Student Debt and Credit Education Blog

In light of the environmental crisis afoot in the Gulf, it becomes clearer and clearer that steps need to be taken to protect ourselves well in advance of a problem’s appearance. As much as this applies to offshore drilling and many other environmentally-destructive industries, there are lessons to be learned in your personal finance as well.

Much like a gushing well deep under the ocean, unmonitored credit debt swells and compounds on itself until it becomes so toxic that your finances may not recover for years. Worse still, there usually is collateral damage to other things as well like your standard of living and ability to take out loans for school or things you need. Therefore, prevention and careful planning becomes paramount to harnessing the power of credit for good and avoiding nasty consequences for its misuse. (more…)

The prime interest rate is a baseline number that is established by a bank. Essentially, it represents the best possible interest rate it would lend to the créme de la créme of their clientele. With this interest rate in hand, banks then a spread (modifier such as +X%) to determine rates for less creditworthy applicants.

One common misconception about prime interest rates is that they are independent of the banks and prime is the same everywhere you go. This is absolutely not true and can get you in a lot of extra debt if you don’t do your homework.

The most commonly used “prime” rate by banks is established by the Wall Street Journal. WSJ calculates the rate based on a survey of the top 50 banks conducted regularly. However, it is important to know this is not the true prime interest rate, as the US Prime rate is actually the fed funds rate + 3%.

The Simple Explanation:

Banks are the most risk-conscious businesses, period. They are neurotic about it and thus are constantly watching what everyone else is doing to make sure they aren’t over or under-extending themselves when lending money to normal people like you and me. The prime interest rate allows them to see an instant picture of the risk currently present in the financial industry and adjust how much they are willing to add or chop off of that rate to keep customers flowing in.

Simply put, when looking at loans, credit cards and anything else with an antagonistic interest rate (goes against you, not for you like a savings account), pay attention to what prime rate the bank uses and what spread is tacked on. Always try to get the lowest rate possible.

If you have a credit card, it is common knowledge that paying the balance off quickly is desirable and benefits your credit score. However, did you know that thanks to new legislation that was passed in February, paying more than your minimum can actually save you more money than before?

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 has a provision that specifically states that any overpayment made on a credit card MUST be used on the balance with the highest APR*. Before this law was passed, a bank could go ahead and apply your extra payment to whatever APR tier they wanted; this would minimize the impact of dedicating more of your income to paying down your debt.

*If you want to learn more about APR, check out our Credit Education Center article on annual percentage rates. (more…)

Being worried about credit is completely normal and honestly, fairly justified in our current economic state. At Student Platinum, we’ve put together a pretty extensive suite of credit education articles to tackle some of the more common questions and provide you, our readers, with as much unbiased and factual information as possible.

Here are a few selections that have gotten popular feedback: (more…)