Student Loan & Credit Card Information

Student loans

Over the last few years, student loan debt has increased to $1.2 trillion. Before you seek an education at a college or university, educate yourself on the benefits and risks of a loan.

Benefits:

  • Graduates earn an average of 60% more with a bachelor’s degree compared to those with only a high school diploma.
  • Federal student loans generally have lower interest rates than private loans. Choose subsidized loans if you qualify because the government pays the interest on those loans while you’re in school.
  • Both the Hope and Lifetime Learning tax breaks allow income tax credits of up to $1,800 or $2,000 respectively for tuition and fees. Also, up to $2,500 can be deducted from taxes for interest payments on qualified student loans. Check out IRS Publication 970 at irs.gov for more info.

Risks:

  • There’s no guarantee you’ll find a degree-related job, which could mean a lot of wasted money.
  • Spending borrowed money on a degree without an idea of what you want to use it for isn’t cost effective. This could result in missed opportunities to take relevant classes, extra terms, or more years spent in school.
  • If you don’t qualify for federal loans, private loans are an option. They usually have significantly higher interest rates, which cut into the cost-effectiveness of your degree.

 

Credit cards

If you’re not careful, credit cards can encourage impulse buying and often shoulder the blame for piles of debt. But credit cards aren’t evil. They serve a purpose and can offer great benefits.

Benefits:

  • Use a credit card to make purchases and pay off the balance on time. This helps build good credit, something you’ll need to get a loan in the future.
  • If you need a product immediately but don’t have the cash on hand, use a card to buy it. But pay it off quickly. Otherwise, interest will accumulate, making the purchase more costly than it would normally be.
  • Your liability is limited to only $50 if your card is lost or stolen, as long as the loss/theft is reported to your financial institution within two business days. If the loss or theft is reported after two business days then the liability cap is raised to $500.
  • You can dispute any unauthorized transactions that appear on your periodic statement. You have 60 days to report these transactions.
  • Some cards offer theft and accidental damage insurance, and many give free extended warranties on products purchased with the card.
  • Earn free travel, cash-back rewards, or other perks with various credit cards.

Risks:

  • Credit cards have one of the highest interest rates of any type of consumer loan. Late payments can quickly damage your credit score and lead to higher interest rates. Plus, you’ll have late fees and interest to pay. This can lengthen the time it takes to pay off the balance.
  • The fine print can include all kinds of tricks such as: service and over-limit fees, changing interest rates, or intro rates that jump to outrageous levels. Make sure you read the fine print.
  • It’s easy to get carried away with spending when money isn’t directly coming out of your account.