Money Management

Bank Accounts
Loan Repayment
Exit Loan Interview
Credit Cards 101
Budget Planning Form

Bank Accounts for Students

If you’ve ever shopped around for banks, you know that most students don’t fit into the banking industry’s traditional customer mold. As a student, you’re more likely to keep a low balance in your account and use ATMs for your withdrawals. This may cause you to be charged with large service fees.

Following are some tips to help you find a bank account that’s best for you:

* Open an account where you’ll be living to go to school. It will be easier to use the checks in town, and you’ll be able to cash checks payable to you more quickly and easier. Give yourself some time before school starts for comparison shopping at local banks.

* Find a bank that is student-friendly. Many banks near colleges or universities offer low-cost, no-frills student accounts.

* Look for accounts with no or low required balances, no or minimal service charges, unlimited check writing and low-cost access to nearby ATMs.

* For the convenience of a credit card without the same temptation, ask your bank if they issue debit cards. Debit cards have the convenience of credit cards, but they act like a check, as the amount of the purchase is automatically withdrawn from your bank account at the time of purchase. Debit cards keep you from running up a high-interest balance.

* Find the location of the bank’s ATMs. Are they located in places that are convenient for you? If you use an ATM that does not belong to your bank, the charge can be as high as $2.00 a transaction.

* If your relatives will need to make deposits to your account, see if your bank has a direct-deposit or direct-payment program through automatic/electronic transfer of funds.

* Find out if there is a limit on the number of transactions in a certain time period on your account--using any method such as ATM or debit or credit cards. If there is, know what the penalties are if you go over that number.

* Privacy protection is important. Find out what level of protection is if someone gains unauthorized access to your account. Does the bank monitor accounts for any unusual activity? Who is liable for any authorized spending, you or the bank?

* Ask about overdraft protection and fees for any bounced checks.
After your account is open -- Check your bank statement and reconcile your balance every month. This will find and fix any errors in your account or statement right away, and will also see what your income and spending habits are each month.

Last, but not least--don’t be shy about asking for explanations of any fees, charges, or features you don’t understand. Your finances are your responsibility, not the bank’s. Stay on top of your account to make sure you have enough in case of an emergency.

Please send questions you have about financial issues to Financial Aid with the subject line “Dollars and Sense.” Then watch The Prospectus for the answer.

Bank accounts | Loan repayment Credit Cards 101 | top

Paying Back Your Student Loan — Repayment Options

Each repayment option offers varying degrees of flexibility, depending on the amount you borrowed and the type of loan.

Standard Repayment Plan
Payment: Monthly payment is fixed (min. #50). A payment is equal to total loan amount (plus interest) divided by the number of months in your repayment period, up to 120 months (10 years).
Advantages: Economical, keeps interest to a minimum.
Disadvantages: Monthly payment stays the same regardless of income.

Extended Repayment Plan
Payment: Same as the Standard Plan, except that students get a longer period of time to pay off their loan (usually 12 to 30 years). The larger the loan amount, the more years you’ll have to pay the loan back.
Advantages: Lower monthly payments than the Standard Plan.
Disadvantages: Increases the amount you pay in interest.

Graduated Repayment Plan
Payment: Repayment amount will increase every two years until the loan is paid off, which can vary between 12 and 30 years. The larger the loan amount, the more years you’ll have to pay the loan back.
Advantages: Your monthly payments will be easier to manage at first, because you initial payments will be lower than the Standard Plan.
Disadvantage: You will end up paying more in interest. Also, without a stable or increasing income, you may have trouble as the monthly payments rise over time.

Income Contingent Plan
Payment: Your monthly payment is adjusted annually based on yearly income, family size, interest rate and loan amount. Your monthly payments will rise and fall in relation to your income. You must sign a form that permits the Internal Revenue Service to inform the U. S. Department of Education of your income.
Advantages: You usually have up to 25 years to repay. Any portion of the loan amount that has not been repaid up to this time is forgiven.
Disadvantage: After 25 years, the forgiven loan balance will be counted as income and is taxable. This loan repayment plan cannot be used for parent loans.

The Consequences of Default

For most lenders, making no payments over a nine-month period (or missing payments over an 11-month period) means your loan is in default, which is very serious. What can this mean for you?
Immediate payment: The entire balance (principal and interest) can come due immediately.

Collection agency involvement: You may have to pay additional interest charges, late fees, collection costs, and possibly court costs and attorney fees.

Damaged credit rating: A poor rating could negatively affect an application for a credit card, car loan or home mortgage, as well as renting an apartment or applying for a job. Your default will remain on your credit report for up to seven years.

Garnished wages: Your employer, at the request of the loan holder, may withhold a portion of your wages.

Ignoring any calls or letters from your lender or servicer won’t make the problem go away. Talk to your lender and discuss all options available that will allow you to make payments.

