Category Archives: Day Finance

Woody Harrelson Is a Terrible Debt Collector

He was bad at his paper route. And not a great hype man for a lame gym. But as the actor tells Wealthsimple, he’s gotten better at money over the years, partly by not needing to spend much of it.

I was 9 or 10 years old when I got my first job, delivering the Houston Chronicle. Here was the problem: I was good at delivering newspapers, but I was terrible at collecting money from my customers. When I did my collection rounds, a lot of people would be like, “Hey, can you come back tomorrow?” And I’d say, “Sure, no problem. Sorry to bother you.” But day after day they always had an excuse or they’d pretend not to be home, and as a little kid, my collection efforts had no real teeth.

The way it worked, I’d buy the newspapers in bulk from the publisher as an independent contractor, and once the customers paid me, I’d turn a small profit. But despite all my hard work delivering papers, with my ineffective collection efforts I’d usually have a net loss. I’d hoped to make a little spending money, but I didn’t make money — I lost it. Sometimes in life, the middleman gets squeezed. On the other hand, that paper route sure got me a lot of exercise. I always try to find the silver lining.

The least expensive things can be the most personally rewarding. My wedding, for example. The whole event cost a total of $500.

In my early 20s, I was living in New York City, and I’d take just about any job I could get. I waited tables mostly, but I also did all kinds of weird side gigs. One time a friend of mine started working at a cheap local gym that happened to have some famous members, like Madonna and the guys from Kool & the Gang—this was 1983, and their song “Celebration” was all over the airwaves. The owner of the gym wanted to do some grassroots advertising and hired my friend and me to ask other neighborhood businesses — bars, coffee shops, laundromats — if we could place ads for the gym inside their store windows. The lure for them was that if they let us put up a poster, they’d get a free membership to the gym and might catch a glimpse of Madonna or Kool & the Gang. For us, we got a couple bucks for every poster a business owner agreed to hang. It was a lot of door-to-door hustling. Fortunately, my people skills had improved since I was a kid with a paper route. But the posters didn’t seem to make a difference: Even with Madonna, “Celebration,” and all our grassroots energy, the gym didn’t survive. That said, I met a lot of interesting people around the neighborhood, and the money in my pocket helped me get by, so I don’t count any of it as a wasted effort.

Wealthsimple is investing on autopilot

Over the years my relationship with money has shifted in some ways, but in other respects, it has stayed the same. These days, when I go into the grocery store, I’m not calculating the cost of each item. I don’t need to be as penny conscious as I used to be — I just grab and go. But I was raised to be conservative in my spending habits, so I always seek a balance: I don’t want to be a spendthrift, but I also don’t want to be needlessly lavish.

Every once in a while I treat myself with a special purchase. The most extravagant I’ve been is when I bought a Tesla not too long ago. I like the way it drives, and I really like the idea of reducing my carbon footprint. But often, I’ve found, the least expensive things can be the most personally rewarding. Take my wedding, for example. The whole event cost a total of $500.

How to Save $100,000 by Age 25

I won’t lie. These factors may have contributed to my general enthusiasm about life. But there’s another reason I sometimes stare into space and smile at nothing (even if anyone in the vicinity thinks I’m a crazy person).

For the first time in my life, I have absolute freedom to only pursue the things that interest me. The last two decades have been an uninterrupted freight train of schooling and work, so it’s a pretty surreal feeling. There are moments of pure elation, and even the occasional faint trace of guilt. Did I cheat, somehow? Surely it can’t be this easy? I’m waiting for a giant skyhook to descend from the heavens and hoist me up by the seat of my elephant pants, violently jerking me back into reality.

It wasn’t until 2013 that I even twigged this was an option. I’d been working as a business journalist for a couple of years, and one of my responsibilities was researching and writing personal finance features.

I’d chosen the topic of ‘net worth’, which is defined as everything you own, minus everything you owe. Naturally I was curious what my own net worth was, so I did the math.

It was a negative number. My savings and other assets were completely wiped out by my debts – and then some. Finding out you’re worse off now than when you first entered the world as a naked, screaming, hairless maggot is kind of depressing.

It wasn’t much consolation knowing most twenty-somethings were in the same boat, especially those with student loans. Unlike them, I made my living lecturing people on how to be good with money. The first penny dropped: It was time to shift up a gear.

Around this time I’d also started learning about the ‘early retirement’ and ‘financial independence’ movements. It turned out there were cadres of rebels around the world who flat-out rejected consumerism. They laughed mightily at the thought of 40 years of wage slavery, and retired decades earlier than everyone else.

