What Is Good Or Bad Credit?

When a student has graduated and been thrust into the job market, the prospect of having a student loan payment due every month can put a real dent into ones lifestyle. Entry-level jobs after graduation often do not pay much and that is when new responsibilities begin.

Graduates leave a life style of paying a small amount for rent and food and begin looking for homes, clothes for a new job, cars for that job and other necessary requirements to begin their new life, and of course, repayment for that school loan.

This is when many people make poor decisions and get into trouble affecting their present and future. Some former students after a while, are faced with defaulting on their student loans, others take out more and more credit cards or loans to keep going.

What students should remember is that they need to start out very slow and live similar as to college life until their wages increase to the point where they can add to their new after college-life-style.

Student loan Consolidation is something former students might have to look into where all loans are consolidated into one, with a lower payment, extended over a longer period of time, yet more interest will be paid out. However, this would help preserve ones credit until wages increase and life is more settled.

How Poor Credit History Affects Your Life

As you grow older and need help with a loan the first issue any loan office will examine is the FICO score. The FICO is a total score calculated by the main credit agencies based how late payments were made such as 30 days, 60 days or longer. Also, the amount of credit available, the number of credit inquiries and other factors are all added up. A default payment on a secret proprietary formula, though the exact equation is not public, multiple criteria are well known and even obvious.

FICO scores are calculated mostly on debt defaults and the amount of late repayments. Both of these are counted very heavily against you. Next is the number of personal credit inquiries, which are counted against you but less.

A range of students will not have much of a FICO after college, unless they overused credit cards. It most likely starts when repayment of student loans begins. That is why it is important to start out from the beginning establishing a good credit record.

This is where the importance of repaying your student loans on time, on a regular basis is so important. A negative history of the above is evidence of a poor credit risk in the minds of the lenders.

Also, staying within your available credit limits, avoiding over limit and other costs shows a disposition to defer current gratification and take responsibility. Creditors are judging not just numbers but also character as well in any decision.

Meet all of your credit obligations and keeping all borrowing to a modest level for a period of time makes you look like a very good risk to loan officers. This means funding any student loan will be that much easier. Keep this in mind when considering any student loan consolidation.

What Is Amortization?

Amortization is the elimination of a debt over time with periodic payments. The equal monthly payments of principal and interest over a specified period of time will completely payoff an amortized loan.

For example, assume you make a school loan payment every month. A portion of that payment covers the interest you owe, and a portion of the payment pays down your principal. The majority of each payment at the beginning of an amortization loan pays for interest.

Interest on amortized loans is paid in arrears, and more interest is paid during the early period of the loan than at the end of the loan. As time goes on, more and more of each payment covers your principal. You are then “amortizing” the loan.

If you want to see how amortization works, it’s best to look at an amortization schedule. It will show each payment on one line, and how the payment is applied to the loan. You can also see your remaining balance, and how much total interest you have paid over the life of the loan.

Why Should Students Amortize Their School Loans?

It is usually used in conjunction with a time frame. The longer the term is for a loan the slower it amortizes. This slower amortization means a lower monthly payment. However, it can also mean more interest paid out over the life of the loan.

A typical loan payment involves two components: part of it is the interest payment, and part of it is paying off the principal. Having an amortized loan you can have it spread out over a period of time, which you feel comfortable with, with the payments you also feel comfortable with.

For a graduate, finances are usually very tight and starting out with small monthly payments is a great help at first. As your life changes and salary improves you then can make the necessary adjustments, such as additional payments to this loan. And this is something you really should do.

Now remember, on this type of loan the payments are small because of the wide spread and you are mainly paying on the interest. In the long run this loan can cost you thousands of unnecessary money from your pocket. You have great control on this style of loan that is why it works so well for college students.

Every penny you pay on your loan over the interest-only level is used to pay off the principal (which is really your school loan). Borrowers can shorten the loan period by paying more principal with each payment. Therefore, your loan would be paid off and you would save the thousands you would have been paying in interest.

Incurring debt and making a series of payments to reduce this debt is something we all do in our lifetime, as we are given sufficient time to pay down the amount of transaction. This is referred to as ‘amortizing’ a debt, a term that takes its root from the French term ‘amortir’. Interesting to note, ‘amortir’ is the act of providing death to something.

Is it possible to use my student loan money to pay off my credit cards?

Yes, it certainly is. However, remember first why you put in for the student loan in the first place. The student loan is foremost for your education and your future and that is why it is loaned to you.

The money you receive from your student loan can be stretched in many ways and the extra can therefore be used for your credit cards. In fact, I believe that is the first place the money should go if there is any extra. If you have more than one credit card, consolidate them to the one with the lowest interest rate.

While you are in college is the time to live as frugal as possible, since you only have yourself to take care of usually. The rewards will be there if you do.

If possible, a part-time job during the school year would be great but even better, a good job or even two jobs during the summer would be the best. That way you could study and even have a life during the school year.

Hopefully, after purchasing everything needed for school you were able to put down a hefty payment on the ‘one’ credit card payment you now have from the money left from your school loan.

Your first year at school will most likely be the most expensive not knowing really what all is needed. After that you will be able how and where to purchase used books and other items.

Also, when you receive your financial aid student loan refund check, put a large chunk from this check down on the amount due on your credit card. There will be many ideas that come into your mind for that refund, but two months from then you will be glad for your choice.

Keeping with the subject of using your student loan to pay down or off your credit card. Yep, you are down to one now. You still have to live some how and that means you need a cash flow in order to do this.

To do this it is important to work hard during the summer, live prudently and therefore you will have excess money from your student loan/loans that can go directly to your credit card bill. The loan money is yours to be used as you desire.

Most likely you will not be able to pay off you credit card in one year but by four years you should. Try to make double or additional payments whenever possible. And always make your payment on time for good credit.

It is definitely smart to utilize the money offered to you in the student loan at a lower interest rate usually at 5% or less to your advantage to get your credit card paid off which usually carries an APR of 15% to 19%.
A loan is a loan and they all have to be paid back one-way of another. By paying off the higher interest rate ones the process will go much faster and make your life a lot happier in the long run.