The Ugly Truth About Payday, Pawn Shop and Car Title Loans

Payday Loans A Bad Solution to a Bigger Problem

These lenders of last resort often prove to be a very unsafe 'safety net'

People in financial trouble may take on payday, pawnshop, and car title loans to tide them over until they're financially stable. But these seemingly innocent loans often cause them to end up in worse shape than when they started.

On the outside, they just look like convenient ways for people with subprime credit to borrow money. However, there's no such thing as easy money. Read on to learn the truth about these three risky loans, and find some alternatives you should consider instead.

Payday Loans

How they work: The payday loan process usually begins with you writing a post-dated check for the loan amount plus interest and fees. When the loan is due, the lender collects the balance unless you choose to roll the loan over (in exchange for more fees, of course).

Why they're dangerous: These loans boast notoriously high-interest rates that make it almost impossible for borrowers to pay off their balance on time. Even if they pay a small amount each payday, this often just covers the interest and fees, leaving the balance intact. Richard Cordray, the Consumer Financial Protection Bureau director, said in a statement last year that payday loans are long-term, expensive debt

burdens: "For too many consumers, payday and deposit advance loans are debt traps that cause them to be living their lives off money borrowed at huge interest rates." It should come as no surprise that payday loan borrowers often find themselves needing to roll over or take on new loans, trapped in a vicious cycle of debt.

Pawn Shop Loans

How they work: Pawnshop loans typically involve you giving the pawn shop an item that you own (like a television, piece of jewelry, or computer) as collateral, and the pawnshop lends you a percentage of the item's value.

Why they're dangerous: These loans are short-term and typically have very high-interest rates and a variety of fees. If at the end of the loan period you can't afford to pay the balance plus interest and fees, the pawnshop may keep your item and sell it.

Car Title Loans

How they work: Like pawn shop loans, car title loans use one of your possessions (in this case, your automobile) as collateral to secure a short-term loan for a fraction of what your car is worth –- provided that you own the car free and clear. Just sign over the title of your car, and hand over a set of keys.

Why they're dangerous: As with payday and pawnshop loans, these secured loans typically come with very high (often triple-digit) interest rates and loads of hidden costs, from storage fees to repossession fees. This brings up another huge red flag – if you miss just one payment, fail to pay the fees, or aren't able to pay the interest accrued on the loan by the end of the term, your car could be sold or repossessed. Also, since title loans are often only 30 days long, borrowers only have a short amount of time to pay the principal, interest, and fees. Since they usually aren't able to pay everything back when it's due, they often renew the loan and the nightmare begins all over again.

How Do These Loans Affect My Finances?

The most redeeming qualities about secured loans are that lenders typically won't check your credit, and the loans aren't reported to the credit bureaus. But while you're frantically trying to gather enough money to pay off those loans, you may neglect paying off things that do affect your credit. So while they may not directly affect your score, know that secured loans can still cause trouble for your credit health.

Alternatives

Even if you're strapped for cash, you don't need to agree to ridiculously high-interest rates. Instead of taking on risky loans, consider these other options:

• Short-term loans: Small banks or credit unions may offer you loans with better rates and repayment terms.
• Asking for an extension: If you call your creditors before you miss a payment, they may be willing to give you a due-date extension or work out a payment plan.
• Borrowing from loved ones: It may be uncomfortable, but asking friends or family for a loan could still be a better alternative than secured loans. Just be sure to pay them back -– you don't want to burn bridges.
• Payday advances: If you have a benevolent employer, try asking for a payday advance. Since it's your money, not a loan, you'll save money on interest.
• Emergency assistance programs: You may find emergency assistance from community organizations or social services programs. In many areas, a call to 211 will connect you to help.
• Cash advances on credit cards: While not ideal, the 25 to 30 percent interest you may be charged for a cash advance is certainly better than triple-digit interest via the loans covered earlier.