I interviewed one of the rebel movement’s unofficial leaders, Pete Adeney, who saved enough cash to quit work at age 30 so he and his wife could spend more time with their boy.

Another penny dropped. The money habits of Pete and his peers were some next level shit. Conventional personal finance “wisdom”, like the stuff I’d been dishing out, was that you should aim to save 10 per cent of your after-tax income. These guys saved half their pay, or more – and they did it in style.

How to Win the Jackpot

The more I read, the more pennies dropped. Soon they were gushing out like I’d won the jackpot, albeit on the cheapest slot machine in Vegas.

This is the bit where I’m meant to plug my guide to red-hot growth stocks, or sign you up to some scammy forex trading course.

Should You Pay Off Your Mortgage Early?

Don’t Forget About The Baby Steps

I’ve followed the Baby Steps for about six years now, and I’ve become an absolute die-hard fan.

Here they are, in order from top to bottom:

  1. Save up $1,000 for a mini-emergency fund
  2. Pay off your consumer debts (car, student loans, credit cards, etc.)
  3. Save up 3-6 months of expenses for your real emergency fund
  4. Invest 15% into your retirement
  5. Save for your kids’ college education
  6. Pay off your house
  7. Become wealthy and give

Note that if you’re on Steps 1, 2, or 3, you shouldn’t be investing OR paying your house off early. Before you even consider either option, you should be debt free except your home and have a fully-funded emergency fund.

Pay Off Your Mortgage Early? Absolutely.

If given the choice between investing extra money in the stock market (beyond the standard 15%) and paying off my mortgage, I’d choose paying off the mortgage every. single. time.

You know that 4% interest rate that you’ve got on your mortgage loan? If you pay off your mortgage early, you don’t ever have to pay it! Basically, it’s like locking in an investment for 4% that has absolutely no chance of going down…ever. If you pay off a $150,000, 30 year mortgage, that equates to over $100,000 in guaranteed “earnings”! (the other suckers end up paying $250,000 for a $150,000 house).

When you invest, you’re taking on the risk of losing money…which everyone fails to mention for some reason. Sure, you might earn 8%, but there might also be a downturn and you lose 20%. If that happens, I bet you’d start wishing that you paid down your house!

Oh, and as for the tax savings, it really doesn’t amount to much…especially in the later years of your loan. If you’re lucky, you save 0.5% with this incentive, which is hardly enough to keep me from being 100% debt free!

Increased Cash Flow

Are you sick of being cash poor all the time? With money going toward your bills, food, kids, and YOUR HOUSE, it’s pretty easy to feel strapped. But what if you didn’t have your house payment? What if, instead of having that $1,500 go to the bank every month, it went into your own pocket?

That would be pretty sweet, huh?

Well it’s absolutely possible. Pay off your mortgage early and your bank account will fill up faster than you ever thought possible! Plus, you’ll have options that you never even considered before.

Without a house payment, we decided to:

  • have my wife stay at home with our daughter (which we absolutely LOVE)
  • buy a nicer kid-hauler (our 2008 Toyota Sienna has been AWESOME!)
  • go on more vacations (Sanibel Island, here we come!!)
  • invest more heavily for our future (early retirement perhaps??)

Escaping from our mortgage payment each month has been nothing short of excellent. I can’t ever imagine going into debt over a house again.

Increased Peace of Mind

Our house is ours and nobody else’s. If we lose our job and find ourselves short on cash for a stretch of time, we don’t have to worry about the bank coming and taking our house away from us.

If you owe more than $1 (yes, that’s one dollar) on your home, then the bank has every right to take it from you. Their name is still on the deed.

Don’t think for a second that you’re invincible. Foreclosures happen to regular people every single day.

The Kick-butt Effect of Increased Focus

I’ve saved the best for last. This is the reason that disproves every single investment brainiac out there.

If you remember from earlier, advisors often state that the stock market averages 7-8% and your mortgage interest only costs you 4%, so ignoring the mortgage and investing in the market is the obvious answer…. yeah, I don’t think so.

First of all (as we’ve already mentioned), there’s risk in that 8%, but there’s also another element that intelligent people often forget to factor in:

It’s your emotions.

My Real-Life Example

When my wife (now ex-wife) left me in 2012, I wanted nothing more than to break all ties with her. I didn’t want to see her, I didn’t want to hear from her, and I certainly didn’t want to owe her any money!

