This past week saw a barrage of interest-rated mail—student debt, bi-weekly mortgage plans—in my inbox. Lots of news focusing on the Federal Reserve raising interest rates could be the reason. If you’ve noticed the same, these readers’ questions may interest you or someone you love.
My Big Fat Student Debt
Dear Mary: Nearly five years ago, I decided to become a medical transcriptionist. I knew nothing about how school loans work and signed for a loan with Sallie Mae for $7,000 with a 12-month deferment on payments.
It took 15 months to finish school, so my payments started before graduating. I still make $134 monthly payments on the loan, while the principal balance has grown to nearly $12,500! I have looked into transferring the balance to a lower-rate loan, as we are currently paying 15% variable on this one. I know it will go up considerably on the next interest rate adjustment.
Here’s my problem: I can’t find anyone to agree to give me an unsecured loan at a lower rate, allowing me to pay this awful student loan in full, and then get back on track with a more realistic repayment schedule. Is there another avenue I can pursue, or am I stuck with this out-of-control student loan? Yvonne D., email
Dear Yvonne: My first instinct is to blast any lender that signs up students for loans without fully disclosing all of the ramifications of fees, deferred interest, and variable interest rates. And then warn students to grow up, do their own independent research, anticipate that the balance owing will grow every month if the required payment is insufficient to cover the accrued interest. An for goodness sake, Pay attention to what they’re getting into! It’s a lot easier to borrow than to pay back. But I’ll refrain and get right to your question.
Your loan through Sallie Mae is not a federal student loan, but rather a private student loan. This means you cannot access options available from the federal government that could possibly lower your interest or offers forgiveness. Even if it were federal, your chances of qualifying would be slim-to-none.
There is an organization, US Student Loan Center, (I am not endorsing here, but I know of) that offers consolidation for private student loans. Typically, that means taking several loans and consolidating them into one. However, it is possible they can assist you with refinancing your single loan into a better rate of interest. Just be careful. NEVER sign anything you do not fully understand and could not easily explain to another person in 50 words or less. That’s a great benchmark.
That said, your best for an unsecured loan is to approach a family member who believes in you and your ability to repay. I wish you well with your new career and getting out from under your student debt as quickly as possible.
Bi-Weekly Mortgage—Yes or No?
Dear Mary: Our mortgage company has offered to enroll us in a plan that would change our current single monthly payment of $2,445 into two payments of $1,225—one every two weeks. Bi-weekly payments would be automatically deducted from our checking account.
The letter states that we would save $107,692 in interest on our mortgage and pay our 30-year mortgage off nearly seven years early. There is a one-time enrollment fee of $595 and a $7.42 monthly participation fee. I tried to set up the same deductions electronically, but the bill pay service will only allow only one payment per payee per month. Also, if I want to apply extra towards the principal each month, it can only be scheduled for the same date the mortgage payment is deducted. Should we do this? Thanks for the help. K.G., email
Dear K.G.: I wrote an entire section in Chapter 9 of my book, Live Your Life For Half The Price (Revell, 2015), on bi-weekly mortgage payments.
Here’s a brief explanation of how it works:
Assuming that your mortgage carries no prepayment penalties (most do not), on a bi-weekly payment plan when you pay half of your payment every two weeks, in one year you make 26 half-payments, equating to 13 regular monthly payments. It is that extra full payment that makes all the difference. But for a mortgage company to allow you to send half payments, you must enroll in a bi-weekly program and pay all those fees. Once you start, you cannot switch back to monthly payments if you need to pull back or simply change your mind.
Here is a simple way you can do the same thing on your own with no fees:
Each month and on the same day you make your regular monthly payment, write a second check (or make a second payment) for 1/12 (one-twelfth) of one payment. Make it clear that this additional amount is for “Principal Prepayment Only,” and not to be held to cover future interest. Do this for 12 months, and you will have made the equivalent of 13 monthly payments. Bingo!
If something comes up and you need to pull back, just stop sending that second check. And start back up when you like—no permission required, no fees assessed. Watch your mailbox. I’m sending you an autographed copy of my book.
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