MONEY Debt

4 of the Weirdest Reasons People Have Gone Into Debt

Girl surrounded by stuffed animals
Maarten Wouters—Getty Images

These cautionary tales show how NOT to handle your finances.

For more than a decade, I’ve worked in the field of debt resolution, helping thousands of people overcome their debt issues. Most clients come to me in debt due to what I would call “typical” reasons for falling into debt. This includes loss of income or unexpected medical issues in the family, which become difficult to manage when there are bills to pay. However, sometimes we see some unusual situations that led to debt, which I call “doozies.” Here are some doozies that top the list.

1. The Child Spoiler Client

A few years ago, I had a client with a large amount of credit card debt. So as we usually do with clients, we discussed the reasons for the debt. He put his chin down, looked away and said, “Really, this is because of my child, she’s my only child and I just can’t say no.” These expenses included private school at 5 years old, and horseback riding lessons at almost $2,000 a month. The compulsiveness – or, really, obsession – with his only child had put him into debt. He was spending more money on her every month than his mortgage and car payments combined.

My Advice: Stop the horses! Overspending will put you in debt, whether for you or others. Learning to say no, instilling good spending habits and limits will keep you off that pony ride.

2. The Dream Wedding Client

A couple came to me shortly after their wedding. They said they had a lot of credit card debt, and had expected to be able to pay it off after the wedding. When they told me they had $75,000 of debt, I asked how the amount got to be so high. They said they felt that their wedding was important to them and they never budgeted the expenses and just assumed they would rely on gifts to pay off those expenses from the wedding. They told me that they didn’t expect some of their relatives to be so “cheap” with gifts and as a result they received less money than they expected. They then fell short on paying the bills.

Furthermore, falling behind on your payments will also hurt your credit score, which causes a number of issues, including making the cost of debt more expensive for you over time. (You can see how your debt is affecting your credit scores for free on Credit.com.)

My Advice: Take a tier off of the cake! Make a budget and stick to it. Never rely on future money to pay off bills.

3. The “Don’t Tell My Spouse I Have Debt” Client

I was a bit surprised when one client came to me and said, “My husband doesn’t know about this debt so you cannot call my house or send any paperwork there.” This scenario really isn’t that uncommon. One partner has debt and the other has no idea about the debt or if they do know, they don’t know how much is really owed. These clients have even given me lists of times we can call and alternate addresses to send paperwork to. For these clients, the trend to keep secret debt often starts early on in the relationship where one has a credit card outside the relationship and begins to spend and not tell the other. This infidelity continues until the one partner simply doesn’t have the funds anymore to pay the bills and they are forced to come to us to resolve it for them secretly.

My Advice: Avoid financial infidelity at all costs. Communication is a key element in any good relationship, and talking to your partner openly and honestly about finances is no exception and can actually keep you out of debt.

4. The House Flipper Client

A few years ago I had a steady stream of clients who came to me after they lost money in attempts to flip houses in places like Florida and Vegas. They told me that their friends made money doing this so they thought they’d try it, too. My flippers believed that they could purchase a cheap house in a short sale and invest in improvements and then sell the property for a profit. While this is a great idea if you’ve budgeted for time post-construction if the house doesn’t sell, it can jam you financially if you don’t have the money to pay the bills until the house is sold. Which is exactly what happened to them when the market fell out. They couldn’t sell the house in a short time and they were left with a house they couldn’t afford and mounting debt.

My Advice: There are lots of good ideas to make money, but before making any attempts, make sure you’ve done your homework and are prepared to handle the worst-case scenario.

Remember, maintaining good financial health can come down to good old-fashioned common sense. So many of these “doozies” could have been avoided had many of these people simply taken the time to stop, think about what they were doing, and focus on the reality of spending and budgeting.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Kids and Money

What Smart Parents Teach Their Kids About Debt

hands holding IOU magnet letters
Getty Image—Getty Images

Steer your kids in the right direction by teaching them these debt "secrets" and backing them up with practical experience.

Debt is a four-letter word, and your kids need to know it. The current public mood on debt ranges between loathing and fear. Nearly 20% of American adults expect to die with debts unpaid and a third of teens — perhaps because they’ve seen their elders saddled with lifelong debts — say taking on debt for college is “not worth it.”

Too much debt is a disaster, no doubt. But a carefully handled loan can help a young person get a degree, and a healthy credit score is crucial to finding a place to live and even getting a job. Steer your kids in the right direction by teaching them these debt “secrets” and backing them up with practical experience.

