Money Sense Tips

Few people go through their entire lives without incurring some type of debt. When you go in debt, it’s important to know your rights and obligations. These rights and obligations vary according to the type of debt contract you enter into.

By definition, a contract is the exchange of promises between two people. This can take on many forms. When it comes to debt, there are four basic types of contracts:

* Oral contract – This type of debt contract has been around since the beginning of time. It simply involves one person lending another person money, and the borrower agreeing to repay that money. Nothing is put in writing.

Oral contracts are legally binding. The problem with them is that they are more difficult to enforce. This is due to the fact that there is no written proof of them. There may not even be any witnesses to the agreement except for the two parties. Due to these factors, it may be difficult for the creditor to collect.

* Written contract – A written contract may be as simple as an agreement written on a piece of notebook paper, or as complex as a multi-page document. When a loan is involved, the terms are defined and the contract is signed by the creditor and the debtor. This type of contract usually holds up well in court, even if it is created informally.

* Promissory note – A promissory note is very similar to a written contract, but there is an important difference. In a promissory note, the payment schedule and amount of interest charged are spelled out. Promissory notes are rarely informal agreements. Examples include mortgages and auto loans.

* Open-ended accounts – An open-ended account usually does not require a traditional contract. It is a revolving line of credit in which the balance varies. The most recognizable example is a credit card.

The category under which a given debt contract falls may sometimes be confusing. Oral contracts are easily identifiable as such, but there is often confusion about the subtle differences between a written contract and a promissory note. Credit cards are open-ended accounts, but there have been cases in which creditors have attempted to enforce them as written contracts. But in the absence of an actual written agreement, this would not hold up in court.

No matter what type of debt contract you enter into, it’s important to read it carefully. No matter how reputable the creditor may be, it’s essential to know the terms to which you’re agreeing before you sign anything. It’s also a good idea to familiarize yourself with the laws governing the different types of debt contracts. If you need assistance, an experienced consumer rights attorney can help.

When a student applies for financial aid, usually the college will award the cost of attendance and/or a fixed amount.

For example, an undergraduate may receive up to $4000 per year (maximum total $20,000), while a graduate may receive up to $6000 per year (maximum total $40,000).  There are conditions, however.  The amount received depends upon financial need, if any other aid is given, and if the funds are actually available through the college.

It is important that a student does not borrow more than he or she needs.  Tuition, housing (if applicable), books, and incidentals are the important items for a student to consider when applying for a loan.

If you borrow more than is needed, that is more that you will have to pay back, especially if you have applied for an unsubsidized loan.  Think of the interest accrued!

The financial aid office will give the student the maximum amount he or she qualifies for.  That doesn’t mean that utilizing the entire amount is appropriate.  Also keep in mind that some loans have fees, such as the Stafford Loan.  These fees will be deducted from the loan before a check is forwarded to the college.

The best way to determine how much you need is to visit the college website and/or visit the college in person and make notes of approximately how much it will cost per year.  Once you have this information, apply for the loan as soon as you are accepted.

Make an annual checklist of expenditures so that you can keep a running record of how much you spend per year.  If you need to borrow additional funds, speak to the financial aid counselor to determine what type of loan you need and qualify for.

Keep in mind, too, that applying for an additional unsubsidized loan will require that you make interest payments while attending college.  This will cost less in the long run than letting the interest accumulate and paying a hefty sum after you graduate.

If you are interested to find out more, check out StudentLoansMentor to learn how to get a better loan.