This is when I waged war on debt. I paid her the decreed $21,000 in just six months, and then I paid off my $54,000 mortgage in under a year!

This is the power of emotion (in my case, anger).

If my financial advisor told me to invest $75,000 in two years, do you think I would have done it?

Absolutely not. 

I would have told him he was nuts and that it was impossible. I never would have even tried.

How much would I have invested instead? If I were fairly aggressive, I maybe would have put $20,000 away.

So let’s have a look here:

  • $20,000 * 8% = $1,600
  • $75,000 * 4% = $3,000

BOOM! Thanks to the power of emotions, paying off debt can absolutely be more advantageous than investing in the stock market!

It’s Your Turn

I write about this stuff all the time, and I can affirm the fact that being out of debt is an incredible place to be, but I can’t get out of debt for you. This decision and action has to come from you.

Are You Living Paycheck-to-Paycheck?

A large number of American households live from one paycheck to the next. This number has gone down since September 2016, according to a survey conducted by McKinsey & Company, where consumers expressed more confidence in their financial stability compared to the last eight years. But about 24% of the participants in McKinsey’s study still lived paycheck to paycheck. This means they struggled to cover their basic expenses and had empty checking accounts until the next pay period. With families to support and unexpected additional expenses, this can be a very difficult experience for anyone to go through.

The problem can arise for several reasons, but the main driving factor is not having enough financial knowledge. When you are financially knowledgeable, you understand the essentials of budgeting and how managing your money will help you be stable and reduce anxiety and stress.

Creating a Budget Can Help

If you are living from one paycheck to the next, the first thing you need to do is make a budget. What are your expenses? What are necessary and what are extraneous? How much do you need to have every month for your required expenses (rent, food, insurance, etc.)? When are these payments due? Cash flow also can affect payments significantly and your stress level. If you are getting paid only on the 20th but your payment is due on the 1st, you are always going to be behind.

The first step you can take to budgeting and healthy money management is to monitor your expenses. You must know how you are spending your money, down to the dollar. It is essential that you know how you are spending your money and on what.

Begin by monitoring your spending for a couple of weeks to gauge your habits. Keep track via an online software system such as mint.com, or at the very least, a notebook. Use a method and tool you like. The most important thing is that you are aware of all your transactions.

Handling Additional Expenses

Budgeting will also help you prepare for unexpected expenses, emergencies and seasonal expenditures. You can see from your prior spending where your dollars are going. The more you prepare, the better it will be. You can also include gifts, holidays, vacations and other expenses. Budgeting early on prevents headaches later!

Next, do the math. What is essential? See where you can trim. This is easier if you have a salary. You may be getting a fixed amount every month you can work with. Look at your pay stubs to figure out your average income after tax.

After you subtract your essential expenses such as rent, food, insurance, etc., do you have any money left over? This is money that will need to go towards savings and also can be used for discretionary spending.

Lowering Personal Spending

See where you can lower your spending. Budgeting takes time. No one is a pro at it immediately. You have to adjust that budget based on your lifestyle and what you’re learning about your spending habits through tracking over time.

Find ways to increase your income through an extra job, extra hours at your current job or other ways to get paid.

Finally, be realistic. If you are too drastic in your spending cuts, you will find it hard to stay motivated and may miss your target goals. Give your budget some flexibility so you can stay on track and keep going forward.

 

Best Budgeting Software of 2017

The best budgeting software helps you manage your money in a way that is organized, provides the detail you require and displays the information that you need in a way that allows for quick comprehension and analysis.

Here are four budgeting software systems that meet those criteria. Each system is distinguished by how it could best fit your personal approach to managing your finances.

Best for Fans of Zero-Based Budgeting

You Need A Budget (YNAB for short) is built on the zero-based budgeting principle that calls for you to “give every dollar a job.” With YNAB you need to be involved in your finances and willing to change old habits to make the system work.

According to YNAB, following those four rules will help you pay off debts, save money and stop living paycheck to paycheck. It’s a tall order, but YNAB users say it works.

This browser-based subscription system runs on both Windows and Mac computers. Android and iPhone apps are available and are able to sync data back to your desktop. YNAB also connects to bank and credit card accounts to download transactions, but it does not offer a way to track investments. Following a 34-day free trial, YNAB costs $50, billed annually.

Best for Envelope Budgeters Anxious to Go Digital

Mvelopes is based on the familiar (pre-computer) budgeting system of putting cash in envelopes each pay period. Each envelope is labeled for an individual bill or discretionary expense. For discretionary expenses, when an envelope is empty, spending in that category is done for that pay period.