Credit costs money

You and I know that credit isn’t free, but kids need to understand that borrowing money is not like borrowing a classmate’s pen — unless that classmate charges a fee for lending out pens.

For younger kids and tweens, Northwestern Mutual’s financial literacy site, TheMint, has a simple debt calculator to make this point. Kids can purchase fictional concert tickets, a vacation, a car, or textbooks on credit and see how much they’ll really pay compared to the cash price.

Teenagers need a different spin on this lesson. They may know intellectually that credit costs money, but the allure of a shiny card is strong. I’ve found a quick way to cool off a credit-dazzled teen: Have him or her read a card application’s fine print out loud to you — especially the sections about interest rates, late fees, and rate hikes. Now it’s not just you saying that credit costs money. They’re getting it straight from the credit card issuer and hearing it in their own voice.

Debt can hang on after the thrill is gone

Brooklyn-based educational hip-hop video producer Flocabulary shares the sad tale of Melvin, who racks up credit card debt and wrecks his credit rating over Super Bowl tickets. Lana, meanwhile, does her credit card homework and spends carefully to avoid regret.

The clip shows kids they could be paying for a game, concert, or toy on credit long after they’re over it. For teens, the takeaway is that badly managed credit card debt can hinder their independence by keeping them from getting their own place or car.

Borrow what you need, not what you can get

Make sure your kids understand that if they have good credit, lenders may be willing to offer them a bigger loan than they need, because the more they borrow, the more the lender makes on interest. For young kids, a good analogy is birthday cake. One slice is great, but eating the whole thing will make them sick. As Warren Buffett tells the readers of the Secret Millionaires Club, “Credit cards can seem like an easy way to buy things, but it’s not a good idea to make a habit of using them. The chains of habit are too light to be felt until they’re too heavy to be broken.”

Teenagers can usually grasp the idea of keeping something back. For example, maybe you could get a loan to buy a high-end sports car. But if you take out a smaller loan for a compact car, you’ve got borrowing power in reserve for college loans or unforeseen emergencies down the road.

Real-life practice: Give your kid a loan

Whenever you hear, “Please! I swear I’ll pay you back!” you have an opening for a learning experience. It’s one thing to talk about debt. It’s another to experience the feelings that come with paying month after month on a purchase. If you feel your kids are ready and their request is worthwhile, offer to spot them a loan — with an interest rate, payment terms, and a penalty clause if they miss a payment.

Show them how much the loan will cost compared to the cash price. Put the payment schedule on your calendar so you don’t accidentally teach your kids that repayment is optional. And lend only as much as they need.

Lending your kids money is not without risks. They may decide to go on a chore strike or be stricken with borrower’s remorse. You may even have to temporarily repossess a computer, video game, or other item. But they’ll be smarter consumers and better money managers because of the experience, and they’ll see debt as a tool to be used carefully and not just as a four-letter word.

 

MONEY Student Loans

The Most Terrifying Stat About Student Loan Debt Isn’t What You Think

About half of student loan borrowers underestimate the amount of education debt they have.

It seems some college students need to work on their reading comprehension. Or their vocabulary. Whatever the problem is, some students aren’t grasping the concept of loans: 17% of first-year students who have federal student loans responded to a survey saying they had no student debt, according to a Brookings Institution report.

There are scores of stories and reports about the difficulty borrowers have repaying education debt, and that’s a serious issue, but the statistics about borrowers’ understanding of their loans and the cost of college are much more troubling.

The report from Brookings “Are College Students Borrowing Blindly?” cites some shocking figures, based on two data sets. The first, a survey conducted in spring 2014, included responses from first-time, full-time freshmen who applied for financial aid at their college, a “selective four-year public university in the northeastern U.S.” The second is the most recent result of the National Postsecondary Student Aid Study, a nationally representative analysis of first-year, full-time undergraduates with federal loan information available in the National Student Loan Data System.

The data reveals that students are generally clueless about the costs of higher education and how they’re paying for it. Nearly half of students underestimated their debt loads by at least $1,000, with 25% of students underestimating their debt by $5,000 or more.

I’m in Debt? Really?

There are a lot of reasons students may not fully understand their student loan debt: Students may be confused about the different kinds of loans (like federal or private), their parents may have taken charge of figuring out their education expenses, they’re simply not keeping track of their finances, or they really don’t understand the fact that borrowed money must be repaid. There’s not really a good excuse, considering the students had to sign paperwork saying they’ll repay the loan as agreed.

