That’s because the CARD Act takes effect this winter and will restrict credit card companies’ ability to raise interest rates on existing customers. If you thought credit card companies were committing usury in the past with APRs of eighteen, or twenty percent; you ain’t seen nothing yet. Cardholders are seeing their rates go as high as 29.9 percent; there’s even a story of man who received a credit card offer at 79.9 percent APR!

How do you know if your card is raising your interest rate? What can you do about it?

How Credit Cards Raise APRs

In general, your credit card company must notify you of any changes to your account, including interest rate increases, by mail (or electronically if you have consented to receive legal disclosures online). Unless you pay late. Most cards’ terms and conditions include a clause that allows them to raise your interest rate if you pay late or go over your credit limit; no notification required.

Manage your cards well? You’re not immune to rate hikes.

My wife just received a notification from Citi that her interest rate will jump to 23.9 percent in December. That’s on a card with a $15,000 credit limit that does not have a balance and has always been paid in full. (We use the card for joint expenses each month and pay it in full).

She received a letter yesterday detailing the change. Unlike other rate increases I have seen, however, this notice had an interesting clause. If my wife were to transfer a balance of $3,000 or more to the card (plus a fee), Citi would actually lower her rate to 9.9 percent on the balance transfer and all future purchases until 2011. Obviously, Citi is just trying to make some money off this account. Since we always pay the balance in full and the card has no annual fee, they never get a dime from us in interest.

Just be sure to watch the mail.

A lot of these credit card rate increase notices look like junk mail. But if you miss them, you may miss your opportunity to opt-out of the rate increases.

How to Opt-Out of Rate Increases

When your credit card company raises your interest rate arbitrarily (i.e., not because you paid late), they must give you the opportunity to opt-out. Usually, you must contact the card’s customer service to opt-out. If you opt-out:

• You can pay off the existing card balance at your current (lower) interest rate.
• When the debt is paid off, or when the card expires, the credit card will be closed.

If you don’t opt-out by the specified deadline, your rate will go up and you won’t be able to do anything about it after the fact. So if you’re carrying a balance and your credit card company notifies you of an extreme rate increase, you should probably opt-out (unless you can pay off the balance in-full immediately). This is the time to forget about whatever effect closing your credit card has on your credit and just get far, far away from this nasty interest rate.

What to Do Next

If you’re not carrying a balance on the card that raised your interest rate, there’s little point to opting-out. As long as you don’t take on debt on that card, who cares about the APR? You might, however, be so outraged with the card company that you want to stop doing business with them. Or, you might want to preserve a lower APR “just in case” you need to revolve a balance on the card in the future.

Try negotiating.

In the past, customers with excellent payment histories could often be successful just calling up their credit card company and saying “Hey, I can get a 13 percent APR with Card ABC or Card XYZ, why should I stay with your card at 20 percent? What can you do for me?”

This strategy is certainly still worth a shot, although you can expect to have a harder time getting concessions from card companies. For one, they know that it’s harder for customers to switch to a new card (due to tightened credit requirements). Second, the card companies need the money. (Not that I expect you to have a lot of sympathy). But with sky-high default rates and the new laws limiting sneaky fees and interest rates that used to make credit card companies lots of cash, they’re trying to figure out how to make money on a totally new playing field. For now, that means charging even their best customers ridiculous interest rates.

Or, get a new card.

If you have really good credit and little or no credit card debt, you’re in luck, because you can probably apply and get approved for a new credit card at a much lower APR than on existing cards you have. (Most cards are offering new customers APRs ranging from 12 to 18 percent; not great, but better than 24 or 29 percent). Your best bet is to apply with companies that are actively seeking new creditworthy applicants, like Chase and Discover. Chase’s Freedom card has been a perennial favorite of card-critics for its simple rewards program, and the new Chase Slate card provides a lower rate, albeit no rewards, for customers who want the flexibility of paying some purchases over time.

• Compare and apply: See my list of recommended credit cards.

What about you? Have your credit card interest rates gone up? How high? What have you done about it? Please share your story in a comment.

