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By STEVE BUCCI
bankrate.com
March 22, 2004
- Dear Debt Adviser,
I am a graduating college senior and I want to
know what is the best way to tackle student loan and credit card
debt. Right now I am only doing an internship and have very limited
monetary resources. Any advice will be greatly appreciated.
- Jackie
Dear Jackie,
Thank you for asking such a timely question. Not
only is it getting near graduation for seniors across the country,
but also my son is a graduating senior at the University of Rhode
Island this year!
In an economy where graduating seniors are receiving
short responses to long job applications, many recent grads share
your concern.
The world of credit and credit reporting is very
different from the academic one you will be leaving shortly. If
you cut a class, generally no one notices. If they notice, usually
no one cares, and most times you can make up for it in other ways.
Not so with credit. There is a multibillion-dollar industry that
notices every time you are late. They do care and making it up
will cost you big!
How do you tackle the dreaded debt? First, know
what you owe and the terms of repayment. While many student loan
programs offer grace periods of six to 12 months after graduation,
it is always a good idea to make payments as soon as you can.
Carefully review your individual loan plan in order to find out
when you must start paying back your loan.
Talk to your lenders to find out what payment options
are available to you and your situation. Most student loans have
established a variety of repayment options or consolidation possibilities
beyond the standard repayment plan. Also, if you do have a grace
period, you will want to be sure you plan properly so that you
will be ready to begin payments when the time comes.
Second, create a spending plan as soon as you know
your monthly cost-of-living expenses; remember to include your
student loan payment as part of your monthly bills. This monthly
payment must be just as important as rent, electricity, food,
clothes, gas and other necessities. With your situation, it is
not unusual to pay minimum amounts on these bills at first, but
as your situation (and income) improves, try to pay more. Carrying
student loan debt any longer than you need to just gets in the
way and slows you down.
The same holds true for credit card debt. The only
difference between these two types of debt is that, in general,
credit cards will have a much higher interest rate than your average
financial aid loan.
Bear in mind that credit card interest can add
up fast. For example, if you owe $1,000 at a 17 percent annual
interest rate and make only the minimum payment each month, you
will pay $979 in interest over 12 years. See the true cost of
paying the minimum on Bankrate's calculator to see how long it
could take to pay off your debt.
Try to pay off as much as you can every month.
You may have to crunch some numbers in your monthly spending plan,
but the sooner you can put a dent in your credit card debt, the
less you will have to pay in the long run.
Try to pay more than the minimum and put the brakes
on any new charging until you ditch the debt. Emergency spending
on a card is OK, but as I told my students, "If you can eat
it, drink it or wear it, it's not an emergency!"
My last word is: Don't be late with a payment,
and don't skip any. Making up is hard to do. And it will cost
you. Your current financial situation demands attention, and I
am pleased to see that you are taking it seriously.
Remember that a bad credit rating can prevent you
from getting a better job, securing a loan for graduate school
or obtaining a favorable mortgage interest rate for your first
home.
(Steve Bucci is president of CCCS Credit Advisors. Visit www.creditcounseling.org
or call 877-311-2227 for additional debt advice. The Debt Adviser
is a weekly feature of bankrate.com. Distributed by Scripps Howard
News Service.)
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