Managing Debt

College Tidbit:
The 4 year cost for a public university for 2004-8 is around $50,000 and double that fee for private college: $104,000. By 2017, that cost is expected to rise to $138,420 for public colleges; $298,243 for private. With the cost of education increasing so dramatically it is likely you and your child will have to go into debt to help cover the costs. The goal is to put together a plan to pay off student loans in a prudent manner. If your child has received a fair amount of financial education from you before she obtained her first debt, then it is likely that she will be able to manage it appropriately.

Your child will not only be faced with student loan debt, it is likely she will have to cope with credit card debt at some time in her life.

Debt is basically owing someone else money you previously borrowed. In the case of a financial institution, you agree to pay the borrowed amount back in full over time, as well as interest. Banks and credit card companies make money on the interest you pay back.

The longer you take to pay back the loan, the more interest they charge, and the more money the bank makes. Interestingly enough, if you pay off your debt in full each month, you're more likely to see your annual fees and interest rates rise in the future. That's because the bank has to find some way to make money from you.

The U.S. Census Bureau cites that people with a bachelor's degree will earn on average 62 percent more money than those without a degree. This tallies up to over a million dollars in an earner's lifetime. It is well worth it to make some short term debt sacrifices for long term gain.

The Affect of Interest Rates
Outstanding Balance	Interest Paid Annually at 15.9% APR	Interest Paid Annually at 4.9% APR	Difference
$1,000	$159	$49	$110
$2,000	$318	$98	$220
$5,000	$795	$245	$550

Debt Counseling

According to American Consumer Credit Counseling, Inc., almost half of the households in the U.S. report having difficulty paying their minimum monthly payments.

It's easy to feel overwhelmed. Your credit carrying teenager might start out with a few charged purchases, and choose to pay the minimum monthly balance for a few months, and then all of a sudden it seems as if her credit card balance has spiraled out of control.

This is a good time to check in with her to make sure she has can handle the situation she has put herself in. It might be wise to provide some advice and possible financial assistance to alleviate the problem.

"Of course, no one is perfect, and sometimes your outflow may exceed your income."
- Lorayne Fiorillo, author of Financial Fitness in 45 Days

If your lessons aren't having the impact you would like then there's no shame in getting help. Just as you go to a doctor for medical guidance, you should encourage your child to seek the assistance of a professional debt counselor to help her resolve debt issues. Debt counseling can help her with the following:

• Avoid bankruptcy, foreclosure, and repossession.
• Deal with judgments and payroll garnishments.
• Stop collection agencies from harassing you.
• Fix problems on your credit report.
• Negotiate with creditors.
• Settle debts for less than owed.
• Buy a house, car, or land with bad debt.
• Deal with back taxes owed.
• Deal with credit fraud and identity theft .

Visit Debt Counselors of America for more information on managing out of control debt.

Page 4 of 6: Managing Credit and Debt

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