Too Thrifty Chicks

Think.Thrift.Create


5 Comments

Tidbit Tuesday: Cynthia D. Talks Student Loan Rehabilitation

Guest Contributor: Cynthia Dorrough

As an impressionable 20-something, I didn’t heed the small print on the promissory note or the spiel in the loan exit interview that is required by the Department of Education (DOE). I made the gross assumption of thinking “I’ll deal with these loans when I deal with them.” They stopped calling and sending letters to the house, so everything was alright…right?? As Charlie Murphy would say, WRONG!! WRONG! I defaulted on my loans.485982_10151439416772774_2100952392_n

When you default on your student loans, each semester’s loan is broken out on your credit report. So, 8 semesters of school equaled 8 negative trade lines. In addition, the government adds a 20% collection fee to your student loan balance when you default. A daunting situation.

I pretty much lost all faith in having some form of a decent life and figured that even though there is no such thing as a debtor’s prison, my poor credit score had me in shackles. But I decided not to wallow. I put on my big girl panties and contacted the DOE. A nice representative named Eric pulled up my account, and I asked him about the loan rehabilitation program. Here are the steps I took and some advice for anyone who is in the same situation:

  1. Be Proactive: Contact the Department of Education (don’t be afraid, they won’t bite) and they will transfer you to their collection agency. The Department of Education outsources their collections to a 3rd party collection agency, so you may not deal directly with DOE.
  2. Be Specific: Tell them you are interested in rehabilitating your student loan and you are looking for “reasonable and affordable” monthly payment. Please remember to use those two words. For some reason those words are magic. The Student Loan Rehabilitation Program allows you to make a minimum of nine (9) consecutive, on-time payments to bring your loan back to current status. They will come up with an amount based upon the amount you owe. Typically, your payment will be around 1% of your loan balance or it will at least cover the monthly interest amount associated with your loan.
  3. Set Up Payments: Once you receive your schedule and amount to pay, you can either do automatic debit or call in and make the payment. Please keep in mind, you will not receive paperwork when you enter the loan rehabilitation program because of the promissory note. However terms of the rehabilitation are outlined in the Higher Education Act. I wouldn’t give a collection agency my primary bank account information. I had a separate account at a different bank that I used for my student loan rehabilitation or you may be able to use one of those reloadable credit/debit cards or an Internet Banking account and they would draft the money from the account. Note: A word to the wise, as stated above, the Student Loan rehabilitation program consists of you making nine consecutive on-time payments and they will send you a letter in the mail informing you that your loans are in current status after the 9th payment has posted. That is one of the only times you will receive something in the mail addressing your loan rehabilitation. Wait until you receive your letter before you decide to be late or think that because you made 9 payments, you are through.
  4. Follow Up: Stay on them and I would call and check in periodically to make sure we were on the same page, especially when you are approaching that ninth payment.

Remember that nasty 20% collection fee that I mentioned that the DOE tacks on when you default? It goes away when you rehabilitate your student loans! Whoo Hoo!  Another good thing is the trade line will still have the original date in which you took out the loan which means that debt is seasoned, giving you a longer credit history. I usually tell people to rehab your loans first if you are in default rather than consolidate because they will consolidate that extra 20% collection fee into your loans, which you don’t want to do. It may be a sacrifice for those 9-10 months, but your principal will be lower.

That is my story on my road to redemption. One lesson I learned is things will get a lot worse before they get better when you ignore things. The Department of Education is not trying to shame you or place you in the gallows.  They will work with you as long as you are proactive.


20 Comments

Food for Thought Friday: Operation Do Better

A new year brings new challenges and goals for many, including the thrifty duo. A few weeks ago we began talking about And Then We Saved Blogger Anna Newell Jones’ , Spending Fast , which helped her pay off $23,000 in debt, and the Spending Diet, which is a modified version of the fast, that helps her spend sensibly after she completed the fast.

The overall concept is simple: only buy what you need, cut out all the things you want. Fast for a weekend or a year, but do it until you reach your goal. No budgets. No cash envelopes marked food, entertainment, thrift store, etc. No reason not to do this!

We love this idea and this week we really committed to it: developing our individual plans, writing down our wants vs. needs and solidifying our end goals. We”ll even say we are excited about this whole thing, despite the fact that we’re giving up some things we’re used to having (like Chipotle 3-4 times a week…yikes!).

We’ve decided to take Anna Newell Jones’ Debt Free Life Pledge and making our financial goals a reality, with some personal modifications of course.

Ricks’ Operation Do Better Plan

The Rundown. I’m going to hit the pause button on spending for 3 months and an upcoming trip to the Big Apple will be my reward for sticking to it. My expectation is that one or two of my bills will be paid off in the next three months. If I’m not happy with my progress in the first three months, or just loving the results, I will reevaluate whether to continue the fast for another three months. If I am happy with my progress, I will switch to a monthly allowance of $100 for wants.

How I’ll Attack My Debt. While Anna Newell Jones (and many other financial gurus) recommend paying off high interest debt first, I prefer the Dave Ramsey Debt Snowball method of paying the lowest balance first and then the highest balance. My interest rates are about the same on my three credit cards, but only one of the balances is high. After I pay off the two smaller balances I will add what I had been paying those two creditors to what I have been paying the third creditor, creating a snowball effect that pays off that bigger balance faster.