Final Thoughts

Personal finance experts always recommend building up an emergency fund so you can avoid dangerous situations that are hard to escape. If you're not desperate for money yet, don't wait until an emergency strikes. Avoid living paycheck to paycheck at all costs, even if you have to trim your spending and live less comfortably.

If you're in a situation where you need to borrow money quickly, don't let emotions lead to rash decisions. Assess whether you'll realistically be able to repay the loan or not, and be wary about lenders who don't check your credit or income to make sure you can afford the loan. Other red flags include loans that have astronomically high annual percentage rates, loans that don't advertise the APR, and situations in which funds can be automatically deducted from your checking account.

It may seem hopeless, but you can get through this tough time without taking on a secured loan. Just remember: Evaluate your options, know what you're getting yourself into, and breathe.

STOP Trying to Get Rich – 8 Reasons To Avoid Wealth

Are you planning and working hard to become a future millionaire?

Have you ever stopped to think about life after wealth? Now’s the time, mate – while you are on the road to riches.

Here are eight consequences of wealth to avoid!

1.  Your Time and Effort Are Spent on the Chase – You Forget to Enjoy Lifes’ Journey
Don’t be like Karl Rabeder who gave away millions in February 2010, saying “Wealth doesn’t create happiness. For 25 years, I worked like a slave for things I didn’t want or need. Now my dream is to have nothing.” from E. Jane Dickson, in a Readers Digest article entitled “Nothing But Joy”

Do you sometimes feel that life is passing you by while you plug away at the computer keyboard? How do you make sure that you are living your life to its’ fullest?

2.  You Ruin Your Kids

You don’t get to spend time with them (because you are busy earning all that money) so you buy things for them to make up for it. They live in a privileged environment where every wish is met – paving the way for them to develop into a spoiled, egotistical, entitlement-based person who can’t or won’t support themselves. Consequently, they develop no sense of self-worth.

When was the last time you and your kids just hung out together? Have you started preparing your children to deal with the consequences of your future wealth?

3.  Your Tax Bill Goes Up
OK, so maybe we will all be paying a lot of taxes, but if you are rich you are going to pay much more than the rest of us. There is a reason rich folks hire accountants, lawyers, and financial advisors to try to find ways around taxes! Did you know that the US marginal income tax rate during the entire decade of the fifties was at or above 90%! As recently as the decade of the 1970′s it has been at or above 70%. With the trillions of dollars in debt that we are now, it will happen again!

Do you think it would bother you to give Uncle Sam (and Aunt Sally – your state government) ¾ of your yearly income in taxes?

4.  People Like You for Your Money, Not Yourself
You may suddenly become popular with long-lost cousins needing help with the latest surgery for their 13th child. Your ‘friends’ end up always asking for a small loan at the end of the evening.

How will you handle requests for money and other assistance after you are wealthy?

5.  You Spend Your Time Managing Your Riches Instead of Doing What You Want
Getting rich and being rich are two different things. You need the money and investment skills to manage your fortune after you build it. That takes time and time is always in short supply. Even if you hire a money manager, you still need to provide oversight.

Do you enjoy managing your money? Are you prepared to spend more time at it after you are rich?

6.  Your Physical Security Can Be at Risk
Because you have money and nice things, you may become a target for burglars or kidnappers.

How will you counter this potential threat?

7.  You Can Lose Your Drive and Self-esteem
In Richistan – A Journey Through the American Wealth Boom and the Lives of the New Rich, Robert Frank notes that after achieving success in two businesses and selling them for tens of millions of dollars, Michael Sonnenfeldt still talks about ‘finding meaning’ beyond wealth. Frank notes that Sonnefeldt “had an emptiness in his soul. The business had been the center of his life and now it was gone.”

Will life lose its meaning for you if you achieve your wealth goals?

8.  You Will No Longer Belong
You work hard, buy a nice new house in an upscale neighborhood and suddenly you are like the Clempett family (on the old Beverly Hillbillies TV show)– trying to fit in but not knowing how!