The gap between perceived and actual student debt is potentially more troubling than the growing student debt load itself. Failing to understand the costs of college and how you’re paying for it sets students up for an unpleasant reality check and regret if they can’t afford the debt they incurred along their chosen career path.

Student loans are rarely discharged in bankruptcy, and failing to repay them has serious consequences on the rest of your financial life. Missing loan payments is one of the worst things you can do to your credit, and if you default on student loans, you may face wage garnishment and calls from debt collectors.

Consequently, a low credit score can leave you unable to secure other forms of credit at affordable interest rates, not to mention rent an apartment or get a job. To see how student loans and your other financial behaviors affect your credit score, you can review two of your credit scores for free every 30 days on Credit.com.

Ideally, you’re well prepared to handle your student loans when you enter repayment, but if you think your loan payments will be unaffordable, you have a few options. If you have federal student loans, you may qualify for a variety of student loan repayment and forgiveness options. If you have private loans, you may be able to refinance. At the very least, you should reach out to your student loan servicer to see if there’s any way to avoid defaulting on your education debt.

More from Credit.com:

MONEY Debt

Should Debt Collectors Be Able to Use Government Letterhead?

A debt collection company allegedly used government letterhead to contact debtors, which may be illegal.

Debt collectors are legally prohibited from misrepresenting themselves as police or lawyers when communicating with consumers. Of course, that hasn’t stopped some collectors from breaking the rules, and there are plenty of debtors who can tell stories of precisely that.

The question of what exactly qualifies as misrepresentation is at the center of a lawsuit filed Dec. 1 in U.S. District Court in San Francisco. The suit alleges that debt collection company CorrectiveSolutions violated the Fair Debt Collection Practices Act (FDCPA) after using letterhead of various prosecutors’ offices when contacting debtors. The complaint calls into question the process surrounding CorrectiveSolutions’ alleged practice of representing themselves as law enforcement to consumers and threatening legal action for failing to pay the debt. The tricky part of this case, however, lies in the fact that CorrectiveSolutions is under contract with several California’s district attorney offices for the expressed purposes of interceding on the government agency’s behalf. The legal dispute focuses on the way they intervened.

It’s all tied to California’s Bad Check Restitution Program. The program allows people who bounce checks and the businesses who received the checks to settle the case out of court through what’s known as a diversion program. In this diversion program, an offender can avoid prosecution by paying the amount the bad check was written for, plus fees, in addition to taking an 8-hour bad-check-offender class at the offender’s own expense. Through this program, people and businesses who receive bad checks can submit a complaint, along with evidence, to the mailing address listed on the DA’s website.

Under California Penal Code 1001.60, the DA is permitted to contract private companies, like CorrectiveSolutions, to help execute this program. However, district attorneys may refer cases to the program only if the check writer is believed to have violated state laws, like intentionally defrauding the recipient. A lawyer with the DA’s office is required to review the cases to ensure they meet various criteria. For example, if a business wants a bad-check writer pursued for violating the law, they must first make attempts to contact the debtor three times before the case qualifies for the program, according to Teresa Drenick, assistant district attorney in Alameda County.

The lawsuit contends that prosecutors have allowed debt collectors to use DA letterhead without first vetting the claim that the debtor violated the law. The American Bar Association recently condemned the general practice of allowing debt collectors to use prosecutors’ letterhead, as it makes the prosecutor “party to deception” and violates Bar Association rules, the association’s Committee on Ethics and Professional Responsibility wrote in an opinion issued Nov. 12. The opinion does not specifically reference California or the district attorneys’ offices mentioned in the lawsuit.

Credit.com reached out to the district attorneys’ offices in the five counties mentioned in the lawsuit (Alameda, Calaveras, El Dorado, Glenn and Orange counties), but only two responded. Joe D’Agostino, assistant district attorney in Orange County, said they’re studying the Bar Association’s opinion.

“The program is run in a method that matches what the statute is,” D’Agostino said, referencing California Penal Code Section 1001.60, which describes the district attorney’s ability to contract the bad check diversion program to a private party. “The Bar Association’s opinion came down fairly recently, so we’re studying it. We always want to follow the rules and follow the procedure.”

