July 27, 2009


While the current economy has admittedly impacted people differently, one common theme has been that getting out of debt is now "in vogue." It used to be that insomniacs were the ones bombarded with all of the get out of debt "goodies" during late night TV ads; with the economic downturn, debt elimination ads now seemingly target everyone ... Debt negotiation, Foreclosure relief, Debt settlement, Bankruptcy relief, Credit repair ... the list goes on and on. Rather than focusing on the legitimacy (or lack of) with many of these types of services (which I've done in previous tips), my objective this week is to focus on debt management strategies that you can put to practice quickly, easily, and on your own.

Ultimately, most efforts aimed at eliminating debt can be summed up in two primary goals: (1) Time (getting out of debt as quickly as possible); and (2) Saving Money (paying as little in interest as possible). While there are numerous ways to work on these goals, I want to focus on just a couple simple steps that can be taken that will provide dramatic results.

Think of this as the anti-credit card payment ... credit card companies allow you to reduce your required payment as your balance decreases. A level payment suggests that you pay your current monthly payment (whatever that is) steadily until the debt is paid off.

Balance of $5,000; Minimum payment of $150; 15% interest
(Payment = 3% of balance --decreasing with $10 minimum)
REPAYMENT = 16 years 5 months, $3,400+ in interest paid

Balance of $5,000; Level payment of $150; 15% interest
(Payment of $150 until debt is completely repaid)
REPAYMENT = 3 years 8 months, $1,500 in interest paid

2. 'Power Payments'.
PowerPay, a systematic way of repaying debts that was developed over 15 years ago by Utah State University Extension. I've since heard this system of debt reduction commonly referred to as a "snowball method" of repaying debt.

PowerPay Assumption #1 - Make level payments on all debts
PowerPay Assumption #2 - Accumulate no new debts
PowerPay Assumption #3 - As one debt is paid off, that money is used to roll over to a new debt; that 'cycle' is continued until the debt "snowball" is ultimately focused on paying down the final debt.

A benefit of this program is the flexibility for you to decide how to apply the extra payments (as debts are paid off) ... should you pay the highest interest rate (to save the most money)? Or should you pay off the lowest balance which may enable you to "stick with" your debt reduction plan better (ala weight loss)? You may want to review my debt elimination post from a while ago where I addressed these issues.

The time and money saved using this system of repayment is often breathtaking. Utah State has made their PowerPay calculator available for free on their website - https://powerpay.org.

Take a look at how much time and money you could save by implementing a couple of simple debt reduction strategies that don't require assistance from others or cost you a dime!

July 13, 2009


The Consumer Action Handbook, first published in 1979, is a helpful and popular consumer resource. The free guide is designed to help people find the best and most direct sources for assistance with their consumer problems and questions. Tips are offered on such topics as banking, making large purchases, protecting against fraud, insurance, and resolving marketplace problems. Thousands of contacts for Better Business Bureaus; federal, state, county, and city government consumer protection offices are also provided. Some of the resources provided are also geared toward specific audiences such as teachers and the military ...

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- Order by phone: 1-888-878-3256
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July 06, 2009


This month, as student loan rates have adjusted and new legislation taken effect, issues impacting college students have taken center stage and lots of questions have surfaced (many of these issues were addressed in a blog post a couple weeks ago). Common among them are questions surrounding private student loans, particularly the issue of consolidating them [for recent graduates].

Contrary to popular belief, you can consolidate private loans (PLs). The primary question you will need to answer is whether or not doing so is in your best interest. In most cases, it’s not …


  • Cannot consolidate PLs until you’ve begun repayment.
  • Cannot consolidate PLs with federal loans.
  • Consolidating PLs will leave you with a variable rate loan.


    • Look at the benefits your current lender provides. There are very few companies (you can count them on one hand) that will consolidate any private loans [regardless of lender]. More companies will offer some type of consolidation or “refinancing” of private loans, but will require that you have loans with them to be eligible. That requirement will differ by lender; some will require that at least one loan be with them; some may require that at least 50% of the consolidated amount be with them. Regardless, researching your current lender(s) is a good place to start.
    • Shop around. As mentioned, there are a few companies that don’t have stipulations in order to use their consolidation/ refinance program. FinAid.org maintains the best list that I’ve come across . You want to shop closely the loan rates/terms because the lender, not the government sets the interest rates (most are linked to the Prime Rate or LIBOR Index).
    • How does your credit look? Perhaps the most important question to ask is ‘How is your credit?' and what did it look like when you first took out the loan(s). Private loans are credit-based – if you had poor credit with no co-signer, your current rate is inevitably high. [Assuming your credit has since improved] You would be the best candidate for PL consolidation. Your rate with good credit should be in the ballpark of the Prime Rate, but could be 8% or more (over Prime) with poor credit. You possibly paid fees to take the loans out initially; most companies will assess more fees (not all) to consolidate the loans (1% - 3% is common, but I’ve seen fees that approach 10%) … these fees [along with maintaining a variable rate loan] are the biggest reasons why often you’re best not to consolidate your private loans. If you had good credit all along, your loan situation is not likely to improve by consolidating. Also, keep in mind that a tighter credit environment has resulted in tighter credit scoring standards.