How will you stay connected with family and friends who aren’t in your wealth circle?

These 8 consequences could happen on the road to riches. If you are hoping and planning to be wealthy, what steps are you taking to avoid them?

Source: STOP Trying to Get Rich - 8 Reasons To Avoid Wealth

You've Earned Your Degree - But Can You Handle Your Finances?

FINANCE

Remembering back to when I graduated from college, there are many things I wish I could go back and tell my younger self. Some are truisms that you can carry through life –- like avoiding debt -- and others are more palpable at the moment –- like hard work trumping your piece of paper.

I knew nothing about managing money when I graduated college and, sadly, I believe I was not alone in that experience. Most graduates -- and there were 2.85 million in 2013 -- are focused on getting a job, moving to wherever that job is, and living in the real world -- not financial literacy.

With that in mind, here are four basic financial steps you should take as a newly minted college graduate. If you're still looking for a job, these steps can still be implemented on a smaller scale.

1. Establish a Spending Plan

As a new college graduate, you're going to experience a lot of things you've never dealt with before, especially if you're moving to a new location. They include paying rent, dealing with variable expenses, buying groceries, and so forth. To best set yourself up for success, you want to plan out this spending. Call it a budget, call it a personal spending plan, or something else -- you want to have something to hang your financial hat on.

The first big reason for a personal spending plan is to avoid lifestyle inflation. You will no longer be a poor college student and thus will be tempted to spend more. Avoid overspending as much as possible. The second reason is a plan will help you establish long-term habits that will help as you begin to earn more income. The key to whatever you develop is to be flexible and find something that works for your situation.

2. Set Up a Personal Slush Fund

A slush fund, as I call it, is money designated for buying whatever the heck you want, such as a nice meal or a fun experience.

This might sound a bit contradictory to the first step, but it's for a reason. Lifestyle inflation, especially as a new college graduate, is inevitable on many levels. Having a personal slush fund, as long as you're disciplined with it, will help you stay on track with your finances and still be able to enjoy life. As with many other things, life is about balance, and this will help you achieve that balance.

3. Start Killing Your Debt

The $1 trillion in student loan debt is a staggering number that must be dealt with. The average 2013 college graduate also had $3,000 in credit card debt when they walked across the stage.

Many college graduates avoiding dealing with their debt because it seems so overwhelming. Many also feel that because they might have a low-interest rate on their student loans that it's OK not to attack the debt. Avoid these temptations, as they only enslave you to making payments for longer.

First, tackle your debt from a high-interest credit card, since that will save the most money in the long run. If you're not aware of how credit cards work, they're only going to accrue more and more interest until you pay them off, as opposed to giving you a grace period like with most student loans.

4. Start Investing as Soon as You Can

If you've just graduated from college, the last thing on your mind is likely going to be investing. This is understandable if you have no experience with it and/or have a debt to pay off. However, this is the very time you should start thinking about it, especially once you secure a job.

If your new job offers a 401(k) plan, along with a match, that is the first option you want to pursue. Not only will this help you start saving for retirement, but the match will also provide you with free money in doing so. If your employer doesn't provide a 401(k) or doesn't match, then your best option is opening an individual retirement account through an online brokerage. Many brokerages will allow you to open an account for $1,000 or less and allow for automated contributions. I know retirement may seem too far off to even think about starting now, but by starting soon after you graduate from college, you're taking advantage of the best way to grow your wealth –- time. By starting now, even in small amounts, you will better be able to position yourself for the future you want.

I know becoming a new college graduate can bring a lot of overwhelming situations. The best thing to do, financially, is to take small steps and personalize what you're doing to lead you to success.

10 Little-Known Actions That Sabotage Your Credit Score

We’ve shared some great ways to boost your credit score. But what if you’ve worked really hard to raise that very important number, only to make a bad decision that sends it to the trenches? Or what if what you thought was a smart move for your credit comes back to bite you?

