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Living on a Budget, Saving Money/Re: variable interest rate on student loan

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Question
Hi KD,
I need your advice on how to handle my student loan payments. I have a 32k student loan, 12k is private and the rest is direct loan.
My first payment will be due in March 2013 and I am mostly concerned about my private loan. Out of the 12k, 5k is at 9.99% and the 7k is at 6%. My estimate payment is $122/mo but my bank told me that since it is variable, it can change every month. I am scared that my interest might skyrocket to 25% or more once I start repayment. How should I handle my private loans? I have a credit card via my credit union and my credit limit is 25k. But right now it is maxed out. I have a good paying job but also have a lot of bills to pay. Can you give me what my options can be for the private loan?
Thanks so much in advance!

Answer
Dear Bruce,
I'm going to be honest with you, I don't usually advise obtaining a loan, but in this case, I really think you need to begin to explore some options.  Your financial situation seems a bit shaky already, so a budget is definitely in order before March 2013.  I look for interest rates to begin to rise after the election.  Not interest on savings accounts or CD's, but on loans and mortgages.  I may be wrong, but I think you should definitely explore any options you may have, including an introductory offer on credit cards.  Now, don't go crazy here, but 9.99% interest is no bargain, anyway, and if 6% can also go up, I think some sort of consolidation plan is in order.  If you have a good job, but your credit card is maxed, you need to address that, as well.  You have four months before the student loan payments start.  I have no idea what your income is, but definitely recommend getting that credit card balance reduced.  
Here is something that few people consider, that really has nothing to do with interest rates, etc.  If you are at your income limit now with bills, you're getting ready to begin a horrible financial debt cycle that could literally take years to resolve.  Determine how long you truly want to be in debt over your education and set a date, then do everything in your power to reach that goal.  You can't just use "extra money" to pay down a debt, because there never is "extra money."  Cut back on some spending and designate double payments or more on the credit card.  
Get hold of this before it starts.  You want to be able to afford your life.  Talk to the credit union about a low interest loan.  Make sure you will not be penalized by the lending institution for early pay off.  If it's possible to obtain even a small loan, pay the higher interest rate private loan off first.
It really sounds like you've sort of kicked the can down the road for a time and you just can't kick it any further.  If you cannot resolve this private loan with a consolidation loan, then make double payments on the 9.99% while you continue to look for other options.  
Student loans have become such an issue for graduates, there are actually companies that offer assistance in finding lower interest loans, etc.  I have no idea what their fees are.  
My advice is simple.  Set up a budget, live within your means, and seek consolidation on the private loans, as well as balance reduction on your credit card, and that is simply a matter of discipline toward financial freedom.
I wish you well.
Kind Regards,
KD Liz
www.thelandofgoshen.com

Living on a Budget, Saving Money

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Kindred Beisinger penname K D Elizabeth Beisinger

Expertise

I can answer questions pertaining to budgeting, savings, debt reduction, and total freedom from debt. I can assist in prioritizing expenses and obligations. I am willing to share and offer guidance in realistic money management, modest investments, and financial freedom. I am not an investment counselor, broker or accountant, I am a missionary that does not do fund raisers or ask for donations.

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I live comfortably and have been debt free since I was 40.

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Simply Abundant, Covenant Chronicle, Sweet Memories & Happy Plates

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