student loans pitfall

Two Main Pittfalls of Legally Not Paying on Student Loans

I have discovered, to my dismay that I owe more money to my student loans today than when I graduated from college.

How did this happen?

(1) I have been paying off my student loans using the graduated payment option and

(2) I have been deferring my student loans because I am still taking classes on a part-time basis.

(1) I consolidated my loans about 18 months ago. Since then, I have over 1,000.00 more dollars to pay off. This occurred because while I only had to pay a little over $250.00 per month, the interest on my student loans was almost $400.00 a month.

I picked the graduated payment option because the standard payment would have been over $500.00 a month. I could not afford this. I’m only teaching part-time while working two other jobs. While I couldn’t afford the $500.00 plus payments each month, I can afford the $400.00.

My educational services company does allow me to pay over the minimum so I am able to pay all of the interest and some of the principal on my student loans now.

(2) The problem with being in deferment on student loans is that not all student loans are subsidized by the government.

What I found out was only half of my student loans that I consolidated are subsidized.

That means that when I am back in school, the interest on my student loans is costing me about $200.00 a month. I am taking a class right now and am in deferment.

I noticed that the amount of my student loans is slowly rising. However, I can still pay on my student loans and decrease the amount I owe instead of watching it increase.

Now that I am aware of how the interest can add up when legally not paying my student loan, I plan to pay it on a regular basis even if I don’t have to.

I know now that even when I was in school getting my master’s degree, I could have been paying the interest on my unsubsidized student loan in order to keep the total amount I owed lowered.

A way to benefit from payments on student loans is the amount of taxes owed each year.

The student loan interest that was paid over the year may be deducted from taxes owed. Please check with the Internal Revenue Service to make sure you qualify.

I am happy to have a master’s degree but I don’t want to spend the rest of my life just paying the interest.

Another danger to the graduated payment is that the amount due on the graduated payment does go up over time even if my income doesn’t.

I would not like to be in default. I would much rather pay off the interest and loan as much as I can now.

The minimum payment for the graduated payment option and the ability to defer my student loans when taking classes costs me too much when I think of my future.

freelance earnings

Freelancers, Home Loans, and Proving Future Earnings

One new change I’ve seen in the business of home lending is that banks are tougher than ever when it comes to verifying self-employment income.

In addition to looking at current year-to-date balance sheets and past two to three years tax returns, some lenders are now wanting proof of future self-employment income.

The problem with being self-employed – as we’ve all discovered ~ is that future income can be tough to prove.

After all, we don’t how many people might be requiring our services next month, although we can probably make a reasonable guess based on an average of the last several months.

Unfortunately, lenders no longer will accept “guesstimates”.

Banks and other lending companies now want actual proof of your future income.

If you are in the market for a new car or home and have to prove future self-employment income, here are some options that may work.

Service Contracts.

Back in the 1980s when I purchased my first home, the janitorial contracts I kept on file from my various cleaning gigs were accepted by my lender as a guarantee of future income.

What helped, of course, is that I had already been doing janitorial work for several years prior which established a solid self-employment history.

Janitorial contracts are one example of monthly (or even weekly) service contracts that may be considered as proof of future self-employment income. Other examples of future, steady income could include:

  • housekeeping services
  • yard work or gardening
  • ditch maintenance
  • building or grounds maintenance
  • in-home nursing or home health aid services
  • catering
  • daycare or in-home nursing

Signed contracts for upcoming work.

If your freelance work is a bit more unscheduled than weekly maintenance work, a signed contract for upcoming work may also work as proof of future income.

Examples include contracts for building a new home or remodeling an old home, a car restoration, an advance on a new book, musical gigs, or a growers contract for crops.

Invoices & Accounts Receivables.

If you have billed for work that hasn’t been paid yet, your outstanding invoices (called “accounts receivables“) can confirm future income that is still in processing.

One good example of accounts receivable is money owed to a subcontractor who has freelanced some government work and must wait three months (or longer) for payment.