Maintaining stellar credit goes beyond paying your bills on time each month and keeping your balances low. Unfortunately, there are a number of little-known factors that can tank your credit score.

1. Local government debts

Behind on your property taxes? About half of U.S. counties sell property tax liens to debt collectors, says The Washington Post. Contact your local office and see if payment arrangements can be made.

2. Parking fines

Have you been ignoring the notice you received in the mail about a past-due parking citation? If the issuer gets fed up and decides to turn the account over to a collection agency, your credit will take a big hit, and the outstanding amount will soar once the interest, penalties, and administrative fees are tacked on.

3. Past-due library books

If you’re an avid reader, be sure to turn in those books on time or make sure to promptly pay any overdue fines or fees. Some libraries turn unpaid fines over to collection agencies.

 4. Cellphone bills

Ditched your cellphone contract for a more attractive plan with another provider? Hopefully, you took care of the outstanding balance and termination fee, or your credit score will take a hit.

5. Cash-only purchases

Using cash for all of your transactions is not a bad idea, especially if you are trying to avoid returning to a debt-ridden existence. However, if you are new to the credit world, it is practically impossible to boost your score without some form of debt.

I’m definitely not suggesting that you open a new credit card or use your card all the time, but unused credit card accounts can be hit with dormancy fees that could damage your credit if you don’t realize they’re there.

An unused account could also be canceled, which reduces your available credit and could also be detrimental to your credit score.

6. Car rentals

Planning to rent a car using your debit card? Be prepared for the hard inquiry on your credit file that could result, plus a big deposit. The impact of a hard inquiry on your credit score varies by individual, but those newest to the credit world are usually hit the hardest because of the limited amount of information available in their credit profile.

Says Credit.com:

If the credit checks and deposits are too much for you to handle, search for companies, such as Alamo, that waive these requirements for debit card holders. Or, visit your nearest Rent-A-Wreck to retrieve a cash rental car with no strings attached.

7. Over-the-limit credit card balances

Not only will you be hit with a fee, but your credit utilization ratio will skyrocket, damaging your credit score.

To potential lenders, nearing your card’s limit indicates you are overextended and could have a hard time taking care of your obligations in the near future.

8. Too many credit card applications

Rate shopping for car and mortgage loans is a good thing and likely won’t drop your credit score, but applying for too many new credit card accounts in a brief period of time is a red flag to lenders.

9. No diversity

Lenders are interested in knowing if you can handle both revolving and nonrevolving debt, and the mix of credit you have constitutes 10 percent of your FICO score — the most commonly used credit score.

10. Closing credit cards

Not only could this increase your credit utilization ratio, but it could also shorten the length of your credit history — although closed accounts will remain on your credit reports for seven to 10 years.

Source: http://www.moneytalksnews.com/2014/05/23/11-little-known-actions-that-sabotage-your-credit-score/#ZkkdJUEiuVZP8fI4.99

I'm Debt-Free, So Why Did My Credit Score Drop?

Getting out of debt is a good thing, so why do some consumers see their credit scores decline after paying it off? There’s a common misconception that you must be in debt to have good credit, but that’s not the case. You do, however, have to use credit to earn a good credit score, and it’s sometimes difficult to see the difference.

Credit cards are probably the best example of this: If you pay your credit card bill every month, you are not in debt, and you’re building credit by using the card.

Swear Off Debt, Not Credit

If you’ve just paid off your credit cards, you may be said to yourself, “I’m never falling into debt again.” That’s a great goal, but if your plan involves cutting up the cards and never using them again (and you have no other debt, such as a mortgage or student loan), you may find yourself without a credit score.

It’s different among credit scoring models, but you have to have some recent credit activity on your credit report in order to have a credit score. If you don’t use your credit cards after paying the outstanding balances, the issuer will likely close the card due to inactivity, meaning they won’t report to the credit bureaus anymore. If that was your only form of recent, active credit, you’ll lose your credit score.