Related posts:

1. Beware Credit Card Rate Jackings (Increases)
2. Summary of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009
3. For the Lowest Credit Card Interest Rates, Look to Small Banks

But like most people I know, that’s about the extent of the time and energy I’ve invested in understanding my student loans and student loan debt.

The fact is, we’re borrowing more and more to go to school. The Wall Street Journal reports that the amount of money students borrow has long been on the rise:

New numbers from the U.S. Education Department show that federal student-loan disbursements—the total amount borrowed by students and received by schools—in the 2008-09 academic year grew about 25% over the previous year, to $75.1 billion…Today, two-thirds of college students borrow to pay for college, and their average debt load is $23,186 by the time they graduate…

With the cost of higher education soaring and the pressures our society places to become as educated as possible, this number will surely continue to grow. That’s a problem, but I’ll leave the debate about how much is too much student loan debt for another time.

The fact is many of us have student loan debt. And how we tackle that debt is one of the first big financial decisions we make once we’re on our own.

1. Understand the Difference Between Private, Subsidized, and Unsubsidized Loans

Student loans come in a variety of “flavors”. Federally-guaranteed student loans are backed by the U.S. Government and, as a result, have low interest rates and are available to most students regardless of credit history. The most common federal loan programs are Stafford loans, Perkins loans, and PLUS loans (for parents).

• Subsidized federal student loans are available to students meeting income requirements and do not charge income while you are still in school or during grace periods.
• Unsubsidized federal loans are available to more borrowers but charge interest as soon as they are disbursed.
• Private student loans are not federally-guaranteed, require good credit, have higher interest rates, and charge interest as soon as they are disbursed.

2. Grace Periods and Deferment

Federal Stafford loans have a six month grace period; Perkins loans have a nine month grace period. That means you aren’t required to start paying them back until six or nine months after you graduate or cease being a full-time student. If your loans are subsidized, you won’t pay any interest on the balance during that time. If the loans are unsubsidized, however, interest will accrue, so it’s a good idea to make payments anyway.

If you are having trouble finding a job or are not working, you may be able to contact your student lender and defer your loan. Just remember that if you have an unsubsidized loan, interest will be accumulating.

3. Student Loans Must Be Paid!

The consequences for defaulting on a federal student loans are more severe than failing to repay other debts (e.g., a credit card). If you fail to repay a student loan, not only will you ruin your credit, the government can seize your federal tax refund, garnish your wages, sue you, and cut off federal benefits like social security. Finally, federal student loans cannot be discharged in bankruptcy; so even if you hit rock bottom, you will still have to pay up for your education!

4. Student Loan Interest is Tax Deductible

On a more positive not, if you earn less than $70,000 a year, you can deduct up to $2,500 of student loan interest on your federal tax return, even if you don’t itemize your deductions. Each year, you should receive form 1098-E from your student loan lenders, detailing how much interest you paid (and can deduct).

5. Student Loans May be Forgiven

If you enter a career that serves the public in high-need areas (such as teaching or delivering healthcare in rural, low-income regions), you may qualify for programs that will forgive a portion of your federal student loan debt. Consider, however, that you may have to work in the qualifying field for several years before qualifying and that the amount of the loan forgiven may be taxable as income. Check with your school or professional organization for information about loan forgiveness programs. Additionally, federal student loans are canceled if you die, meaning your spouse and children won’t be burdened by them.

6. Some Consider Student Loans “Good Debt”, If There Is Such a Thing

You may read about “good debt” and “bad debt”. Basically, some credit experts classify mortgages and student loans as “good debt” because they’re investments in your future, while consumer debt like credit cards is considered “bad debt” because there is little value attached to the debt. This distinction may come into play when you apply for new credit, for example. A lender will look more favorably on somebody with $200,000 in student loan debt from medical school than on somebody with $20,000 in credit card debt. The doctor has ten times the debt, but still looks better to future creditors than the guy with credit card debt.

• What about consolidation? Read more about student loan consolidation.