At it’s core Mvelopes provides you with a familiar system of using envelopes on a digital platform, but that is not all the software service provides. It is also able to link to bank and credit card accounts, allowing you to see past spending and assign money to future “mvelopes.” You can set up the system to move money out of your spending envelope into a credit card payment envelope so that you don’t run up your credit card balance.

Mvelopes Basic is the simplest offering from the budgeting site and costs only $4 per month. Pricing ranges as high as $79 per month for Mvelopes Complete, the software’s premier service. The system is online and works with both Macs and PCs. Android and iPhone apps let you manage your accounts, add and edit transactions, adjust your budget and monitor expenses on the go.

 

Idea Staycation Your Summer

As the kids finish school and the weather heats up, many people are getting excited about long-awaited summer vacations. Summer vacations are a time to relax, unwind and spend some quality time with loved ones. Big vacations, however, do require quite a bit of planning and, of course, can end up costing some serious cash, especially with a whole family in tow.

If you haven’t gotten around to making summer vacation plans, or it’s just not in the cards this year, you might be the perfect candidate for a summer staycation. (A staycation can be just as enjoyable as a vacation, and can enrich your life for the whole year.

A staycation is like a vacation, only you spend it at home. Instead of spending lots of money on airfare and expensive hotels, you can take advantage of the attractions your area has to offer that you never get a chance to enjoy. This includes your house – when was the last time you relaxed at home?

Get Out

Outside, that is. National parks, state parks, county parks, metro parks and nature centers all provide a place to run around and enjoy nature. As an added bonus, many are free. You can easily spend a day hiking, swimming and picnicking in your local park.

A rainy day during your staycation is a terrific opportunity to visit a local museum or two. Art museums, aquariums, planetariums, science museums and natural history museums can be enjoyable and interesting. You can search for museums at the American Association of Museum’s website

Get Active

Take advantage of the local swimming pool, tennis courts, golf course or skating rink. Go for a bike ride, a walk, or try a new sport. Dust off the old baseball mitts, soccer balls and Frisbees and have fun.

Get Festive

Summertime is usually ripe with festivals in one form or another. Your local newspaper or Chamber of Commerce can keep you up to date with goings on. In addition to daytime festivals, many locales host free music nights during the summer months.

Learn Something New

Have you always wanted to learn how to throw pottery or paint with watercolors? How about cooking Cuban food or home-brewing beer? Your local recreation department or community college probably has a great choice of classes to get you started. Many of them will be one-day introductory classes that won’t require a huge investment.

Be Pampered

With all the money you’re saving on your staycation, you just might be entitled to a trip to the local spa for a massage and facial. Most spas do require advance reservations, and many offer specials and packages so be sure to ask.

Tell Ghost Stories

Pitch the tent and build a small fire – in your back yard. Camping in the backyard is a fun and easy way to camp. You can chase fireflies, sing songs, look at the stars and roast marshmallows (or make s’mores: roast a marshmallow until golden brown, place between two graham crackers with a piece of chocolate and squeeze together).

 

Ways to Stunt a Child’s Financial Growth

Financial knowledge isn’t built into our DNA. It has to be learned. Unlike long division and gymnastics, personal finance is not properly covered in school (if covered at all). So it falls upon parents to impart financial knowledge to their children. Unfortunately it’s easy to slip up and make mistakes. In this article, we’ll look at five ways you may be stunting your child’s financial growth.

The Vow of Silence

A lot of funding has been put into researching why kids fall into particular traps. Teen pregnancy, drug use, underage drinking and many other early problems have been traced back to a lack of communication – hence, the “if you’re not teaching your kids about ____, then who is?” campaigns. A lack of financial education doesn’t seem as serious as a drug addiction, but its long-term consequences are quite severe. Remaining mum on financial matters sends the message that either money is not important, or it’s something to fear and never mention. Neither of these are lessons that help with the financial realities children will face as they grow up.

If you’re not willing to teach good financial habits to your children, the school system and the media are the main information sources by default. If you need motivation to take your child’s financial guidance upon yourself, watch TV with your child and consciously try to spot the image of personal finance they might be getting from both the shows and the commercials they see – it is, quite frankly, terrifying.

