Credit Scores and Reports

8 steps toward recovering from youthful money mistakes


A reader wants to pay off her card debts before going back to school. Our expert lays out an eight-step plan to help her do just that

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Question for the expert

Dear Opening Credits,
I am 28. I was uneducated about credit in my early 20s, and have been paying the consequences. I owe $12,000 on my car loan at 14.45 percent. I owe $7,600 on another vehicle at 9.99 percent. I have three major credit cards and a few revolving credit lines; all at 25 percent. The sum of the debt on the cards with balances totals $3,150. I also have $27,000 in student loans. I make less than $30,000. I want to pursue a master’s degree. I am committed to paying my debt on time — and sometimes paying 2 times the minimum due or more. I have a subprime score. Many suggest bankruptcy, while others have suggested consolidation. I’m afraid of both. I prefer to have credit debt paid off before I return to school. Should someone with the high interest rates I already have just go ahead and file bankruptcy? Consolidate? Any other suggestions? — Ms. Blackstone

Answer for the expert

Dear Ms. Blackstone,
It drives me nuts that personal financial education isn’t incorporated more robustly into school curriculum. We have truly failed our students in money matters. It’s so important, too, as it’s not like most kids can rely on their parents to guide them in the right direction — after all, mom and dad are often iffy on the details, too!

Well, that’s the situation, and it looks like you did make some uninformed — and not so great — decisions because of it. It’s up to you to understand the ways of money, and it would have been nice if the training had happened earlier, but let’s get to it now. You’re still young and have a lot of great options for resolution. Here’s what I think you should do:

  1. Sell one of your cars. I can’t imagine why you really need two vehicles. Keep the most-reliable car, and when your credit improves, refinance the rate.
  2. Keep whittling that credit card debt away. When you get rid of one car payment, you can apply that cash to the balances you have on the cards. Pay $300 per month and you’ll be debt-free in just one year.
  3. Increase your income. Can you work a second job to amass some extra cash? Look into all the ways you can earn more, at least on a temporary basis. When you do, pay even more to the credit cards.
  4. Save a bit of cash. Yes, even while you are paying down what you owe, I recommend setting a small amount aside for yourself. Only concentrating on debt can be so depressing — regularly adding a little to a savings account can keep you positive and on track.
  5. Ignore the bankruptcy talk. It would absolutely absurd to declare bankruptcy for such a small debt. Not only would you be stuck with your student loan balances — they are almost impossible to discharge — but you may not even be allowed to because of the  means test you’d have to pass.
  6. Call your creditors to lower your rates. When you’ve made a significant dent in the balances and have set an impeccable payment history, you are ready to call your credit card companies and ask for a better rate.
  7. Pay off your remaining car loan, then concentrate on the student loan. Even with the refinanced rate you may be able to get on the car loan, chances are it will still be higher than the student loan. It makes sound mathematic sense to repay the most expensive debts first, so when you’re done with the credit cards, arrange the remaining debts in order of cost. You may also choose to consolidate your student loans, but make sure the rate you get is better than the average of what you have now.
  8. Pursue grad school frugally. I think it would be best to pay off your car and consumer debt before starting your master’s program, just so you have that off of your plate. Then go easy on borrowing more for school. You don’t have to take out the maximum award. You clearly now know how stressful it is to graduate with a lot of debt, so think of the future.

Finally, Ms. Blackstone, get smart about money today! Budgeting, credit, saving and investing are not topics that people just naturally know; they must be actively learned. It doesn’t matter what one’s profession is or will be, everyone should familiar with financial fundamentals. Check out a personal finance or economics book once a month from the library. Read what’s going on in the world of banking and lending right here at Accurate, easy-to-understand, interesting information exists for free — and it doesn’t come from people who suggest bankruptcy when, with some adjustments, you can clearly afford to pay your bills.

See related:Credit card debt or car down payment: What to do?, Cure your defaulted student loan in a few steps, Negotiate a better credit card APR, 14 key considerations during bankruptcy, 8 things you must know about credit card debt

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