Thursday | February 09, 2012
Three Steps to Get the Debt Monkey off Your Back
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By
Jacquelyne M. Williams
28 June 2006
One Sunday afternoon, in 2003, during a conversation with my friend Jeannette, neither one of us could hold back our tears as we realized that we couldn’t do what we wanted because of our financial situations. I can still remember Jeannette saying that she couldn’t even afford to get her mother a card and flowers for Mother’s Day.
Now, that hurt. But boy did it hit home. On a monthly income of $800, I had racked up more than $2,000 in debt spread over one credit card, two charge cards, a medical bill and money owed to a bank. Oh, and did I mention my rent was $500? The debt monkey was not only my best friend; it was also my Siamese twin and my shadow.
Jeanette and I decided to break our apartment leases and move in together. That’s when I realized that a) I was not alone and that b) I needed to do something about it. Suffering from severe anxiety or even worse an emotional collapse due to debt is not how college students –or anyone else– should live their lives. So, what’s a student to do?
MasterCard’s website offers the following three suggestions for getting out of debt:
1. Stop spending and start paying off debt
2. You need to be honest about how you got into debt in the first place and start dealing with your finances
3. Set goals and do whatever you need to do to become debt free
Get on a budget
According to yourcreditcardcompanies.com, a group of financial services companies that promote consumer credit education, students should create a monthly budget and do their best to stick to it. And read! I read financial books on everything from starting a budget to using coupons and cutting costs. I had to swallow my pride and admit that I really didn’t know the basics of finances.
In his article, “9 Steps to Get Organized for Financial Success,” author Scott Bilker suggests paying bills every two weeks…on payday. Knowing that I couldn’t make the minimum payments and that my credit score was shot anyway, I would send my creditors whatever I could afford, sometimes $10 or $20 each payday
Your credit score, also known as a FICO score, is what companies sometimes look at when determining whether or not to give you a cell phone, rent you an apartment or even hire you for a job.
It’s made up of five factors: payment history (35 percent), amounts owed (30 percent), credit history (15 percent), new credit (10 percent) and type of credit (10 percent). You can go to myfico.com for further information.
If you get blessed with a better paying job or come into some extra money, then use that cash to attack your debt. That’s exactly what I did when I got a new job paying $400 more a month than I had earned previously.
Honesty is still the best policy
James Williams, a counselor at Financial Counselors of America, said credit card companies want college students to get into loads of debt for two reasons, “They’re betting on the young people to make a lot of money once they’re out of college and that’s how they’ll pay off the debt or their betting on the parents to bail them out.”
When overwhelmed with debt, and you don’t want your parents to know, you may consider using a consolidation company. Williams suggests three things that you should look for. The company should be non profit, have a monthly fee of no more than $25 and the average length in the program should be about four years. He said that other consolidation companies are making promises that they can’t –or won’t– keep and he’s spending more time cleaning up after them. Not checking these companies out beforehand can cost you a lot of money and could negatively affect you credit report.
My former pastor, a financial banker in Florida, once said, “If you can’t handle a checking account, then maybe you shouldn’t have one.” And for more than a year I didn’t. But when I finally had my money under control I opened a savings account, deposited my paycheck and kept only what I needed.
Long term goals
According to the 2005 Credit Ed/Harris Interactive Financial Literacy Survey, 72 percent of college upperclassmen have not requested a copy of their credit report. Your credit report contains info about you such as: your current and past addresses, your Social Security number, date of birth, employment history, what accounts you have open and their standings (good or bad), and which companies have inquired about your credit. As a way to stay on top of my information, I order mine every year as a birthday present to myself. Students can get a free copy of theirs by going to annualcreditreport.com.
Students should also keep at least $1,000 in a savings account, preferably at a different bank. That way if you really want the money, you’ll have to go out of your way to get it.
© 2008, Young Money Media, LLC. All rights reserved.
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