The other reasons student loans are sometimes called “good debt” is because they tend to have very reasonable interest rates and that interest may be tax deductible. At the end of the day, however, student debt is debt. When people ask whether you should pay down student loan debt early, I say: Only after you’ve paid down all your other non-mortgage debt, have an emergency fund, and are saving at least 15 percent of your income for retirement.

Related posts:

1. What is the Difference Between a Subsidized and Unsubsidized Stafford Loan?
2. Student Loan Consolidation Made Easy
3. Student Loans Drying Up: What You Must Know About Borrowing This Fall

And then you get a mailing or a phone call. Consolidate all those student loans into one low payment! Student loan consolidation sure is tempting. But is it wise?

What is Student Loan Consolidation?

Student loan consolidation is taking one or more student loans and repackaging them into one loan with one fixed interest rate and one payment. There are consolidation options available for both federal student loans (Stafford, Perkins, and PLUS loans), as well as private student loans.

Most student loan consolidation programs are completely legitimate and may, in fact, make it easier to manage your student loan debt. That said, many consolidation programs market benefits that are misleading. Before consolidating student loans, make sure you have all the facts.

The Benefits of Consolidation

Consolidation can allow you to make one payment for all of your student loans. That’s far easier than making several payments and remembering different due dates. Not only will you save time and frustration, you’ll be less likely to accidentally miss a payment and incur fees and/or a negative mark on your credit report. Note: If you have both federal and private loans, don’t consolidate them together; you’ll likely end up paying a higher interest rate on your federal loans than necessary.

Student loan consolidation can lower your monthly payment. If you’re struggling to make your student loan payments, consolidating can lower you monthly payment. But watch out! Lowering your payment means extending your repayment period from 10 years to 15, 20, or even 30 years. The longer you take to repay the loans, the more interest you’ll pay, although you can always start to pay down your loan balance faster when you’re earning more.

Consolidation gets you a fixed interest rate. Most student loan consolidation programs move loans with a variable interest rate into a loan with a fixed interest rate. If you still have variable-rate student loans, this may save you money over time if interest rates get higher. Note, however, that all federal loans disbursed after July 2006 and all Perkins loans already have fixed interest rates, somewhat negating this benefit.

No credit check for federal consolidation. There are no credit requirements for federal student loan consolidation.

Consolidation Pitfalls

Don’t consolidate until after you graduate. It’s wise to wait until after graduating to consolidate your student loans. Of course, you want to make sure you include all your loans in the program. But you also want to make sure you don’t give up one of the biggest perks of subsidized federal loans—interest does not accumulate while you are in school or during your grace period.

Be careful with Perkins loans. Perkins loans have unique benefits like a fixed five percent interest rate, nine-month grace period, and a forgiveness program for qualifying teachers and Peace Corps volunteers. If you consolidate, you may lose some of these benefits.

Don’t trust every offer. Your best bet is to pursue consolidation through one of your existing loan service providers or a company recommended by your financial aid office. If you have Direct loans, visit http://www.loanconsolidation.ed.gov/.

Be wary of consolidating loans jointly. Two benefits of federal student loans are:

• You can defer them if you become unemployed and
• they are canceled if you die.

If you and your spouse consolidate both of your student loans and one of you becomes unemployed, you won’t qualify for deferment (you’d both need to be out of work). Similarly, if one of you were to die, the other spouse is still required to repay the loan.

• Read More: Six Things To Know About Your Student Loans

What about you? If you have consolidated student loans or considered consolidation and chose not to, please share your experience in a comment. What would you recommend?

Related posts:

1. Student Loan Consolidation Made Easy
2. Understanding Student Loan Grace Periods, Deferment, and Forbearance
3. Six Things to Know About Your Student Loans

Fortunately, however, there’s another way: A peer-to-peer loan through either Lending Club or Prosper.

Lending Club and Prosper are social lending networks that bring together investors and creditworthy borrowers to provide personal loans at rates that are generally better than those offered by traditional banks. Here’s how they work:

• Borrowers apply for a loan with an online profile
• Lenders (people like you and me, not bankers) choose whether or not to lend you money.
• If enough lenders invest $25 or $50 each, your loan is funded
• You make monthly payments to the network, who distributes your payment to lenders

Who Can Get a Peer-to-Peer Personal Loan?