The End Game. Paying off debt is my focus, but saving money is too. Any money leftover from my paycheck that might have gone to wants in the past will go straight into savings. The same will be true once I switch to the monthly allowance. I’m almost certain I will return to my spending pause for the last 3 months of the year because of the big reward that we will talk about at a later date.

Ricks’ Needs

  • Food
  • Fuel
  • Rent
  • Utilities
  • Cellphone
  • Doctor’s co-pays
  • Renters insurance
  • Car insurance
  • Car maintenance and inspection
  • Medicine
  • Personal hygiene

Ricks’ Wants

  • Eating out. Goodbye Chipotle and Metro 29 Diner. Hello Kitchen
  • Giving gifts, except for cards
  • Fancy running gear
  • Books, electronic or otherwise. Did somebody say library cards were still free?
  • Driving daily.
  • Movies and theater
  • Dry cleaning
  • New camera <—- *crying real tears over this one*
  • New clothes and shoes
  • Thrifted clothes, shoes and furniture
  • New music
  • Groupon and other deals
  • Professional hair removal
  • Mani/pedis
  • New cosmetics
  • Perfume

Ricks’ Exceptions

So this is where the modified part comes in. We’re both runners who do a handful of races each year. For me the races are what I need to keep me running and since I don’t have a gym membership, I’ve got to keep moving. Money will be spent on race fees. Running shoes and gear will have to be replaced. But they won’t be replaced until they are worn out. We also will purchase tickets for planned travel as necessary since purchasing them as early as possible typically saves money.  We also won’t be giving up our Direct TV because the idea is not to create any new bills and it’s a shared luxury.

Since we thrift, dry cleaning often is a necessity, but I can’t lie sometimes I dry clean to avoid ironing. This stops today. Thrifting, the lifeblood of this blog will be curtailed a bit. But don’t fret lovelies, we can power this blog with what’s in our two closets probably for the next three years.  And we share very well. Besides we’ll still thrift, but for me, I’ll do so modestly and on steep discount days! As for new retail undergarments, socks and swimwear will be the only new retail this year and only on an as needed basis.

Reese’s Spending Plan. I am fortunate to not have a ton of debt. I have a couple bills I want to pay off in 2013, but the majority of focus is going towards savings. Being a PhD-in-training has its perks, but the unpredictable job market is not one of them. To be prepared for the unfortunate possibility of being jobless or underemployed once I’m done with this degree, I’m putting most of my energy towards building up a super-duper-emergency fund that will hopefully keep me from having to work at McDonalds. I’ll join Ricks for the three month spending pause, mainly because I spend way too much money eating out. I think three months is a great amount of time to redirect my attention toward cooking more. During these first three months, I will have saved (already claiming it) a quick $2,000 and paid off 60% of the debt I intend to be rid of my the end of May 2013. Why this method? It is really really important to me to immediately build my savings. I’ve seen too many people hit rock bottom after a major emergency, and I am trying to be proactive against that. After the three months, I will give myself a $50/wk allowance for happy hours, eating out, etc.

Reese’s Wants (aka the things I’m giving up)

  • Eating out (especially chipotle, smh.)
  • Cupcakes from Best Buns 😦
  • Candy in the grocery store aisles
  • Random target goodies
  • Fancy tea from Teavana
  • Movies
  • Hair cuts
  • Hair color
  • Tattoos
  • Groupon/Living Social deals with friends
  • Thrift store purchases (example: more blouses that I don’t need)
  • Trail running shoes
  • Purchasing New Books
  • Mani/pedis
  • Spur of the moment trips
  • Happy hours
  • Races
  • Concert/Shows
  • New warby parker glasses

Reese’s Needs

  • Rent/Utilities (need a warm place to live, right?)
  • Car Insurance
  • Car Maintenance
  • Gasoline
  • Personal Hygiene Stuff
  • Groceries (using coupons, compromising on brands when possible)
  • Cell phone

Reese’s Exceptions. Eyebrow threading: I cannot shape my own eyebrows for the life of me. Seriously, I’ve tried and I always look a hot mess, so I’m allowing this exception so that I won’t look like I’m going through hard times. Academic conferences: As a PhD student, these conferences are pretty much non-negotiable. I have selected four conferences to attend this year and have tentatively budgeted accordingly for each of them. Research expenses: Again, I’m a PhD student. I have research expenses that aren’t covered by my department, so I have to be prepared to handle them when they arise. Workout/running stuff: I don’t have a gym membership, so working out at home + running are essential parts of my health and sanity. At some point, I’ll have to buy new running shoes and more weights. Wine: well, I don’t have anything to say about this. It might be a want for you, but in this household, it’s a necessity. ::shrugs::

So there you have it folks. We’ve put our plan out there for you all. We hope you’ll ask questions, cheer us on, and try something like this yourself. Part of our thrifty philosophy has always been about recycling and reducing the amount of stuff in the world. In our minds, this is just an extension of that. The goal isn’t to be ridiculously wealthy. The goal is to be more responsible with spending and more thoughtful and creative with how we spend our time without spending tons of dough.

We’ll post about our successes, failures, and frustrations in the coming weeks. Our prayer is that our transparency will hold us accountable and inspire you!

-R&R