Credit Card Debt and Student Loans; How to Manage It all After Graduation
The one thing most college students have in common is money; we have very little and we’re all striving to make a lot more in the future. We are living examples of the expression “you have to spend money to make money.” And boy, are we spending money! College loans can often result in large amounts of credit card debt for many students. “In these tough times, a college degree is still your best bet for getting a job and decent pay,” says Lauren Asher, the President of The Institute for College Access and Success (TICA), the parent organization of the Project on Student Debt. “But, as debt levels rise, fear of loans can prevent students from getting the education they need to succeed. And, if they do need to borrow to get through school, federal student loans, with options like income-based repayment, are the safest ways to go.”
According to a report from the Institute for College Access & Success’ Project on Student Debt, roughly two-thirds of the national college class of 2011 graduated college with loan debt, owing on average $26,600. That’s a lot of dough-and it’s going to take a long time for most college students to pay it off. This may explain why recent college graduates are often more than happy to spend the remainder of their twenties living at home; in fact, the idea of being kicked out after reaching a certain age is often frightening to those facing large amounts of debt. “If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,” says Lucia Dunn, co-author of a study done on credit card debt amongst today’s generation. “Our projections are that the typical credit card holder among younger Americans who keeps a balance will die still in debt to credit card companies.”
She’s talking about our funeral—and we haven’t even graduated college yet! But despite such grim projections, and even with graduation just around the corner for seniors, there’s no need to panic over college debt. Financial aid specialist Kim Clark offers some helpful tips on how to manage your debt:
- Check out your future salary: See how much you can reasonably afford to put toward debt payments once you graduate. If there’s a good chance your payments will leave you with very little to live on, you should rethink your plans by looking for less expensive schools or better financial aid.
- Investigate the growing number of loan repayment or forgiveness programs: Certain graduate schools, employers, and professional organizations offer these programs. Look into what they have to offer, and take it into consideration when making your decision.
- Consolidate your federal student loans: Apply for Income-Based Repayment. This new program allows debtors to cap monthly payments that are below 15 percent of their income.
Student loans often have very low interest rates, paying those off as soon as possible is the smartest thing you can do in order to avoid paying the loans back with high interest rates later on. Dunn feels paying more than the monthly minimum is a wise choice. “Raising the minimum payoff rate can have a powerful effect on how people actually pay off their credit card debt, much more so than you might expect,” she says. “They may see the increase in their minimum payment and start feeling uncertain about their future ability to pay off their debt; that may encourage them to pay off even more than they have to, in order to bring their debt level down.” Getting your student loans paid off, and out of your way is the best thing you can do when it comes to managing credit card debt.
The fact of the matter is that debt from student loans can often be unavoidable; a college degree is the best chance you have at obtaining your desired career in the future. Although the debt from loans can seem overbearing, it is a small price to pay for gaining a career you will love someday—although it seems like a large price to pay right now.