Drenick, the assistant DA in Alameda County, wrote in a email statement to Credit.com that CorrectiveSolutions sends the DA’s office a list of cases each month, which is reviewed by the office to ensure the debt is legitimate and would meet legal requirements for pursuing a criminal case. Then, CorrectiveSolutions is given approval to contact the debtor using the DA’s letterhead. She did not specify whether or not an attorney reviews the bad check diversion cases, as the statute requires, and she did not respond to a request for clarification.

“If we agree to allow the case to go by way of diversion, we authorize CorrectiveSolutions to send the check writer a letter on behalf of our DA Bad Check program advising that their check was returned for insufficient funds and offering them the option of participating in the diversion program to avoid criminal prosecution,” Drenick wrote. “It is a well thought-out diversion program. Last year (2013) our program returned $69,132.01 to local businesses as payment on dishonored checks through the Bad Check program. … There is no ‘rental’ of our letterhead; rather, a statutorily-authorized diversion program that helps local businesses collect on bad checks while giving the check writers an opportunity to avoid a criminal conviction/record.”

The future of this practice seems to depend on prosecutors’ reactions to the Bar Association’s opinion and the outcome of this litigation in California. Meanwhile, consumers may remain subject to the debt-collection tactic that the lawsuit is calling into question. CorrectiveSolutions did not respond to multiple requests for comment from Credit.com.

If your state doesn’t have a diversion program like California’s, writing a bad check can still come back to haunt you. If you bounce a check, the recipient may sue you over the unpaid sum, which may result in a judgment on your credit report — a credit score killer. (You’re entitled to free credit reports once a year under federal law). Debt collection can be confusing and intimidating for consumers, even when collectors follow the guidelines in the FDCPA. If you’re dealing with a debt collector, make sure you know your consumer debt collection rights, and form an action plan for paying off your debt.

More from Credit.com:

MONEY Debt

The Unknown Debt That’s Dragging Down Your Credit Score

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Science Picture Co—Getty Images

A new report from the Consumer Financial Protection Bureau finds that 52% of all debt on credit reports is medical debt.

Even if you carry no debt on your credit card and pay your mortgage every month, another kind of debt might be ruining your credit: medical debt.

Almost 43 million Americans have overdue medical debt dragging down their credit, according to a new report from the Consumer Financial Protection Bureau. But 15 million of those people, by CFPB estimates, have no other dings on their credit. And debt collection agencies pursue fairly small medical debts: The average medical debt on a credit report is $579, and the median is just $207.

The scariest part? You may not know that you have a problem. “Many, many people don’t even know they have a bill—much less that it’s affecting their credit score,” says Christina LaMontagne of NerdWallet.

The CFPB attributes part of the problem to a debt collection practice called “parking.” The federal agency says some debt collectors will ding the consumer’s credit before even notifying the consumer that there’s an outstanding medical bill. “Parking” the debt where it can do the most damage motivates the person to pay it off quickly. Sometimes insurers ultimately pay the costs—after a consumer’s credit may have already suffered.

“This is viewed by some collectors as a way to minimize costs, but it is not how the system is supposed to work,” CFPB director Richard Cordray explained in a statement announcing the report. “And the collection process should not depend on harming consumers by adverse reporting before a consumer even learns she owes a medical debt. If it takes a drop in her credit score or an adverse action notice to make the point, then even more damage has been done to her financial standing.”

Even if debt collectors haven’t “parked” medical debt on your credit report, medical bills can be a vexing problem. Patients often struggle to learn the cost of their health care beforehand and understand their bills after the fact, LaMontagne says. A NerdWallet study found that 63% of Americans say they’ve received unexpectedly high medical bills. And bills are often wrong: In an audit of Medicare claims, NerdWallet found that 49% contained errors, resulting in an average 23% overcharge.

As a result, one in five Americans may be contacted by a collection agency about medical debt this year, by NerdWallet’s estimate. That’s why all consumers should be on guard. Here’s what to do to keep it from happening to you.

Control costs

Of course, the best way to avoid debt is to keep expenses low at the outset. But with medical costs, that’s easier said than done. The most important thing? Stay in network.

“Most of the very high charges I see are for people who inadvertently saw out-of-network providers,” LaMontagne says. “Print out the statement that says this doctor is in network and have that to protect yourself down the line.”

Also, if you know you’ll need a procedure like an MRI, shop around first. “Leverage price transparency tools whenever possible,” LaMontagne says. “People do see huge variations in prices.”

Save for high deductibles

While the Affordable Care Act has provided health insurance to an additional 10 million people, most Americans still get health coverage from their employers, and employers have been steadily raising deductibles, LaMontagne says. That means many consumers have to pay much more out of pocket before insurance covers the bulk of their costs. So more Americans may be hit with unexpectedly high bills.

