Dr. Barbara O’Neill, CFP®
Rutgers Cooperative Extension
oneill@aesop.rutgers.edu
When you invest,
compound interest
is your friend :-)

When you pay
interest on credit
cards and loans,
compound interest
...
 Start

with rent, utilities, food, car payment,
gasoline, cell phone/internet…and everything else

 Add

child care?

...
 Getting

a loan to repay existing debt

 Charging

more each month than payments

 “Juggling”
 Using

credit card cas...


Early - Begin paying late penalties





Pay minimum due
A month or 2 behind

Later - Bills are months overdue



...


Cap total student debt at (or below) the expected first
year salary for a job in student’s field of study



Keep debt...
 “It

depends”

 There

are no set annual or aggregate limits for
Direct PLUS loans

 Consider

supply and demand for f...
 When

your “future self” benefits from purchases
made by your “present self”

 Example


Builds equity over time

 Ex...
 It

depends…



Convenience users pay no interest and fees and earn
valuable rewards



“Revolvers” pay interest/fees ...


Extend term of the loan (e.g., 72-month and 84-month
car loans)


Leads to being “upside down” for long time period

...
12
http://www.federalreserve.gov/creditcard/default.htm
Suggested Activity:
Compare Credit Cards
Card 1

Card 2

Card 3

APR
Annual Fee
Minimum Pmt.
Penalties
Late Fees
Cash Adva...
 Contact

lender about loan repayment options

 Visit

Federal student Aid Web site to explore
options: http://www.direc...


Budget Counseling – should be a nominal cost



Debt Management Program (DMP)
 Must incur no further debt and surrend...
20


Print out repayment calendar for three repayment
options (assumes no new future debt):


Highest interest rate first (...
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...
 Borrowing

obligates future income to
support today’s spending

 Lower

monthly payments usually mean that
you pay more...
 www.truthaboutcredit.org


Information and balance payment calculator

 www.creditalk.com


User-friendly credit card...
By Consumer
Federation of
America

http://www.creditscorequiz.org/
27
http://njaes.rutgers.edu/money/wise-credit/
•
•
•
•
•
•
•
•

Overview of the Financial Aid Process 1:48
Myths About Financial Aid 2:57
FAFSA Overview 2:09
How to Fill...
 Do

both!

 Example:

75% debt repayment and 25% saving

 Opportunity

cost of not saving and investing
early is huge
...
Rutgers Graduate Student Program-03-14
Rutgers Graduate Student Program-03-14
Rutgers Graduate Student Program-03-14
Rutgers Graduate Student Program-03-14
Rutgers Graduate Student Program-03-14
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Rutgers Graduate Student Program-03-14

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Rutgers Graduate Student Program-03-14

  1. 1. Dr. Barbara O’Neill, CFP® Rutgers Cooperative Extension oneill@aesop.rutgers.edu
  2. 2. When you invest, compound interest is your friend :-) When you pay interest on credit cards and loans, compound interest is your enemy :-(
  3. 3.  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
  4. 4.  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
  5. 5.  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
  6. 6.  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 http://www.usnews.com/education/bestcolleges/paying-for-college/articles/2009/06/09/howmuch-money-should-i-borrow-for-college
  7. 7.  “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 http://www.ifap.ed.gov/dlbulletins/attachments/ DLB0703Attach.pdf
  8. 8.  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
  9. 9.  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
  10. 10.  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
  11. 11. 12
  12. 12. http://www.federalreserve.gov/creditcard/default.htm
  13. 13. Suggested Activity: Compare Credit Cards Card 1 Card 2 Card 3 APR Annual Fee Minimum Pmt. Penalties Late Fees Cash Advance Resource: http://rci.rutgers.edu/~boneill/assignments/creditcard.html 16
  14. 14.  Contact lender about loan repayment options  Visit Federal student Aid Web site to explore options: http://www.direct.ed.gov/student.html  Contact  Do a non-profit credit counseling agency a PowerPay debt reduction analysis  Embrace frugality
  15. 15.  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 www.nfcc.org
  16. 16. 20
  17. 17.  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. www.powerpay.org 21
  18. 18. Name of each creditor  Balance owed  Monthly payment (minimum or above)  APR (interest rate) 
  19. 19. Personal Experience: Four bags @ $5 = $20 40 usable items @ 50 cents (jackets, shoes, suits, pants) 18 other items donated to Fire Department clothing box
  20. 20.  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
  21. 21.  www.truthaboutcredit.org  Information and balance payment calculator  www.creditalk.com  User-friendly credit card information  www.bog.frb.fed.us/pubs/shop  Semi-annual credit card survey results  www.consumer-action.org  Annual credit card survey results 26
  22. 22. By Consumer Federation of America http://www.creditscorequiz.org/ 27
  23. 23. http://njaes.rutgers.edu/money/wise-credit/
  24. 24. • • • • • • • • 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
  25. 25.  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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