To receive a Lending Club or Prosper personal loan, you must be a US citizen or permanent resent, at least 18, and have a valid bank account and social security number. For the time being, residents of a few states are excluded (check on their site to see the status of your state).

Lending Club also specifies some minimum credit requirements. In order to qualify for listing a loan request with Lending Club, you will need:

• A FICO score of at least 660
• A debt-to-income ratio (excluding mortgage) below 25%
• At least three years of credit history
• No current delinquencies or recent bankruptcies (seven years)
• No open tax liens, charge-offs, or non-medical collections account in the past 12 months
• No more than 10 inquiries on your credit report in the last six months
• A revolving credit utilization of less than 100%
• At least three accounts on your credit report, of which more than two are currently open

Prosper does not specify minimum credit requirements to list a borrower application, although you can expect them to be similar to have a good chance of getting your loan funded.

How To Apply for A Peer-to-Peer Personal Loan

Think you’ve got what it takes to score a lower rate and consolidate your debts with a Lending Club or Prosper personal loan?

You’ll create an account (email address and password), select an amount and purpose of your loan, and enter your contact information and credit and employment specifics. The network will check your credit, ask for any additional information, and list your loan. If your loan is funded, you’ll have the cash deposited in your bank account within a few days of your listing ending.

• Lending Club: Learn more about Lending Club or apply for a loan
• Prosper: Learn more about Prosper or apply for a loan

Related posts:

1. Peer-to-Peer Lending Hits a Roadblock
2. An Introduction to Prosper and Peer-to-Peer Lending
3. I Paid Off My Prosper Loan!

Even scarier? Living credit card-to-credit card.

In other words, using credit cards that already have balances to make most of your monthly purchases. Then, when you get paid, you use most of your paycheck to “clear room” on your credit card balance so you can do the same thing next month. I was guilty of this tactic long, long ago, and have known others. I got out. One friend declared bankruptcy. Some are still trapped.

How Do We Let This Happen?

People start living credit card-to-credit card when they’re already in way too much debt. The credit cards are probably almost maxed out. They have other debts that have to be paid.

What happens is this: The money comes in. First you pay your biggest expenses that you have to pay with cash, such as your rent or mortgage, auto payment, and any other debts like student loans.

Then, you probably only have about half of your income left over (maybe less if your home and car payments are way over your head). Now you have to pay the credit card men. After you make your minimum credit card payments, you would only have a few hundred dollars left over. Even if you were living really frugally (which, if you’re in this situation, you probably aren’t), those few hundred dollars are not enough to feed your lifestyle.

So what do you do? You put almost all of your left-over cash towards your credit cards (paying a bit more than the minimum). Then, you use what’s left of available credit on those cards to get by the rest of the month.

Here’s an Example

Let’s say you earn $30,000 a year. After taxes and deductions, you take home about $1,750 a month. Assuming you pay $700 cash towards your housing and $350 towards a car payment, student loans, or other fixed loans, you have $700 left.

Let’s look at your credit cards. Perhaps you have three cards with balances of $5,000, $2,000, and $8,000 for a grand total of $15,000 in credit card debt. (Yeah, that’s a lot of debt, but I can assure you, I’ve seen worse). Let’s assume, for simplicity’s sake, that all the cards have a 15% APR and require a 2% minimum payment.

That means you’ll owe the credit cards, at a minimum, $300 a month. Of that $300, you’re paying $188 in interest, meaning you’re only paying $112 towards your $15,000 debt!

Now, you have $400 left over. If you were really frugal, you could stick to that $400 budget every month. But, since you’re only paying $112 towards your credit card principal, you’re going to be poor for a very, very long time. Not wanting to feel poor, you put that $400 towards your credit card balances and keep up your carefree spending ways with the plastic (after all, you still need to eat). So you use those same credit cards to charge your monthly expenses.

Even if you only charge, say $500 back onto your cards, you’ve gone a month and you’ve only reduced your credit card debt by $12. That’s right. $12!!! What happens if you charge more than $500? What happens if you lose your income? You are one step away from total financial disaster.