But that doesn’t mean high-deductible plans are bad, LaMontagne is quick to add. It just means people with these plans need to shop around for procedures and budget for health care expenses by setting aside money in tax-advantaged savings accounts like a health savings account (HSA).

Ask for an itemized bill

“It’s really hard to read a straight bill as they usually come in the mail,” LaMontagne says. Luckily, you’re entitled to an itemized one.

When you get it, look for doctors and procedures you don’t recognize. Compare the bill against your explanation of benefits from your insurer to see if your insurance has been applied correctly.

If you think there’s a serious billing error, “call the doctor or call the insurance as your first line of defense,” LaMontagne says. But when all else fails, you can seek help from a professional medical bill advocate.

Check your credit report

Once a year, you’re entitled to a free credit report from each of the three credit bureaus: Experian, Trans­Union, and Equifax. So check every four months. Go to annualcreditreport.com to request your report. If you find an error, submit a dispute with the credit bureau.

Pay it off quickly

The good news: Fair Isaac, the company that creates FICO credit scores, announced earlier this year that medical debt will no longer drag down your credit score after it’s been paid off. Consumers with median credit scores and no other debt can expect to see their FICO score increase 25 points after paying off an overdue medical bill that’s been sent to collections.

So tackle medical debt quickly—it can make a big difference.

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TIME

The Most Completely Depressing Stat About Americans’ Debt

knife cutting dollar bill
David Franklin

Oof, it's a rough one

Consumer confidence may be up, but the picture changes when Americans think about their debt load and the likelihood they’ll ever dig out from it.

In a new CreditCards.com survey, 18% of Americans with debt say they won’t eliminate those debts in their lifetime, double the number who said the same in a 2013 survey.

There are a few reasons behind this rapid increase, says the site’s senior analyst, Matt Schulz. Our ballooning student loan debt and increasing willingness to carry balances on credit cards play a role, but they’re not the only factors.

“Underemployment is still a problem as is wage growth, even though unemployment is lower,” he says. This malaise stretches across the economic spectrum. The survey found that higher incomes don’t translate to optimism. Households who earn more than $75,000 aren’t much more confident about their ability to shed their debt than less well-off families.

The average age when borrowers expect to be completely debt-free, owing nothing on credit cards, car loans, student loans, mortgages and loans, is 53, but a significant number of people think it will take longer. More than 40% of people who carry debt think they’ll be over the age of 60 before they pay everything off, and almost a third of debtors 65 and older say they’ll never get out of debt.

If these debtors are correct in their hunch, there could be some significant macroeconomic fallout, Schulz says.

“Continuous debt can mean indefinitely postponing retirement and that can cause a host of issues,” he says. “It can also cause great economic stress on those people’s children.” This “sandwich generation” are often caught in the middle trying to support both their grown children and their parents.

Those grown children — millennials — are considerably more optimistic than their parents and grandparents when it comes to their debts, but their optimism may be misplaced. Only 6% of millennials surveyed think they’ll die with debts, but the reality could give them a rude shock. Unlike even their struggling grandparents, young adults have fewer options for getting rid of their debt other than buckling down and paying it down, since much more of what they owe is in the form of student loans, which can’t be discharged in bankruptcy, rather than the credit card debt or even mortgages that weighed down older generations.

“Someone who sees themselves as trapped forever by debt might stop working to get themselves out of it,” Schulz says, and that inaction brought on by hopelessness could contribute to their balances ballooning if they stop trying to pay them down.

MONEY Debt

Why Paying Off Those Holiday Gifts May Be Harder Than You Think

man with ball & chain attached to leg
Ingram Publishing—Alamy

More than a third of Americans have already gone into debt for the holidays, and many will find it more difficult to repay than they imagine.

As the holidays fast approach, 38% of Americans have already gone into debt for gifts, new research shows. Many will be shocked at how long it takes for them to pay all they owe.

In general, consumers do not expect their seasonal spending to set them back for long. More than half say they will pay for the spending spree by the end of January, and three quarters expect to be free from holiday debt by the end of March, according to a survey from CreditCards.com.

Nearly 1 in 5 Americans with debt say they will never be debt free.Just 5% worry that they will still be paying for this year’s holidays a year from now. That seems optimistic. Some 7% of consumers entered this season with unpaid debts from last year, according to a blog from the Center for Retirement for Retirement Research. (The figures were even higher in previous years.)