These are just a few examples of ways that we freelancers and self-employed can guarantee our future income to a lender. Your accountant may have additional recommendations.

business line of credit

Business Line of Credit Explained

A business line of credit simply is a credit option that is often extended to a specific business by any financial institution or by any bank.

It can take several forms such as cash credit, term loan, discounting or purchase of commercial bills, overdraft, and much more.

In simple terms, it is an account created for that business that can be used by the business whenever the need comes.

It is ready at all times for any problems that may arise or can be saved over a period of time for emergencies.

The good thing is that the only interest that the user pays is on the amount that has been drawn from the account or the amount that has been used by the consumer.

If you are a customer who has good credit and needs to overcome liquidity problems or even just planning for the future and in need of credit in case of emergencies, then you might want to look around local banks and see which banks might be able to extend a loan to you.

A business line of credit is different than the ordinary business loan, with a business loan you have more accountability as to what you are going to spend the funds on.

The bank will need to know all details as to why who and even then may make out checks to your vendors.

With a business loan, you have very little control. The bank may also give you the entire amount in the beginning, which will make you obligated to start paying the amount immediately, including interest building up.

With the line of credit, you can use the money whenever you need it, and the interest only applies to the amount that you consume.

There is no fee for the money just sitting in the original account. The checks that go out to your vendors will be from you and not your bank, giving you the freedom and privacy you deserve.

A business LOC gives you the opportunity and freedom of using it however you want, whether it is to pay your employees or to start a new marketing strategy.

It can even make a big difference if you are waiting on your customers to pay you back and allow you to not let the cash flow be affected to keep things going.

The most important factor is to follow all of the rules, such as if the business is a public corporation, then the stockholders are obliged to know where the money is spent.

When it comes time for paying taxes, you might want to look into where the business LOC is for you. It can save you money by deducting the interest that you pay for any loan.

It is definitely more useful to apply for a business line of credit than for a credit card for business, as the rates are much lower.

fha home loans

Purchase with an FHA Home Loan

Now is a great time to buy a home, and the media has let you know about it. What the media won’t tell you is why, and what your options are.

Many families are looking to buy, but they hear about FHA and they aren’t sure what to make of it. So, I am here to help answer those questions.

Here is some basic information that you can utilize as a first time home buyer, or if you are buying your second home but want to know what this is all about.

FHA is great for the first time home buyer because it allows you to put as little as 3.5% down. Most families don’t have 20% to put down on a home, so this is helpful.

FHA also will allow up to 6% seller concessions, so this aids in the process of buying the home. This is great for the first time home buyer since most first time buyers are young couples just starting out.

This is also beneficial for you because this will keep your payments low. Low monthly payments are essential right now in these tough economic times. It helps keep your pocketbook stable in case of an emergency.

FHA is beneficial for those who have credit concerns. FHA is not a subprime loan and is not for everyone, but they are more lenient with past derogatory debts and will look closely at your credit over the past year.

Don’t casually consider that it’s been over the past year, you want to specifically examine the past 12 months. So, while your credit doesn’t have to be perfect this isn’t a license to go out and blow your credit rating because that isn’t acceptable.

Keep in mind that even if you have had a bankruptcy you can still get a loan, but what FHA is looking for is an indicator of how you have re-established your credit since that time.

FHA loans have lower rates because these lenders that carry the loans are insured by the government. FHA also allows you to use gifted funds towards your down payment, and that could mean a gift from a family member or friend, or even a charitable organization.

The money does need to be sourced, and they will want the information of the donor so be sure to be upfront with anyone who is willing to provide you with these gifted funds.

FHA also focuses on fixed-rate mortgages to keep your payment the same all the time. They view variable interest rate loans as risky for most borrowers.

While they do not tend to give variable loans, they are available. Having a consistent payment is best for your planning so that you know what to expect every month.

FHA is in your court, and they ensure your loan so they will do what they can to help you keep your loan so that you can avoid foreclosure.

There are options available so be sure to ask me what that means. FHA is overall the best loan for any borrower, not just the first time homebuyer.