All Posts Tagged: student loans

Tackling household debt

Beth Hale
Posted by Beth Hale
Consumer Banking

According to data from the Federal Reserve Bank of New York, for the fifth consecutive year, total household debt increased to $13.15 trillion in 2017.

Young, biracial couple looking into a store window, smiling and holding several shopping bags.Let that sink in. That is a lot of debt. Conversely, household net worth has also hit all-time highs; and income levels appear to be high enough that, for many Americans, debt doesn’t spell financial distress.

However, it is important to know what type of debt you have and how you can tackle it, especially if you find yourself struggling to manage it.

Bad debt vs. good debt

Student loans falls into a category of debt that is traditionally referred to as “good” debt, because they have the potential to boost earnings or net worth. Mortgage debt is another kind that falls into this category, since after making all those payments you are left with an asset that has value.

“Bad” debt is the kind you incur when you use your credit card to pay for something you cannot afford, like a vacation, a new cell phone, or designer item. Or, you use your credit card to make a lot of small purchases that you don’t pay off promptly. If you end up paying interest on interest, that’s a bad situation.

There’s no absolute rule as to how much debt is too much, but common sense will warn you when you’re coming close to the edge. If you find yourself using your credit card to make routine purchases or to cover expenses in between paychecks, or even missing payments, there may be a problem.

What you can do

Even if you’re not at these points, it’s worth reviewing some of the most common triggers of household debt problems, and tackling them proactively.

Here are four tips on tackling household debt:

1. Don’t overspend. The most obvious culprit is overspending, and the remedies are equally obvious, even if they can feel tough to implement. You can accomplish this by creating a budget and sticking to it. Always account for your living expenses first and then if you have money left, you can save it or spend it.

2. Renegotiate loan payments. If you already have a heavy debt load, talk to your creditors and try to renegotiate payments. Personal finance pundits talk of debt stacking, which calls for you to contribute as much as you can each month to reducing the amount owing on the highest-interest form of debt (typically a credit card). When that is paid off, you may then start directing those excess payments to the next most-costly debt, and so on.

3. Open a Health Savings Account (HSA). If medical bills are a major source of debt problems, set money aside each month in an HSA. Your contributions are tax–free, and gains on the funds you invest also won’t be taxed (like an IRA). Withdrawals also are tax-free, as long as they are used for medical expenses, or related items, from hearing aids to prescriptions.

4. Avoid new debt. If you can’t handle the current debt you have, you should avoid accumulating new debt at all cost.

If you’d like additional information on managing your finances, I encourage you to read these two recent blog posts:

 

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How your home’s equity may help in financing college costs

Stew Larsen
Posted by Stew Larsen
Mortgage Banking
View from behind as male college student wearing backpack walks up a road toward campus.

As with any credit product, one of the keys to unlocking the benefits of equity in real estate is understanding the loan product.

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Is student debt locking out homebuyers?

Chad Royle
Posted by Chad Royle
Mortgage Banking
Young interracial couple talking with older couple (parents?) outside a house on a sunny day.

The rise in student loan debt in recent years has raised concerns that college graduates are being squeezed out of the housing market.

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U.S. Outlook: Consumer credit spigot remains open

Scott Anderson
Chief Economist
Graph showing the dramatic rise in student loan debt in last 15 years

Solid gains in consumer credit growth are an integral part of our sanguine outlook for near-term consumer spending.

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In the Market: Misguided ideas about FHA loans

Nneka Madus
Posted by Nneka Madus
Mortgage Market Analyst
Young man and woman sitting at a table with paperwork and a calculator.

Despite numerous benefits of FHA loans, there are misconceptions about them among sellers.

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