Ask a CFP® Professional
Rebecca Schreiber, CFP®
Financial Planner
Solid Ground Financial Planning

Ms. Schreiber participates in the Wi$eUp Women program to bring financial education to the workplace.


Question:

"Hello, I am a college student with a serious problem- DEBT.

I have fallen into the tricks of credit cards early on during my college career, and my ENTIRE family has bad credit.  Ever since I was 19, I have maxed out on 3 credit cards, and I did not pay overdraft bank fees, leading to closure of accounts and negative marks on my credit report.

Currently I do not have a job, but I am looking. I believed that, as a nurse, I would get a job quickly and be able to pay all my debt off because there is a great demand for nurses.  That has not been the case so far.

However, I don't want to wait. I want to be financially intelligent and not dysfunctional. What steps should I begin taking to be a finanicially savvy sistah who can be debt free before age 27 (Im 22 now)?"

- DC Saver LS

Answer:

Hello, LS, and thanks for your question!

Many college seniors are eyeballing their graduation date worried that their student loans will kick in before their paychecks do. Learning from the experience of others will help shorten the personal finance learning curve leaving you with fewer debts to pay back and a head start on building strength. Climbing out of debt takes these steps:
 

1. Admit your mistakes and recognize where your money lessons come from. The financial decisions we make every day are based on fundamental attitudes about money and our opportunities to spend it. If growing up in a house laden with credit card debt has made you predisposed to bad credit, look outside your family for financial guidance. Find a money mentor, someone who has a handle on their money, and ask them how they do it. Once your credit is healthy again be sure not to co-sign on any loans with family. You have a much better chance of helping out in a crisis if you hold on to your good financial name.


2. Keep current. Check your credit report to determine which accounts are open, how much you owe and that you were the one who opened all the accounts. Go to www.annualcreditreport.com to see where you stand. When moving from dorm to dorm your statement may be going to an old address where someone can open your statement, request a new card and start charging up accounts under your name. Make sure all of your credit card accounts have the current address on file so you can pay the bills as they come in.


3. Stay focused. Paying off credit card debt is the #2 priority when graduating. It may be necessary to charge a bit more for office-worthy clothing and a move off-campus but keep the spending as low as possible. As the statements come in the mail, list the lenders, balances and interest rates on one sheet of paper. Prioritize your payments by interest rate with the highest rate getting first priority. Make timely minimum payments on all of the accounts and focus any additional cash on the highest priority debt. Use online banking to make the payments on time every month without having to remember them.


4. Don’t get ahead of yourself. The #1 priority when graduating school is to build up 3-6 months of debt payments in an emergency fund. Once you graduate you may be able to move home or stay with a friend and postpone rent payments for awhile. However debt payments wait for no man and you’ll have to start paying back student loans on top of credit card payments before you know it. 3-6 months of debt payments saved in cash will keep you able to make those debt payments and keep your credit score high in case you lose your current job or need to leave it behind. As employers check credit scores before they hire you, it’s important to be just as impressive in the background check as in the interview. An emergency fund also saves you from emergency debt, maxing out your cards and tanking your credit score.

 
Since you’re entering a strong field with promising job prospects there is great potential to pay down debt quickly. Now is the time to shore up your credit to get hired. First check your credit report to ensure no one has stolen your identity and to learn which accounts are still open. Start working as soon as possible, even part-time in a short-term job to bring in enough to make your payments and save an emergency fund. Then set up automatic bill-pay to make on-time minimum payments to all of your credit cards with the largest payment going to the card with the highest interest rate. Keep at it and soon you’ll be sitting on a cash cushion, stellar credit and the freedom to do the work you love.  

-Rebecca Schreiber, CFP®