Exit Loan Interview

What is an exit loan interview?
An exit loan interview (or exit loan counseling) ensures you know what’s expected of you during the loan repayment process.

Is my loan counseling session necessary?
Yes. Students who receive federal educational loans must go through the counseling process.

Can I do my exit interview online?
Yes, if your school allows it. Ask your financial aid office if this option is available.

What can I expect during the session?
The session reviews the repayment process, options, rights, and responsibilities you have as a borrower. You may be expected to answer a few questions to make sure you understand the process. Sample questions include:
• How will I receive information about my loan?
• After I graduate, when is my first payment due?
• What happens if I miss a payment?
The loan interview’s main function is to educate and inform you about the loan repayment process. Be sure to ask your financial aid administrator if you have questions.

Bank accounts | Loan repayment Credit Cards 101 | top

Credit Cards 101

Be careful of pre-approved credit card offers granting you a low APR. Often the low APR is only for two-three months, and jumps to one much higher after that.

Before you take out a credit card, you should shop around for the cards offering the lowest fixed rates and no annual fees. The credit card offer you get in the mail or at the campus bookstore may not be the best deal.

.com can help you make comparisons with an interactive tool that provides you a list of the best deals in credit cards, their interest rates and any fees charged.

The Federal Reserve has helpful information on choosing a credit card, interest rates, fees, and definitions for all of those confusing financial terms.

Credit Card Pros:
* They can make expensive emergency situations such as breakdowns, easier to handle.
* Making your monthly payments on time allows you to establish a good credit record, critical for future large purchases.

Credit Card Cons:
* If you can’t pay off your monthly bills in full, you will end up paying more for your purchases over time.
* You might be tempted to spend more than your budget will allow. The result could be that your money will go to the credit card company (to cover payments and interest) instead of to your budget.
* More than one million people file bankruptcy every year-- often as a result of over-extending their credit. Bankruptcy stays on your credit history for up to 10 years after you file.
* Credit card debt can make it harder for you to get private student loans or purchase a larger item like a car or home.

APR and Interest Charges

The annual percentage rate (APR) is the amount you pay if you decide to carry a balance and not pay off your credit card in full each month. That rate can be as high as 25% annually.

To find out how much interest you are, or will be charged monthly:
* Find the APR number on your credit card statement
* Divide it by 12 (12 months in a year). This will show you how much interest you are being charged monthly (18% annually is 1.5% monthly).
* Multiply your monthly interest rate by your balance.
* This is the amount of money going toward interest (also called finance charges.).
This is how much it costs you to borrow money each month to buy items.
* Be careful of introductory rates (teaser rates) because the APR may go up.

Understanding Interest

Paying only the minimum monthly balance over a long period of time will have costly consequences. The chart below shows how credit card interest can pile up.

On a balance of $1,000, this is the interest you'll pay, based on the same amount per month (at an interest rate of 18%):




# Months

to pay off


You Pay

        $   0.00                0        $1,000.00
          200.00            47.00                6          1,047.53
          100.00            91.63              11          1,091.62
            50.00          197.83              24          1,197.83
            30.00          396.72              47          1,396.72
            25.00          538.62              62          1,538.62
            20.00          862.24              94          1,862.24

A more extreme example: You make a purchase of $1,000 and decide to only make the minimum payment (2% of the remaining principal) each month. If you don't make another purchase on the card, here's what it will cost you:

Initial purchase: $1,000
Amount of time to pay off: 232 months (19 years!)
Total paid, with interest: $2,931.33.

That's a total of $1,931.33 in interest on your original $1,000 purchase.

Grace Period
The number of days you have to pay your bill in full before incurring finance charges is typically 25 days. If you carry a balance over to the next month, there is no grace period. Beware of cards with no grace period provision.

Annual Fee
The amount you pay annually just to have a credit card. Some annual fee cards have lower interest rates however, so if you carry a balance each month you may actually save money with an annual fee card.

Transaction Fees
You may be charged additional fees for things such at ATM withdrawals, balance transfers, late payments, and exceeding your credit limit. Some cards even charge a monthly fee for not using the card.

Late Fees
The average late fee (and late can mean only one day past due date) can be as high as $35.00. Banks make money from fees and are becoming increasingly creative at finding ways to fine their customers.

Minimum Payment
The least amount you must pay each month to avoid additional transaction fees. Typically this is 2% of the balance. Always pay more than the minimum if possible to avoid paying more finance charges.

Take a look at the trap you get into when you make minimum payments only:
* If you have a credit card charging 18% APR with a balance of $2,000, the minimum
payment may be as low as $40.
* Make just the minimum payment and only $10 will go towards getting you out of
* At that rate, it would take you 11.5 years to pay off the card and you’ll pay over
$2,500 in finance charges.
* Pay just $10 more per month or $50, and the same debt will be paid off in five years, saving you approximately $11,400 in interest.

