Question

1. Identify how student loan debt (or personal debt, if you don’t have student loan debt) can affect your:

• Credit score

• Future budget

• Spending goals/habits

2. Explain how managing your student loans (or personal loans and debt if you don’t have student loans) can contribute to personal financial success and growth.

3. Examine how debt influences your career considerations in the following areas:

• Salary

• Determining what you choose to negotiate

• Geographical location of the job

Answer 1

1.

CREDIT SCORE:

A credit score is a numerical expression that represent the creditworthiness of an individual based on a level analysis of a person's credit files.

A good credit score helps a person to get new loans, get credit cards easier, also help you to save money with lower interest rates or insurance premiums and could even help you rent an apartment or home. T

Student loans may be the first time they use credit and hence understanding how student loans can affect your credit is important.

As every coin has two sides, we can say that having student loan can help to improve credit score or may also degrade you credit score.

Student loan can improve your credit score in following ways

a) Student loans can establish credit. A student loan may be some borrowers’ first foray into the world of credit, and it could help them establish a credit history. Credit-scoring models require a minimum amount of data to generate a score, and having a student loan on your credit reports could help make you scorable rather than credit invisible.

b) A student loan can diversify your credit mix. Showing that you can manage different types of accounts, such as installment loans and revolving accounts (credit cards, lines of credit, etc.), could help your credit score. If the only debt you’ve had is a credit card, adding an installment loan in the form of a student loan can increase your mix of accounts and help your score. Likewise, if your only credit account is a student loan, opening a credit card might help your score.

c) Making on-time payments can help your score. Since your credit history is one of the most important credit-scoring factors, try to always make on-time payments as you repay your student loans. Doing so could help you build a solid credit history, which can lead to a higher score.

d) The loans can help build a lengthy credit history. Although it’s not one of the most important credit-scoring factors, the length of your credit history and the average age of your accounts can impact your credit score.

If you take out a student loan during your first term at school, you may wind up with years’ worth of credit history before graduating.

Student loan can degrade your credit score in following ways

a) Taking a loan implies opening of a new credit account which can lead to lowering of credit score for several reasons.

b) Student loans will also increase your current debt load. While the amount you owe on installment loans may not be as important as outstanding credit card debt, it could still negatively impact your score.

c) You might fall behind on your payments. Your payment history is one of the most important factors in determining a credit score. Being 30 or more days past due could lead to a negative mark on your credit reports that can hurt your credit score. If you’re repaying multiple student loans, missing a single payment to your loan servicer could lead to a late payment on each of your student loan accounts. Falling further behind could lead to a larger negative impact on your score, as your loan servicer reports your payments 60-, 90-, 120-, 150- and then 180-days past due. Unless you bring your accounts current, they could be sent to collections, which could be indicated on your credit reports and hurt your score more.

d) It can be more difficult to pay other bills. Missing a credit card, auto loan or mortgage payment could hurt your credit, as could rolling over a large amount of credit card debt, even if you’re consistently making minimum payments on time.

FUTURE BUDGET:

Having a student loan can effect the future budget as

a) You may not have the freedom to follow your passion.

b) You need continue a career which you hate as you have to compulsory repay the loan. So you don’t havbe any chance of escape,

c) In few cases, you will end up paying much more than what you borrowed

d) You might not be able to buy a home. It could prevent you from getting married or starting a family

e) It might delay your retirement

On the other hand

a) Using a student loan, can get you good education through which you can have a successful career in future.

b) It helps you to get a career through which you can earn money and invest in other opportunities.

SPENDING HABITS/FOOD:

When you take a loan may it be student loan or any other loan, one thing for sure you are bonded is that you need to pay installments in order to repay the loan. So a certain amount of money should be always dedicated only for the repayment in installments. Keeping in mind of money to be saved every month for installment, you need to spend less on food or any other thing as you budget of spending automatically decreases. So the original amount you spend on food or any other expenditure is obviously reduced when taking a loan.