Page 208 - digitalliteracy

Summary & Resources

Summary & Resources

Module Summary

Borrowing money is a big responsibility. One of the key components is to understand how
interest rates work for you (when you are a saver) and against you (when you are a bor-
rower). Interest is simply the rent you pay on money you borrow. Unfortunately, the more you
borrow, the higher the rent; the longer it takes to repay your loan, the longer you pay rent.

Student loan options include subsidized and unsubsidized federal loans, as well as loans from
private lenders. How you time your repayment impacts the overall cost of your loan. The
smaller the repayment, the longer it will take to repay your student loan and the more you
will pay in interest. You may find a monthly payment you can live with, but spreading out your
loan payments could literally cost you thousands of dollars in extra interest and find you pay-
ing your college expenses for many years after you graduate. You need to investigate the vari-
ous loan options available and what you need to qualify for lower cost loans. It is very easy
to sign a piece of paper and put yourself into debt for years to come. Exercise caution and do
not borrow more than you absolutely need. What you borrow should go toward educational
expenses only and not be used to finance a lifestyle you really cannot afford.

Credit cards and other consumer debt can make life easier to manage and help you obtain the
goods and services you need. Understanding what your credit report contains and who can
see it is an important step to becoming a responsible borrower. Once you have established
credit, it is important to keep a close eye on your credit score. Your score lets potential credi-
tors know how reliable you are as a borrower. Good credit matters because the higher your
score, the lower your interest expense. Making late payments or missing payments can give
your credit score a black eye. Having too much available credit or using a large percentage of
your available credit shows you may be overextended, which decreases your score and makes
creditors reluctant to lend to you.

Be vigilant in protecting your personal information. There are scores of scam artists who
work hard to separate you from your personal data so they can open credit accounts in your
name and use your good credit to get loans. To combat such scoundrels, you need to keep
a close eye on your credit report and credit score and remain alert to possible scams. One
way to do that is to remember that no reputable institution would ask you for your personal
information.

Should you find yourself with credit complications, know that only you can “fix” your credit
report and score by being a responsible borrower and repaying your bills on time. If you find
yourself overextended and paying exorbitant rates, do not succumb to making only the mini-
mum payment; instead, faithfully pay as much as you can each month until the debt is repaid.
Pay off the highest interest debt first.

Critical-Thinking Questions

1. Caleb is trying to decide if he should get his student loan from a private lender or
take out a federal subsidized student loan. Which kind of loan would you recom-
mend to Caleb, and why?

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