The survey further reveals how misplaced this optimism may be. Nearly one in five Americans with debt say they will never be debt free. That is double the rate of those who felt the same way in a survey last May. So as the economy has turned up in recent months, it seems debt spending has followed suit—accompanied by escalating angst over the debt hole consumers may be digging.

The typical consumer expects to be completely debt free, including a fully paid mortgage, by age 53, the survey found. Yet nearly half worry they will still owe at age 61, and 18% believe they will have debts when they die.

On cue, millennials are the most optimistic generation: Just 16% of those aged 18 to 29 with debt say they will never get out of debt, compared with 31% of those aged 65 and older and 22% of those between the ages of 50 and 64. Meanwhile, high-income households (those earning more than $75,000 a year) are only slightly more optimistic about paying off holiday debt than low-income households, suggesting that everyone is letting go a bit and testing the limits of their earning power.

America’s debt culture is a big contributor to the retirement savings crisis. Other studies show an increasing debt burden on seniors. Those past the age of 60 saw their average debt jump between 2005 and 2014, TransUnion reported. More seniors are carrying student debt all the way into retirement, a government report found.

Today’s spending may have far reaching consequences. To keep spending under control this season, create a holiday budget and stick to it. Track everything you spend. Pay off your highest interest rate cards first and consider transferring balances to a lower rate card. You might be able to negotiate a lower rate if you call your credit card company.

Read more on managing credit and debt in Money 101:
How Do I Get Rid of My Credit Card Debt?
Which Debts Should I Pay Off First?
How Can I Improve My Credit Score?

MONEY Student Loans

Help! I Owe $37K for My Kids’ College But I Make Only $28K a Year

knife cutting dollar bill
David Franklin

A student loan expert explains why there's hope for a parent saddled with student loan debt from two kids.

Brent Strine, 65, sent a blog comment to us describing what he thought was probably an impossible situation, and he despaired of ever being able to get out of debt. He wasn’t asking for help so much as describing a sense of hopelessness. Here’s what he told us:

I have 45k in parent loans from two children who cannot help me pay on them. Every time I defer them it costs over 1k added to the principal. I am 65, our (total household income) is 28k . . . (We have) no savings, no retirement plans or funds. Seems the only way out of debt is through the grave.

When we contacted him, he quickly noted that he feels grateful for his home and family, “and I am not in any way a ‘victim.’” He had deferred the loans when his wife was hospitalized after a serious car accident and when he had cancer surgery. He continues to work full time as a custodial supervisor, though he plans to retire in May 2015 because of some physical limitations. At that point, he wants to find part-time work. He was clearly worried about his debt, though.

He gave us the balances of his loans, down to the penny. And though he knew exactly how much he owes, he hadn’t a clue about how he could possibly repay it. He wondered if there’s some way he can get lower interest rates — he has several loans, $37K total, with rates of 8% or 8.5%. (The rest of the loans have much lower interest rates.)

We spoke with Joshua Cohen, “The Student Loan Lawyer,” on Strine’s behalf. The good news is Strine probably need not worry about unaffordable payments or high interest rates. Because he has federal Parent PLUS loans, he — and not his children — is on the hook for the debts, Cohen noted. And although Strine won’t be able to get lower interest rates, it won’t matter, said Cohen.

That’s because Strine’s $28K income should make him eligible for a repayment plan based on the borrower’s income. Cohen said a family of two with an adjusted gross income (reported on federal tax return) of $28K would have a monthly payment of $205. However, when we reached out to Strine, he told us his most recent tax return had an AGI well under $20K. That would result in a payment of just $71 per month, and possibly even less, Cohen said.

“The plan I’m talking about is called Income-Contingent Repayment (ICR) — the only income-based plan allowed for Parent PLUS loans,” Cohen wrote in an email. He had more good news for Strine: “It comes with 25-year forgiveness, which means if you live to 90, your loans will be forgiven. If you pass away before then, the loan goes with you — it will not attach to your estate.

“Bottom line, you can survive this loan,” Cohen said. “It would have been nice if the servicer gave you this information. After all, that’s what us taxpayers are paying for — to help borrowers stay out of default and continue paying.”