You can avoid this by using your credit card sparingly and paying the bill immediately. If you didn’t have a credit card before emerging from debt, you can get a secured card and apply the same strategy. Consider asking a trustworthy friend or relative to add you as an authorized user on one of their credit cards. That’s not a choice to be taken lightly by either party, so do your homework before trying it.

Prepare for Some Changes

Continuing with the credit card example: Paying off credit card debt can lead to a variety of shifts in your credit score. If you were using a high percentage of your credit limit, your credit score may improve, because you will have reduced the ratio of your debt to your available credit (here’s why that credit score factor is important). On the other hand, if you stop using the card, the issuer may close it, which would reduce your available credit and hurt your credit utilization rate.

Your mix of accounts also contributes to your credit score. Say you had student loans and credit cards, and you’ve just paid off your last student loan. If you don’t have an active installment loan on your credit report, your credit score may go down, but this isn’t nearly as important to your credit score as making payments on time or keeping your credit utilization rate low.

It’s easy to see how your various credit accounts impact your credit standing if you know how scores work. You can get a free, monthly snapshot of your credit and credit scores with a Credit.com account. Having a good understanding of your credit should allow you to reach your goals of getting out of debt without hurting your credit in the process.

What Happens If I Never Pay an Old Debt?

Maybe you can’t pay. Or maybe you won’t pay. Either way, you have an old debt

hanging out there. What if you just decide to let it go, and do nothing about it? That’s what Credit.com reader Dave, who says he can’t afford to pay off the old debts he owes, asks:

My credit card debt is roughly $12,000. I consulted a bankruptcy attorney. He said filing bankruptcy should not be my first option since the amount is quite low. And the collectors have stopped calling.  In California, is there 3 or 4 years of the limit by which the collection agency can file a lawsuit? After that time, they can’t sue? Then what happens? Can they still collect but not sue? Debt still stays on credit files.  If they can’t sue me since it’s about 4 years since [it] went into the collection and the attorney said filing may not be a good idea for such a small amount, then what?

Dave’s question is hardly unusual. Plenty of people wonder what will happen if they simply do nothing about an old debt.

“There is no law saying that they cannot try to collect after the statute of limitations has expired,” says Southern California consumer law attorney Robert Brennan. At least not in California, where he practices, and in most states, it’s the same – though if you’re considering this move, you’ll want to consult an attorney who knows your state’s rules. “In California, on written contracts, the statute is four years from the date of a breach which, in most cases, will probably be the same as the date of first delinquency.”

He goes on to explain that “under the Fair Debt Collection Practices Act, debt collectors may not make false representations in connection with collecting debts, and may not take or threaten to take legal action that cannot be taken.  So, if a debt collector threatens to sue the consumer past the statute of limitations, this may well be an FDCPA violation, and I would argue that it is. If a debt collector tells a consumer that it can sue the consumer five years past the date of first delinquency, this is a false representation made in connection with debt collecting, and is also actionable under FDCPA.”

In other words, if a debt collector threatens to take you to court after the statute of limitations has expired, you can actually sue them, in which case, they may end up owing you money.

Does any of this mean Dave won’t hear anything more about these debts? Probably not. “If a collector makes routine debt collection phone calls and does not otherwise violate the  FDCPA or mislead the consumer, the debt collector may continue to attempt to collect the debt,” says Brennan. Nevertheless, consumers always have the right to tell a debt collector not to contact them, and if the debt collector continues to call, they again may be in violation of the FDCPA.

The statute of limitations varies from state to state and may be different for various types of consumer debts. In many states, they often range from four to six years, calculated from the last payment on the debt.

Collections & Your Credit

As far as Dave’s credit reports are concerned, these debts can’t be reported forever. Collection accounts may be reported for seven years plus 180 days from the original date of delinquency – the date he first fell behind with the original creditor. So if he missed a payment to his credit card company on Jan. 1, 2000, and it was later sent to collections, Jan. 1, 2000, is the original date of delinquency.

