Office of Enrollment Management

Managing Debt

What is Debt?

Debt is when one person borrows money from a lender. A lender can be a financial institution, family, friend, or business. The borrower pays the lender back the amount of money plus interest. Interest is the cost you pay to borrow money. Sometimes a loan is called a note.

Understand different loans (PDF).

These are the most common loans available.

The lender makes money from the borrower. When discussing the terms of the loan you may see both interest rate and annual percentage rate (APR).

The interest is what the lender is charging you to borrow their money. It does not include fees or other costs to the loan.

APR is the total cost of the loan, including fees and other costs.

Usually the APR is higher than the interest rate. Consider carefully before signing up for a new loan.

What will it cost you over the course of time? Is there an alternative way to purchase this item? Do you really need that loan? 

APR Calculator

Source: Calculator.net

 

It is easy to “Buy now, pay later.” These are installment plans. Consider online retailers that offer easy payments. It reduces the idea of how much the item costs and often interest is charged for this convenience. This means that the purchase will cost you more overtime rather than saving and paying for it upfront.

 

What will this loan cost me?

Want to know what something will truly cost you? Check out this calculator. Understanding the actual cost of the loan will provide a clearer picture for you and allow you to make a more informed decision. The choice is yours.

Did you know that you can shop around for the best interest rates and fees? Shopping around gives you negotiation power. The lender wants your business so understanding the loan terms and using them may help you reduce loan fees or gain a reduction in interest rates. Any reduction on these items will save you money overall.

 

What is the difference between a fixed and a variable rate?

Just like fixed and variable expenses, there are fixed and variable interest rates. Fixed rates are those that do not change over the life of the loan. It is agreed upon when the loan is taken out. Variable interest rates can change over the course of the loan. They can increase or decrease. Thus, the monthly payment on debt may change if the loan uses a variable interest rate.

Which is better? There is no right answer for this.

The advantage of a fixed rate loan is that your monthly payment will not change, but if the interest rates decrease over time, you will be locked in at a higher rate.

The advantage of the variable interest rate is that if interest rates decrease so will your payment. On the other hand, if interest rates increase, the payment will, too. This brings up another disadvantage to variable interest rates. You will not have a consistent monthly payment. This makes it harder to budget.

 

Secured versus Unsecured Loans

When a lender loans money to you they will want to be repaid. It is not a gift. Secured loans have collateral connected to the loan. Collateral is an asset or product that may be taken by the lender if the loan is not paid back according to the loan agreement. Examples of secured loans are auto loans, mortgages, and even pawn shops. An unsecured loan does not require collateral to obtain the loan. This means that the lender looks at a person’s credit history, often through a credit score, to understand the likelihood of being repaid.

 

College Cost Meter

MUSC will be sending out College Cost Meter Analysis reports to you in the fall and spring semester through your school email. This is to help you understand how much you have taken on in student loans and what it will cost you once you leave MUSC. As you see the predicted payment, use your budget to adjust your spending.