How to Get Out from Living Credit Card-to-Credit Card

This is the time to cut up those credit cards! Some people can get out of debt and hang onto your credit cards; but not you. You have to stop using them 100%. Forget about your precious credit score. It’s probably not that great anyway, and you’re one step away from missing your payments and having your credit really bottom out. You can rebuild your credit later. Right now, it’s time to wage war on debt.

Next, you need to figure out a way to either up the amount of your credit card payments (and get by on the cash you have left) or increase your income. Preferably both.

Yes, it’s time to get a second job.

Since you already don’t have much to spend on little things every month, you need to find away to trim the big fat: Your car and your housing payments. Find a roommate, move to a smaller place, or better yet, swallow your pride and move in with mom and dad.

Driving too much car? Sell it. In a lease? Get out of it.

Forget about all the other get out of debt tips you might read until you have done these big things. Because if you’re living credit card-to-credit card like the example above, you are in crisis mode!

Have you ever lived credit card-to-credit card? What was it like? And how did you get out?

Related posts:

1. Debt Free Step Seven: Living Debt Free
2. Credit Card Companies Extend Relief to Debtors in Debt Management Plans
3. Credit Card Debt: Eight Ways Out

Blueprint is comprised of four new features: Full Pay, Split, Track It, and Finish It.

Blueprint’s Full Pay feature lets “customers select the types of purchases they want to pay in full each month, such as groceries, prescriptions and other everyday items. Chase separates out these charges on their statement, so customers know the payment they need to make to ensure that these purchases are not increasing their balance or accumulating interest. As long as customers make their Blueprint payment by their due date, they will not pay interest on those purchases.”

The Split feature allows customers to pay off larger purchases, like a computer or emergency auto repair, over time without falling into the credit card minimum payment trap. With Split, consumers decide how much they want to pay each month or how long they want to take to pay the purchase off. After the consumer chooses the repayment term, Chase sets up a plan and includes that payment amount with each statement. The consumer’s payment progress is displayed separately on each statement until the balance is paid-in-full.

For example, if a consumer charges an $800 computer at 12.9% interest, it would take 124 months of making $16 minimum payments to pay off—at an interest cost of $580.88. If, however, the consumer opts to pay $100 a month using Chase Blueprint’s Split feature, the consumer would pay off the computer in nine months and pay only $41.96 in interest.

Finish It applies to existing card balances and works similarly to Split: Consumers can choose a payment amount or repayment term and make regular monthly payments until the debt is paid off. A final feature, Track It, allows customers to set budgets on their card and track month-to-date and year-to-date spending in different categories in real time.

Chase Blueprint: My Take

With Blueprint, Chase brings some long-overdue transparency to its relationships with credit card customers. In an industry known for dubious practices that confuse credit card users and keep them in debt, Blueprint will educate card users about the realities of using credit (like how much it costs) and help users make more educated credit decisions. Does Blueprint make it “smart” or “okay” to borrow on a credit card? Hardly. The best policy is to pay your card in full every month. And for those determined to get into credit card debt, a Chase Blueprint card might be the credit equivalent of a “light” cigarette; they’ll both still kill you in the end.

But I believe Chase Blueprint will help consumers who choose to finance purchases with a credit card pay their balances off faster and save money in the process. I also like the sound of the Track It budgeting tool. For simplicity, I use one credit card for nearly all of my routine monthly expenses, and the ability to check my card balance and spending against my budget in one place would be great.

Want a card with Chase Blueprint? Apply for a Chase Freedom Card (best for cash rewards) or a Chase Slate Card (lower interest rate for paying over time).

What do you think? Is this a feature you would use? Will it make a difference in how consumers use their credit cards?

Related posts:

1. Five Reasons to Apply for a Business Credit Card as an Individual Consumer
2. My Credit Card Raised My Interest Rate! Here’s What to Do
3. Are Joint Credit Card Accounts a Good Idea?

