money as I can to take care of this new human in my life,” Cash said about 4-year-old Kirby.

Of course, he and his wife, Ashley Cash, a Memphis city planner, pay their bills, in between doting on Kirby.  But college loans are different: they get help.  The city government pays down $50 a month on each of their loan balances – as it does for some 600 employees.

In May, Memphis joined Fortune 500 companies in the vanguard of employers offering this benefit, including to its police force, which requires some college education, and the fire department, where time in college is not required but also not uncommon.

With college debt exceeding $1.4 trillion nationwide, help with student loans appeals to young employees, who say in surveys that paying them off is their No. 1 financial priority. Recognizing this, major employers are using the tuition benefit to recruit talent, including Fidelity Investments, Live Nation, Natixis Global Asset Management, Pricewaterhouse Coopers, and Staples Inc., according to company and media reports. …Learn More

woman carrying a debt burden

Help Navigating the College Debt Jungle

A new report laying out loan data per student at more than 1,000 U.S. colleges can be useful to parents and future students.

From the California Institute of Technology and the California Institute of the Arts to the Massachusetts Institute of Technology and Bridgewater State University (also in Massachusetts) – data on debt levels for the 2016 graduating class at public and non-profit institutions are contained in a newly released report by the Institute for College Access & Success (TICAS).

TICAS has put together a handy interactive map summarizing the data. An individual college’s data can be found by clicking the state where it’s located and scrolling through the colleges in that state.  Not all colleges are presented, because very few for-profit colleges report their students’ debt data.

Diane Cheng, associate research director of TICAS, walked through the most important things to look for when considering where to attend.  But the bottom line is, “When students see colleges where a large share of students borrow, and they take out a lot of debt, that can be a red flag,” she said.

It’s virtually impossible to generalize about how much a prospective student will have to borrow, because every student has a unique combination of academic accomplishment and socioeconomic status. Also factoring into borrowing is each college’s sticker price and unique tuition policy. Tuition at public colleges is also affected by state funding, which remains 16 percent lower than before the recession, Cheng said.

She recommends starting with the following four indicators in the map:

  • Average dollars of debt after graduation: Click on a specific state or states on the map where the teenager is looking at colleges. Scroll through the colleges displayed for each state.
    What to look for in the data:  Compare the average dollar debt level per student for each of the colleges your teenager is considering.  If eight colleges are in the mix, compare average debt for all eight. Parents might even want to make a spreadsheet comparing average debt levels and the other data below for each institution of interest. …

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Houses

Reverse Mortgage: Yes or No?

The older people who either consider a reverse mortgage or actually get one don’t have much else to fall back on.  Their primary assets – outside of their homes – are a car worth no more than $7,000 and about $2,000 in a checking account.

This was one salient fact unearthed about reverse mortgage users – or people who’ve looked into them – in a 2014-2015 survey led by Stephanie Moulton at Ohio State University. This supports a later study by Moulton that found that people who take out the loans tend to be in worse shape financially than other homeowners. The survey provides a more complete picture of who is turning to reverse mortgages – and why other people find alternatives to solve their financial issues.

Federally insured reverse mortgages, known as Home Equity Conversion Mortgages, or HECMs, allow homeowners over age 62 to borrow against their often-substantial home equity. These loans do not have to be paid back until the older homeowners sell the house or die.

Despite these attractive financial features, reverse mortgages are not popular: fewer than 60,000 were sold in 2015.  Many elderly homeowners are appropriately wary of a complex financial product. The fees and interest rates are also higher than on a standard mortgage.  But the idea behind HECMs is to allow cash-strapped seniors either to pay off their existing mortgages, eliminating house payments, or to create a readily accessible pool of cash or a new source of monthly income. Either way, they free up money that retirees can use to meet their expenses, emergencies, or medical bills.

The researchers interviewed some 1,800 older households after they had received the counseling required under federal law to apply for a HECM reverse mortgage.  About two-thirds of those counseled proceeded with the loans, and one-third decided against it. Here’s what these two groups look like: …Learn More

Fined illustration

Autopay Ends Credit Card Late Fees

Credit card companies usually set small-dollar minimum payments, so there’s really no excuse for incurring fees for late card payments.

Yet many consumers fail to pay on time. In a new study, British researchers found a no-brainer solution that is highly effective: setting up automatic payments of our credit cards.

The researchers started out with a different premise: that customers might learn, over time, to prevent maddening late fees after having to pay them numerous times. The researchers roundly rejected this after following nearly 250,000 U.K. credit card holders over two years.  When it comes to late fees, we do not learn from our mistakes.

What they noticed, however, was a clear distinction between card holders who incur late fees regularly and those who don’t or who stopped incurring the fees.   Setting up autopay “all but eliminates the likelihood of future [late] fees,” while the probability remains “persistently high” (about one in five) among people who did not, they said.

Further, a seemingly obvious explanation for chronic late fees didn’t hold water: that people don’t have the cash to make their minimum payments.  Payers of late fees “do not appear to be liquidity constrained,” the study found. Apparently, most people simply forget to pay those pesky credit card bills. …Learn More

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