Is Your Debt ‘Good’ or ‘Bad’?

Are student loans good debt that can open the door to a career or an insurmountable burden? Is all credit card debt a sign of reckless spending, or can it be a smart way to cover an expense? In general, no form of debt is inherently “good” or “bad.” What makes it good or bad is how it fits into your overall financial picture.

Good debt is manageable within your budget and can help you achieve your goals. On the flip side, bad debt is unaffordable and can overwhelm your finances.

Ask yourself these questions to determine if you’re dealing with good or bad debt. Then see how you can manage it.

WHAT LED TO THE DEBT?

The reason you took on debt can help you determine whether it’s helpful or harmful.

“Any debt that is taken on because people don’t have any kind of choice means they are starting out in a place of disadvantage,” says Ida Rademacher, a vice president of nonprofit think tank Aspen Institute. “That can create a spiral that can prevent people from being resilient.”

Conversely, Rademacher says, “the more helpful forms of debt can help people to become more resilient.” Student loans, for example, may enable a career that offers a high salary, making you more financially sound.

Think about whether you incurred the debt:

TO ACHIEVE A LONG-TERM GOAL: Student loans and auto loans can fit into this category. These debts can help you move ahead in life, so long as you don’t take on too much.

OUT OF CONVENIENCE: These are debts you incur to make other aspects of your life easier, such as when you have a big one-time expense and don’t want to deplete your savings. They can be benign if they’re helping you manage your overall financial picture.

DUE TO AN EMERGENCY: Desperation debt can be dangerous. A need for cash in a hurry can leave you with limited options and result in high-interest costs.

BOTTOM LINE: Debt taken to achieve a goal or out of convenience can be useful as long as you have a plan for paying it off. To avoid desperation debt, build an emergency fund. A 2016 report from public policy think tank Urban Institute found that savings as small as $250 can help consumers avoid missed bills and even eviction.

IS YOUR DEBT AFFORDABLE?

Comparing your debt load with your gross income can be a helpful tool for seeing if it’s manageable or becoming too large to tackle on your own. Leaving aside mortgages and student loans, since they’re generally more manageable forms of debt, here are some guidelines to consider:

DEBT LOAD UP TO 15% OF INCOME: This amount is likely affordable but is worth addressing. If you’re carrying a moderate credit card balance, for example, paying it off can free up cash and save on interest.

DEBT LOAD FROM 16% TO 39% OF INCOME: Debts in this range get increasingly difficult to pay off. You may be able to make them more affordable by reducing interest or payments, such as with a balance transfer credit card or a personal loan. If you can’t qualify for one of those, you could explore a debt management plan with a nonprofit credit counselor.

DEBT LOAD OF 40% OR MORE OF INCOME: Debt loads this high can be insurmountable. Use the free consultations offered by many nonprofit credit counselors and bankruptcy attorneys to see if debt relief might be right for you.

BOTTOM LINE: Know how your debt compares with your income and use that perspective to understand which approach is the most logical.

HOW IS YOUR DEBT AFFECTING YOUR LIFE?

Think about how debt is impacting your life overall, says Thomas Nitzsche, media manager at nonprofit credit counseling agency Money Management International.

“If your debt is something that is hanging over your head and you’re worried about it constantly, that’s something you should address,” he says. Any debt that affects your mental health or significantly diminishes your quality of life is bad debt.

Nitzsche advises taking an honest look at your situation and making a plan to resolve debt through a payoff approach like debt snowball — focusing on your smallest debts first — or by seeking debt relief. “Realize how uncomfortable you are with your debt and that it’s in your power to make changes.”

BOTTOM LINE: Debt doesn’t have to rule your life. If you’re feeling overwhelmed, take the first steps to resolve your obligations.

source: usa.inquirer.net

New York University makes tuition free for all medical students

NEW YORK – New York University (NYU) said Thursday it would offer all its current and future medical school students free tuition in an effort to tackle soaring debt levels and encourage more applicants.

The move – which it said was financed by the generosity of the university’s “trustees, alumni, and friends” – amounts to a reduction of $55,018 in annual fees, regardless of financial needs or academic merit.

It does not cover living and administrative costs averaging $27,000 a year.


“A population as diverse as ours is best served by doctors from all walks of life, we believe, and aspiring physicians and surgeons should not be prevented from pursuing a career in medicine because of the prospect of overwhelming financial debt,” said Dr. Robert Grossman, dean of the NYU School of Medicine.

In its statement, NYU also pointed out that high student debt was putting graduates off pursuing less lucrative specializations including pediatrics and obstetrics and gynecology.

According to the Association of American Medical Colleges, the median debt of a graduating medical student in the US is $202,000 – while 21 percent of doctors who graduate from a private school such as NYU face over $300,000.

“Our hope — and expectation — is that by making medical school accessible to a broader range of applicants, we will be a catalyst for transforming medical education nationwide,” said Kenneth Langone, chair of the Board of Trustees of NYU Langone Health.

Thursday’s announcement came as a surprise ending to the school’s annual white coat ceremony, which marks the start of first-year students’ medical careers.

Those 93 students will benefit from the scholarship, along with 350 others enrolled further along in the program.

NYU said it is the only top 10-ranked medical school in the US to offer such an initiative.  /kga

source: newsinfo.inquirer.net

How Student Loans Can Affect Your Mortgage Application

The latest figures show that almost $30 billion is owed by Canadian students in student debt. With many people going back to school in their adult years, this increasing level of student debt brings with it numerous challenges for the average Canadian student. This is clear when examining how student loans can impact your ability to buy or sell a home. And so within this article, we’ll look at how student loans might impact a buyer during their mortgage application process.

Your Debt to Income Ratio

When buying a home, your lender will calculate your debt to income ratio by adding up your monthly payments, along with your expected mortgage, and dividing the total by your monthly income. To qualify for a loan with most companies, your debt-to-income level should be less than 43%. For those with a $20,000 student loan looking to buy a house for $300,000 or more, this debt-to-income ratio could prevent lender approval.

You May Need a Higher Down Payment

In order to decrease their mortgage amount, and thus the amount they’ll be comparing with their income, buyers might consider using a higher down payment for their property. This might mean waiting a little longer to buy their dream home or selling another asset such as a business or a vehicle in order to increase their down payment amount.

Options to Decrease Mortgage Application Challenges

While student debt can have a significant impact on the mortgage application process, buyers do have numerous options available to help overcome these challenges. Let’s look at several steps buyers can take to mitigate the impact student debt has on their mortgage application:

• Consolidate Loans Into One

For those with numerous loans in addition to their student loan, such as a credit card, it can help to consolidate the loan into one loan repayment. This can reduce the overall cost thereby reducing the debt to income level for the mortgage applicant.

• Choose a Longer-Term Mortgage

Another way a person with student debt can reduce their long-term debt to income ratios is to choose a longer mortgage term. This will provide a longer period to pay off the mortgage, thereby decreasing month-to-month costs.

It’s important not to let student debt prevent you from moving forward on your home purchase! There are multiple avenues towards buying a new home for those with student debt. To learn more, speak with our trusted experts directly today.

source: northwoodmortgage.com