Introductory Rates
When you receive a credit card offer in the mail, examine the fine print that comes with the offer. Many cards offer great introductory rates such as 2.9% APR. Often, these rates will rise after a limited period of time--such as six months. After the introductory period, your APR could go up significantly.

Credit Limit
Start out with a lower limit to avoid overcharging. Most banks will charge an “over-limit” fee once your balance exceeds your established limit. Sometimes your monthly finance charges can push you over your credit limit. Avoid this issue by keeping your credit card balance well below your credit limit.


* Select a card that does not charge an annual fee.
* Look for low annual percentage rates (APR). The higher the interest, the more you will have to pay later.
* Ask about additional fees like late payment, charging over your limit and maintaining balance.
* Watch out for introductory offers. Interest rates usually go up considerably after only three or six months.
* Pay the balance in full each month.
* Watch out for transaction dates and fees.
* Never carry a credit card unless you are planning to use it.
* Don’t own more than one or two credit cards.
* Don’t carry a balance on your credit card, if you can avoid it. If you have to carry a balance, make more than the minimum payment.
* Build a good credit rating by charging a small amount each month and paying the balance in full.
* Read your credit card contract carefully and be sure to examine any letters that arrive announcing changes to the terms of your contract. Many cards are eliminating grace periods and adding annual fees to customers who pay in full each month.
* Contact your creditors if you can’t make your payment on time or at all. They maybe willing to work out a deal for you if you’re in good standing.
* Ask your creditor to reduce your APR if you’re being charged a high interest rate and carrying a balance. Many creditors may be willing to do this.
* Think before you buy an item on sale with your credit card. Will you really save money? Probably not.
* Remember that offers to reduce your minimum monthly payment will only cost you more in interest during the long run.
* Develop a sound spending plan for yourself. This will help you to avoid using credit cards to make up for any shortfalls in your cash flow.
* Be careful when considering a cash advance on your credit cards. Credit card companies generally charge a fee for cash advances. It is also not unusual for cash advances to be charged a higher interest rate.


Do you use one credit card to pay off debt on another credit card?
Are you at or near your credit limit on many credit cards?
Can you only afford to make the minimum payment?
Do you ignore collection agency calls about unpaid bills?
Do you hide purchases or lie about your finances to your family and friends?
Have you been declined from making a purchase because of insufficient credit?
If you answered “yes” to one or more of these questions, you should take one or more of the following steps to change your credit card use behavior:

* Contact your creditor or credit card company.
If you’re already 90 days or more past due with your payment, your creditor may
turn your account over to a collection agency. Contact your creditors before this
happens to help minimize the damage. They may:
* Be willing to accept interest only payments
* Eliminate late charges from your account
* Not report delinquent information to credit bureaus
* Let you keep your lights on!
* Not turn your account over to a collection agency that will aggressively pursue repayment.

Don’t make promises you can’t keep.
Creditors may attempt to make you promise to pay a certain amount by a certain time. If you agree to this, and then don’t follow through with a payment, there will be consequences. It is recommended that you advise them of your situation and follow up with a letter detailing your plan. Before you call, ask yourself the following:
* How long will I be unable to afford this payment?
* Can I afford a different payment amount?
* How much income do I expect to have over the next few months?
Writing a letter may help you avoid intimidation by the creditor. After you have written the letter, be sure to keep a copy for your records. Then follow through with your promises! Keep a copy of your payment plan near the phone. Your creditors will call you until you are current. Be courteous to the creditors when they call, but stick to your plan. Don’t increase your payment to one creditor at the expense of another.

Some debts are more important. Here are some debts to consider when you prioritize:
* Mortgage/rent
* Food
* Car loan/auto insurance
* Insurance (home/medical)
* Utilities
* Loans (banks, student loans, finance companies)
* Credit cards (bank and retail cards)
* Miscellaneous bills
* Rethink your spending. Set up a budget. Be realistic about your spending and financial needs.
* Get help from a local consumer credit counseling center.
Find out if the agency is a nonprofit organization and if a service fee is charged. Some agencies charge high fees--avoid them. The Consumer Credit Counseling Service (CCCS) provides budget counseling, educational programs, debt management assistance and housing counseling.

Counseling from CCCS is available online, by telephone (800/959-2227) and in person.
Consumer Counseling Service of Central Illinois
210 W. Springfield Avenue, Suite 702
Champaign, IL 61824

Most banks offer debit cards. They look like credit cards. They have a credit card logo on them. Do they act just like credit cards? No! When you charge an item with your debit card, the money is taken directly out of your checking account. It’s the same as writing a check. Immediately record the transaction and deduct it from your checkbook or checking account balance.

Bank accounts | Loan repayment Credit Cards 101 | top

Feel free to call us at 217/351-2222 or stop by U286 for help.

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