Fair-Weather Finance

Ranking second only to remaining silent about financial matters is the tendency for people only to talk about them when things are going well. Personal finance and the financial world as a whole is not a Disney movie where cats and birds break out in spontaneous songs of joy – it is fraught with problems. It’s far better to be honest about problems – late bills, flat stocks, bad decisions, etc. – and engage the family in solving them. Looking at financial matters as a problem-solving exercise for the family will also lessen the stress traditionally felt by people trying to “keep the household budget (or portfolio)” all by themselves. It will also teach your child to approach financial problems as just that – problems. Problems can be challenging, but there are always solutions if you’re creatively searching for them.

One of the greatest investing minds of all time, Benjamin Graham, was introduced to the world of stocks and bonds through a mistake in his family’s finances. Graham’s widowed mother put a significant portion of the family’s savings into U.S. Steel at its overvalued peak. Graham charted the stocks decline, and that of his family’s wealth, from the quotes in the newspaper. The poor performance of the stock compounded the family’s woes and Graham spent many of his formative years in a struggle against poverty. This experience turned him from the common belief in investing in blue chips for the long-term and eventually led to his formulation of value investing summed up in his book “The Intelligent Investor.”

The Beauty of Budgeting

Can you name a Fortune 500 company that doesn’t have a budget? Don’t spend too much time thinking about it – there aren’t any. Successful businesses around the world have one thing in common: they budget their money. And they do it because it works.

But although making money and making a budget appear to go hand-in-hand, a 2013 Gallup poll found that only one in three Americans prepared a detailed written or computerized household budget. Things may be improving somewhat: A Bankrate.com survey in 2015 found a much higher number said they budgeted (36% on paper and 26% on a computer or smartphone app). On the other hand, another 18% didn’t budget and a matching number answered “yes” to keeping the information “all in your head.”

If you’re one of the non-budgeters (or sketchy budgeters), we’ll show you how to get a better idea of how you spend your money by putting together – and sticking to – a personal budget.

Get Over the Terminology

Part of America’s aversion to budgeting may be rooted in language. The word “budget” – much like the word “diet” – has negative connotations. Budgets and diets are viewed as restrictive reminders of things we cannot have. This is linguistic nonsense. A budget and a diet are both tools. If the tools are used properly, they lead to a desired outcome. Nobody dislikes the word “shovel,” even though the use of the shovel requires effort. People use a shovel to dig a hole; they use a diet to develop a healthy body; and they use a budget to develop a fiscally responsible lifestyle. If it makes you feel better about the process, drop the word “budget” and call it a “spending plan.” Instead of viewing the plan as restrictive, think about the things it allows you to buy. After all, a budget is nothing more than a plan for how you will spend your money.

Start with Your Bills

Many people complain that they can’t create a budget because they don’t know exactly how much money they will earn in a given week. While it is true that workers earning an hourly wage or working on commission might not get the exact same dollar figure in each paycheck, the amount that you earn has much less to do with the basics of budgeting than the amount you spend. Instead of focusing on whether you earn enough each month, focus on your monthly spending. The question is simple: where does your money go?

 

Steps to Budget Based on Your Values

Are you finding yourself struggling to stick to a budget? Many clients and Millennials that I talk to are always excited once we are done talking about how to budget. I’ve realized that, like myself, we missed out on not just financial literacy but how to view our money. I have four ways that will help you start to think of your money as a tool to create a better life where you spend your money according to what you value. Here are my four steps to start.

What Are Your Values?

Often I’ve found myself in the past spending money on items that I didn’t use for very long or were poor quality. I’ve learned over time that if we develop an understanding of our values we can learn to spend money with a wiser purpose. When we spend wisely, our budgets become easier to manage and we start to control our finances without them controlling us. (For more from this author, see: 5 Ways to Improve Your Finances Throughout Life.)

From Values to Goals

Our values will lead to our goals in life. If you value family, I am guessing you may have a goal of starting a family or spending more time with your family. If you value travel, you may have a dream travel goal. Aligning our spending according to our values will help us reach our goals because we’ll be spending according to the values that help us reach our goals.

Work on Filtering Out Distractions

Every minute we are being advertised to – whether online, in Starbucks, on our drive or even during the podcast we are listening to. Ads are everywhere trying to get us to buy something that we probably don’t value and won’t help us reach our goals. Learn to look past these ads and stay focused on items that bring long-term value and move you closer to your goals.

Give Time to Major Purchases

Most goals are large purchases or expenditures of some sort. I encourage you to think through the purchase. Purchasing plane tickets because they are cheap for a trip that wasn’t even on your radar may be filled with regret. Just because an item is on sale doesn’t mean it is the right time. Save for what you expect but you can be ready to take advantage of discounted items if it’s the right time and you’ve been planning on the purchase. Impulse buying is what gets most people into trouble, even myself.