After that 7 1/2-year time period elapses all collection accounts related to that particular debt can no longer be reported, regardless of whether they are paid or not. There is the risk, however, that one of the current collectors sells the account to another collection agency and that creates a new collection account.

Starting Over

In addition to wondering about his old debt, Dave wonders what to do about his credit going forward:

Would you suggest I apply for a secure card (can I?) even though I’ve debts in a collection? And would a NEW secure card improve my FICO even though my old debts are showing up in my files?

A secured card, which requires the cardholder to place a security deposit with the issuer, is often an excellent option for rebuilding credit, and the applicant generally need not have good credit to get one of these cards since the line of credit is fully backed up by the deposit, at least initially.

When it comes to rebuilding credit, it’s usually best to start as soon as possible. It takes time to build positive credit references. One of the factors used to calculate credit scores is the age of accounts.

At the same time, however, Dave should also be thinking about ways to shore up his finances so he’ll have adequate emergency savings in case he runs into difficult times in the future. He can review his credit reports for free once a year and monitor his credit score monthly for free at sites like Credit.com, where he will also get an action plan for improving his credit over time. As these unpaid accounts become older and his new account is paid on time, he should see his credit scores continue to get stronger.

Source: What Happens If I Never Pay an Old Debt?

The 10 Most Common Student Loan Mistakes

Student loans are complicated. And, unfortunately, most freshly-minted freshmen sign those promissory notes without having a clue about student loans (let alone know what a promissory note is).

Before you sign on the dotted line, take time to understand your student loan options. And be sure you’re making the best choices. While you’re at it, avoid these 10 common student loan mistakes.

1. Assuming you need them

Yes, about 60 percent of students borrow annually to cover their college costs, according to the Chronicle of Higher Education. But that means that 40 percent don’t.

Contrary to popular belief, you do not have to have student loans to get through college. There are plenty of ways to get around them:

• Choose a cheaper school, and pay in cash.
• Opt for a school with a great scholarship for you.
• Go to a work-based school for free.
• Work while attending school part-time.
• Put off school for a year to save up.

As you’re making your college choice, don’t just assume student loans — especially tens of thousands of dollars worth — are a necessary evil. In some cases, you might be OK taking out some loans. But you don’t have to use them to get a decent degree.

2. Not exhausting other options first

Before you even apply for student loans, you should be shooting for every single grant or scholarship you can possibly get. This means spending time trolling the Web, talking to your local librarian (they usually have access to scholarship databases), and looking for schools that offer great scholarship programs. Remember, the more free money you get, the less student loan money you’ll need.

And while you’re at it, be sure you understand education-related tax credits, which could put money back in the bank for you (or your parents), making school more affordable.

3. Taking everything you’re offered

When you get your federal student loan offer (after filing your FAFSA), you’ll see how much the government is offering you in loans. If you’ve (unwisely) chosen a very expensive school that you really can’t afford, you may actually need the full amount to cover tuition.

But if you’re like most college students — especially those at state schools — you don’t really need that whole amount to cover tuition, or even room and board. Unfortunately, many of these same students take the full student loan amount — either because they want to use loans to fund their frat parties or because they don’t know they can accept less than they’re offered.

Carefully evaluate your actual needs, and take only the amount you must have to pay tuition for that year. If you need student loan money to cover books, car insurance, and other expenses, consider getting a part-time job.

4. Not figuring out monthly payments

One way to keep from taking out more than you need in student loans is to take a few minutes to figure out your monthly payments. Many college graduates are shocked to find out how big a chunk student loan payments will take out of their shiny new post-college paychecks.

This calculator can help you determine how much that federal student loan will cost you later on, based on today’s student loan interest rates and how much you borrow.