Most agree that your housing budget should encompass not only your mortgage payment (or rent, for that matter), but also property-taxes and all housing-related insurance (including PMI). As for just how big a percentage of your income that housing budget should be? It all depends on whom you ask.

In an article on new rules for first-time home buyers , the New York Times reported:

If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.

Let’s remember, that even in today’s post-mortgage crisis world, mortgage lenders want to approve creditworthy borrowers for the largest mortgage possible. I wouldn’t call 35 percent of your pretax income on mortgage, property tax, and home insurance payments “conservative”. I’d call it average.

On the flip side, debt-hating Dave Ramsey wants your housing payment (including property taxes and insurance) to be no more than 25 percent of your take-home income.

Your mortgage payment should not be more than 25% of your take-home pay and you should get a 15-year or less fixed-rate mortgage…Now, you can probably qualify for a much larger loan than what 25% of your take-home pay would give you. But it’s really not wise to spend more on a house because then you will be what I call “house poor.” Too much of your income would be going out in payments, and it will put a strain on the rest of your budget so you wouldn’t be saving and paying cash for furniture, cars and education.

Notice that Ramsey says 25 percent of your take-home income while lenders are saying 35 percent of your pretax income. That’s a huge difference! Ramsey also recommends 15-year mortgages in a world most buyers take 30-year mortgages.

Not everybody is as debt-adverse as Ramsey, but I think you have to acknowledge he has a point: The more you spend on your home, the less you have available to save for everything else. You may be able to afford a housing payment that is 35 percent of your pretax income today, but what about when you have kids, buy a new car, or lose your job?

When you obtain mortgage pre-approval, lenders will likely approve you for a loan that would require housing payments closer to 30 or 35 percent of your pretax income. Don’t just assume “if the bank approved it; I can afford it”. That’s rarely the case.

Related posts:

1. How Much House Can You Afford?
2. Save Big on Your Home Loan with Bi-Weekly Mortgage Payments
3. How to Find the Best Mortgage

I took out the Prosper loan for a couple reasons: to save on interest, to commit to a fixed monthly payment and three year repayment term (as Prosper requires), and to try peer-to-peer lending back when it was a really radical idea.

Obviously, now that one more debt is gone, I’m quite happy. Once the loan was funded by Prosper investors, my payments were automatically deducted from my bank account every month until this month when I decided to make the last couple of payments early.

You can read more about Prosper, Prosper and how peer-to-peer lending works, or a review of LendingClub, another popular peer-to-peer lending network.

Related posts:

1. A Prosper Update: One Year as a Prosper Borrower
2. Six Good Uses for a Prosper Loan
3. An Update on My Experience With Prosper

Plenty of parents help out their adult kids with cash, and it’s not just cars and trust funds. For many, the safety net is pulled on the way to college, while for others it never really ends.

If you’re still making withdrawals at the Bank of Mom and Dad, don’t worry so much about it. It’s nothing to be ashamed of and it may be more common than you think.

Of course, the relationship between money and family is different for everyone:

• One friend of mine just paid back a $5,000 loan to her parents, happy to be finally free of the family-entangled debt.
• Another friend of mine took out thousands of dollars in student loans while her parents are building a ritzy retirement home and paying for her sister’s private school education.
• A third friend is still out $4,000 her dad still hasn’t paid her back from years ago.

Maybe it’s because I’ve seen how my friends have struggled, but I love to praise my parents for the financial help they’ve given me. They were wonderful for paying for college for me, and yes, an allowance was included. (Okay, that might be a little embarrassing.) Hey, at least I was able to leave college without debt and with a small pile of savings.

Poll courtesy of FiLife: A Family Finance Site

After graduation, however, I hit a different financial road block.

I was living on the West Coast, with plans to move to New York that same summer to start my career (…and by ‘start my career’ I meant, move out there and hope to find a job.). Apartment hunting 3,000 miles away is not an easy endeavor, unless you have the big bucks.

Thankfully, about the time I was throwing in the towel a friend offered to share her apartment with me for a month, and my parents presented me with a deal: I’d have six months of support to make something happen or I would be heading back home.