Student loans have an impact on your credit, for better or worse. Making arrangements with the servicer for payments you can afford can help you stay afloat financially, as well as help your credit standing — by making the payments on time and as agreed. You can see how your student loans are affecting your credit for free on Credit.com, where you can get two free scores updated monthly.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Love and Money

The Most Important Talk You Need to Have Before Marriage

wedding rings tied to roll of $100 bills
Getty Images

A frank conversation about finances early on will prevent relationship land mines later on, says love and money expert Farnoosh Torabi.

It’s not exactly first-date material, but at some point early on couples ought to start talking about money.

Best if the first discussion happens before the relationship takes a turn for the serious—like moving in together, getting engaged or married, or cosigning a loan. You’d want to know if your steady’s trying to pay off a six-figure law school loan or hasn’t saved a dime towards retirement yet, right?

While we know it’s important, many of us shy away from asking our partners key questions related to savings, investments, debt and credit. More than 40% of couples surveyed by Country Financial recently said they didn’t discuss how they’d manage their money together ahead of tying the knot.

As a society, we’re not especially conditioned to speak intimately about our finances. One report found money to be a tougher topic for Americans to talk about than politics and religion. Plus, if you’re not particularly proud of your financial state, a no-holds-barred discussion may stir up anxiety, embarrassment and fear of rejection.

Here’s how to calmly—and, dare I say, pleasantly—enter this critical conversation into the record in the early stages of your relationship:

Set a Date

My now-husband and I had a money powwow about two years into dating.

Don’t get me wrong: By then, we’d fully observed each other’s spending behaviors and discussed goals (thankfully, with no red flags). But we’d yet to really share specific numbers.

With plans to move in together and cosign a lease just a few months down the road, we figured this was a natural and important time to get into the nitty-gritty.

If you and your mate haven’t come anywhere near this conversation yet, my recommendation is to schedule a time to talk so that your partner doesn’t feel blindsided and so that you can each do a little homework beforehand if need be.

One way to frame your request for a money summit: “I know it’s not the most exciting thing to talk about, but it would make me a lot more comfortable if we could go over our finances together since things are getting more serious. I’m not worried at all; I just think it’s helpful if we share the basics so that we’re both on the same page and can work toward common goals. And I want you to feel like you can ask me anything you want about my finances. I want to be an open book about this stuff because I’ve seen how it can unnecessarily complicate things in relationships.”

Then ask: “What do you think?”

Make an Even Exchange of Information…

To ease any potential tension, my future husband and I decided to meet at a familiar and fun setting: our favorite bar.

We ordered a round (one round only) of margaritas and proceeded to jot down the following on a piece of paper: annual income, bank balances, outstanding loans and credit card balances and approximate credit score.

Then we swapped papers, revealing our details at the same time.

This exercise gave us a simple, quick apples-to-apples comparison and helped us understand our relative strengths and weaknesses.

We discovered that while I had more retirement savings, he had a better credit score. (I was still dealing with the consequences of a late payment on my Banana Republic Card five years prior when I was younger and less vigilant. Sigh.)

You and your partner could try this tactic if you both are straight shooters. But if your sweetie could use some help coming out of his or her financial shell, you might need a softer approach.

…Or, Ease Gently into the Interrogation

Revealing a bit about yourself first may encourage your significant other to talk money.

“Share your feelings and see how he or she reacts,” says Barbara Stanny, author of Sacred Success: A Course in Financial Miracles.

For example, you could start by saying, “I really hate having credit card debt.” From there, you can talk about your personal experience and then ask for your partner’s take.

Or, try the following softball conversation starters which can help you get at hardball answers:

What you really want to ask: “How much do you have in savings?”
Start with: “Would you say you’re more of a saver or spender? Why?”

This helps you figure out habits and behavior, which can be just as telling as actual figures. “Most important, you want to know what are their spending and saving personality is like. For example, how impulsive are they?” says Kate Northrup, author of Money: A Love Story. You can follow up with a question like, “Are you trying to save up for anything major?” This approach can also help you figure out if you share similar goals.

What you really want to ask: “What’s your credit score?”
Start with: “When did you first open a credit card?”

Go down memory lane together to ease into your credit technicals. Talk about how you might have signed up for your first card in college just to score that free t-shirt. And admit a personal rookie misstep you might have made with said credit card.

Then gradually you can warm up to: “Have you ever looked up your credit score?”

If neither of you know, take a few minutes to get free estimates using mobile apps from Credit Karma, Credit Sesame or Credit.com.

What you really want to ask is: Do you have a lot of student loan debt?
Start with: How did you pay for college?

This is the question many dating couples probably want answered, as towering student loan debt is a sobering reality for many.