5. Not keeping track of your debt

We get it. You’re a student. You deal with a lot of paperwork, and you’re probably not all that organized. This makes keeping track of student loan paperwork difficult. But tossing those papers in the recycling bin can be devastating later on. If you can’t find your student loan providers, how do you know where to send payments?

(If you do lose your paperwork, the National Student Loan Data System can help you find out who services each of your federal student loans.)

Also, you need to keep track of the actual amount of your debt. It’s easy to lose tabs on how much you’re borrowing in total because you’re just taking out loans once a year for a four- to six-year education track. Make a spreadsheet of how much you borrow each year and probably monthly payments that you’ll shell out eventually. That alone should keep your borrowing in check.

6. Skipping out on interest payments

Unless you qualify for a subsidized student loan (which is based on income), your loans will start accruing interest immediately. The biggest problem here is that your interest will capitalize, which means the outstanding interest is added to the loan’s principal. This means you’re now paying interest on an even bigger principal amount. Let’s let the numbers illustrate:

Let’s say you take out a $5,000 loan for your first four years of college. The loan is in deferment for 54 months — four years of school plus the standard six-month grace period. On a loan with a 6.8 percent interest rate that capitalizes annually, your new loan balance when you enter repayment is a whopping $6,722.65.

Because you let that $1,722 in interest capitalize, you’ll now pay about $78 per month on that loan (in a 10-year repayment plan), as opposed to $57 per month otherwise. If you let the loan capitalize and then make minimum payments, you’ll pay a total of $9,283, as opposed to the $6,904 you would have paid otherwise.

What does all this mean? You can — and should — make interest payments while you’re still in school. Even on hefty student loans, monthly interest isn’t too much to tackle. And even if you can pay only part of the interest, you’ll save a fortune in the long run.

7. Turning to private loans

Private student loans have a place for some students, but most shouldn’t turn to them first. Federal student loans typically have lower interest rates and much more flexible payment terms. If you do need to take out private student loans, shop around for the best interest rate and terms, and take out the absolute least amount possible.

8. Asking your parents to co-sign

Some parents automatically assume they need to co-sign on student loans, and this may be the case on private loans. But most students can take out federal loans on their own. And your parents shouldn’t co-sign unless they’re really OK making your student loan payments if you run into financial problems later on.

Having a parent as a co-signer looks good on the surface, but it effectively makes your parents secondarily responsible for your student loans. This means if you fail to make payments, your credit suffers. It also means your parents would be responsible for paying your loans if something should happen to you.

9. Not updating your information with your loan servicer

Student loan servicers are used to their debtors changing address frequently, and they’re good at tracking people down. But if your student loan servicer doesn’t have your current address, you could miss important information about your loans — like when who, and how much to pay.

So what happens if you accidentally forget to update your address and miss payments because of it? Your student loan servicer will report those late payments to the credit bureaus, which will seriously ding your credit scores.

10. Choosing the wrong payment plan

Once you enter repayment on your student loans, you can choose a variety of repayment plans (assuming your loans are backed by the federal government). These plans give you some flexibility in your actual payment, which can be helpful if you can’t find a job or aren’t making much money.

The standard repayment plan has your loans repaid within 10 years, which is good. You want to choose this one if at all possible — even if you have to give up lattes and nights on the town to make your student loan payments. With the standard plan, you’ll pay much less interest over the life of your loan.

Other options – like extended repayment and income-based repayment – are tempting because of their lower monthly payments. But be sure to calculate how long it’ll take to pay off your loan under these plans, and how much interest you’ll pay over time.

And be extra careful with income-based plans. Sometimes with these plans, the minimum payment doesn’t even cover all your student loan interest. In that case, your interest will be capitalized, and you’ll run into the same problem with a growing balance that you saw in the above example.

Source: http://www.moneytalksnews.com/2014/05/20/the-10-most-common-student-loan-mistakes/#P0YWgc2rw85iDAWb.99