Right before the job market fell apart, I found a job at FiLife, and a home in New York City. How do I feel about my arrangement with my parents? So grateful. I wouldn’t have made it without their help. I plan on returning the favor as much as I can from now on – but lucky for me, there’s no guilt administered in my family.

I realize that’s not the case for everyone, which is why people who are lucky enough to be supported when they need it (and not waste that gift!) shouldn’t be afraid to admit they received help from home.

What about you? Do you still receive money from your parents? Are there any strings attached?

Related posts:

1. Should You Take Financial Help from Your Parents?
2. Debt Free Step Seven: Living Debt Free
3. Debt Free Step Five: Create Automatic Debt Payments

Deciding to expand my life after college in another country was a big decision and one that has challenged me financially and intellectually. As I packed up and left the good old U.S. of A. for law school on the other side of the pond (where lawyers sometimes wear wigs), I attempted to put my plethora of federal student loans into in-school deference or forbearance. Five separate enterprises own a piece of my undergraduate education totaling $50,000 at the time. Four of the companies put my loans into various types of in-school and hardship forbearance. The one that wouldn’t budge, however, was my Alma matter holding tight to my $3,000 Perkins loan and those $43.23 per month payments.

When a Student Loan Goes to Collections

Not only did I not have an extra $43.23 per month at that time but I didn’t even know how to transfer money from London to Boston in any way that didn’t attract at least $50 in fees. My deferments kept getting denied until the loan ended up in collections. If you’re familiar with a certain type of person from South Boston (think of the movie The Departed) and combine that with the evils of a third-party collections company, you can imagine those phone calls. They told me that they didn’t care where I was in law school; I needed to pay. And by the way, the loan had doubled in size, and I now needed to pay $6,000. Yesterday.

I used every skill they’d taught me in law school to refuse to speak to “Mark Wallburg Collections Co.” and instead spent Christmas break 2007 on the phone in a screaming match with the head of loan collections at my former college. According to him (but not the other four student loan companies), the fact that I went to a law school overseas prohibited me from getting an in-school deferment period. Furthermore, since I wasn’t paying U.S. taxes as an overseas student, I couldn’t prove that I was economically unable to pay. So, tough luck. Pay $6,000. Now.

How I Fought Back

I then used the public relations skills that I had learned at an internship (set up through that very university) to draft a press release outlining the way I had been treated and the various federal loan reporting laws they had broken. I went through old contacts and planned to send copies to everyone and anyone I could think of in Boston. I figured if it was a slow news day, the Boston Globe might pick it up as an interest piece. They love stories of how the Colleges in Boston screw over students.

But first, I showed my masterpiece to Head of Collections at my college and magically, my loan was put into in-school deferment—retroactively—and all charges and interest over the past year were removed. Sadly, it remains the most profitable piece of writing I’ve done yet (approximate value: $3,000)!

Repaying the Loan

When I finally started working as a lawyer and trying to change the path of my financial life through my blog Savings Not Shoes, I added the loan to the list of debts and it’s currently top of my list getting payments of between $500 and $1,000 per month. “Knee-Breaking Collections” is still on my credit report, which is annoying, but doesn’t really affect me as I am totally anti-debt these days.

You’ll imagine my surprise my college’s alumni association approached me and asked me to lead a new U.K. Alumni Club. It was finally time to try and make up for Christmas ‘07. I told the association that I would have been privileged to lead their overseas chapter in the U.K., if only I’d been treated with decency by the college’s student loans office when setting up my life over here, so I’d have to decline.

Now the alumni association has brought new life into my old tale of collections and woe. My goal is that it doesn’t happen to other students who perhaps didn’t learn as much in college—like writing press releases and having contacts on the Boston City Council.

Their veracity has impressed me enough to stop by when I’m in Boston at the end of the month and to go out to lunch with the alumni association. More importantly, I’m swinging by the loan office and giving them the remainder of the payoff amount for my loan…in person, and with a smile.

Related posts:

1. Six Things to Know About Your Student Loans
2. Student Loans Drying Up: What You Must Know About Borrowing This Fall
3. Student Loan Consolidation Made Easy