A conversation about how you afforded school—via scholarships, working and/or student loans—will help engage your partner. And along the way you may gain some insights into each other’s financial values or work ethic, too.

Once when you’ve gotten all these basics out of the way, treat yourselves to another margarita. Your first money talk out of the way! Now that’s a relationship milestone to be celebrated.

Farnoosh Torabi is a contributing editor at MONEY and the author of the book When She Makes More: 10 Rules for Breadwinning Women. More of her columns and videos for MONEY.com:

MONEY Student Loans

The Surprising Downside of Steering Clear of Student Loans

Headlines about daunting student loan burdens may leave you scared to borrow altogether. But a college degree is worth the investment, even if that means taking on some debt.

The next generation of college students has heard the message loud and clear about the perils of taking on too much student loan debt—so much so that many are unwilling to go into debt at all in order to attend college.

The drawback to this wariness is that for those who do not borrow, they are unlikely to get four-year degrees.

The vast majority of people aged 16-19 recognize the importance of a college degree, but most say they either want to avoid education debt entirely or to limit their borrowing to nominal amounts, according to a recent survey by Northeastern University of 1,000 teenagers nationwide.

About a quarter of those polled said they want to remain debt-free, while 45% felt they could afford to pay a maximum of $100 a month, which at current interest rates means borrowing no more than about $10,000.

That amount would not cover a single year at many public four-year colleges, even after financial aid is taken into account.

The problem with not borrowing is that most families do not have nearly enough saved to pay for college. About half of U.S. families are not saving for their children’s educations at all, according to a survey by Sallie Mae. Among those who are, the average amount saved is around $15,000. (To see if a school you’re interested in is worth borrowing for, see MONEY’s rankings of the Best College Values.)

Meanwhile, some commonly recommended ways to cut costs—such as starting at a community college or working your way through school—dramatically increase the chances of a student dropping out without a degree.

One recent study found a 17-percentage-point difference in bachelor’s degree completion between those who start at a four-year college and those who start at a two-year school intending to transfer.

Another study found that those who work 30 hours a week or less, excluding work study, were 140% more likely to graduate college within six years than those who worked more.

Now no one expects teenagers to be financially savvy. Many do not understand the difference between bad debt that can sink their finances and good debt that can help them get ahead. The trouble comes when teenagers make an all-or-nothing decision based on their ignorance.

That is true for those who will spend anything to get their degree and those who are so averse to debt they will borrow nothing.

The nuance that the debt-avoiding teens are missing is that those sob stories about unemployed or barely employed college graduates with six-figure student loan debt are very much the minority. (Still, see how you could end up with a six-figure debt for film degree here.)

Even though student loan debt is rising, just 7% of borrowers take out more than $50,000, according to the Brookings Institution’s Brown Center on Education Policy. Only 2% take more than $100,000.

The average debt at graduation for bachelor’s degree recipients is $33,000, said Mark Kantrowitz, author of Filing the FAFSA and publisher of Edvisors.com, a higher education resources site.

That amount may seem formidable, but for most graduates it is not.

“If total student loan debt at graduation is less than the annual starting salary, the borrower will be able to repay his or her student loans in ten years or less,” Kantrowitz says.

For most graduates, that’s the case. The average starting salary for new college graduates this year was $45,473, according to the National Association of Colleges and Employers, ranging from a low of $38,365 for humanities and social science majors to a high of $62,719 for engineers.

Even larger debts may not be cause for concern. About a quarter of the increase in student loan debt comes from rising levels of education—more people attending graduate and professional schools.

Advanced degrees typically confer higher incomes, according to Georgetown University’s Center on Education and the Workforce. Master’s degree holders can expect to earn $2.7 million over a lifetime while professional degree holders can expect $3.6 million.

That compares to the $2.3 million someone with a bachelor’s degree can expect to earn and the $1.3 million expected earnings for those with only a high school diploma.

Of course, not everyone needs or wants a four-year degree. The payoff for a two-year associate’s degree from a community college—an education mostly covered by that $10,000 in borrowing—can be considerable. The Georgetown researchers figured an associate’s degree-holder can expect to earn $1.7 million over a lifetime. What’s more, 28% of associate’s degree make more than the median earned by a four-year degree holder.

For most people, though, the investment in a four-year degree will pay off handsomely in terms of higher incomes and lower unemployment. An unreasonable fear of debt should not be the deciding factor between a good education and something less.

 

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