Our everyday decisions cause ripple effects. Make smart purchases that are aligned with your values and you’ll be on your way to achieving your goals in no time. My favorite budgeting tool, YNAB, is based on a budgeting philosophy that most people can resonate with. My wife and I love the tool because it creates better communication in regards to our finances.

Student Loan Forgiveness: How Does it Work?

For decades, educators have encouraged young people to get increasingly expensive post-secondary degrees that provide arguably decreasing real returns in the labor market, and to take out large subsidized loans, regardless of their career choices.

In 2016, the average college graduate borrowed between $26,450 and $31,200. Fortunately, some borrowers may find relief. There are many programs in place, some old and some new, through which debt forgiveness is possible, and we should expect more programs to surface in the near future, as untenable student debt burdens become a larger political topic.

Using Debt Forgiveness

Debt forgiveness programs are exactly what they sound like. In a student loan forgiveness program, qualifying borrowers may have some or all of their public student debt forgiven, either immediately or over a period of time. Unfortunately, none of these programs forgive private loans. The only known methods of discharging or removing private loan amounts is through bankruptcy or a one-off restructuring with the borrower’s private lender.

Currently, there are four major programs and several other minor programs that might cancel or significantly reduce your federal student loan balance. The major ones are Public Service Loan Forgiveness, Perkins loan cancellation, income-based repayment and Teacher Loan Forgiveness. The catch is these may not apply if the debtor is in default status, meaning the loan has gone unpaid for more than nine months.

Each plan has very strict requirements which must be met before student loans may be forgiven. Many require annual submission of official paperwork to student loan servicers, and any missteps might disqualify an otherwise eligible borrower. If you are considering or currently in the process of trying to have your loans forgiven, it is crucial that you understand the necessary steps and follow them diligently.

Most Common Loan Forgiveness Options

Depending on the state in which you reside, there may be occupation-based forgiveness programs available. These are typically designed for doctors, attorneys or other professionals who pay above-average amounts for advanced degrees. Borrowers who used Perkins loans may actually have their entire debt forgiven after just five years. This mostly depends on your occupation, especially for those who serve full-time in a public or non-profit school. This program is used to entice teachers to work in low-income schools and in states where there are shortages of qualified teachers in a given field. Potential specialties range from speech pathologists and preschool teachers to high school math and science teachers.

Nationwide, however, the most common are the Public Service and Teacher Loan Forgiveness plans. Full-time public servants can have their entire federal loan balances forgiven within 10 years. Teachers at qualifying low-income schools may receive partial forgiveness ranging between $5,000 and $17,500, excluding those who only have PLUS loans.

Obama Student Loan Forgiveness

There is a fifth option, popularly referred to as the Obama Student Loan Forgiveness Plan, which came into existence after the Health Care and Education Reconciliation Act of 2010. It might be identified more correctly as a debt restructuring program with possible forgiveness in the future.

Borrowers who qualify may consolidate all of their federal student loans into one single loan, at which point the borrower may choose from five different repayment options. These options — standard, graduated, income-contingent, income-based and Pay As You Earn (PAYE) — offer a wide range of attractive reconstructions.

The graduated repayment plan, for example, allows the borrower to make lower-than-standard payments at first, and every two years, the monthly payment amount increases. This is designed to spread more of the loan amount into the future, when the borrower would ostensibly earn a higher income. The PAYE plan typically offers the lowest monthly payment, including payments as low as $0, though many borrowers have a difficult time qualifying for these plans.

Those enrolled in the income-contingent, income-based or PAYE plans must pay their loans during a term lasting between 20 to 25 years. If, at the end of the term, the borrower still has an outstanding balance, such a balance could be forgiven. Anyone who makes payments in one of these three plans and who also works in the public sector can count his or her Obama Loan Forgiveness payments as qualifying payments for their Public Service or Teacher forgiveness programs.

Total & Permanent Disability Discharge

The Department of Education (DoE) also offers relief to those who have significant physical or mental impairments and are unable to engage in “substantial gainful activity,” which is the official government term for a real job. Those individuals interested in applying for permanent disability status must work through the DoE process to prove their disability. To prove that you have a disability, you need a letter from a qualified physician and other required supporting documentation. Applications typically take between three and six months before a decision is rendered. If your application is accepted, you’re unable to apply for any other student loans until you receive another letter that deems you able to engage in gainful activity.