Deep in debt after college: Where to start?

With multiple debts in default, but better job prospects, it's time to get a plan

Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Dear Credit Smart,
Hello Susan, I am currently in debt to the tune of $33,000. I have $22,000 in student loans and about $11,000 in credit card debt currently in collections. For my student loans, I have been taken out of delinquency for one account for $10,000 and the other account I have requested forbearance. I am not paying anything on my loans due to my low salary last year of $11,000. Regarding my credit in collections, I was paying on one account and then I lost my job. I quit paying on that one account and then never started with the other accounts. In total there are about four collection agencies.

I struggled after college to find steady employment and tried my best to ignore the debt, big mistake. The $11,000 in credit card debt /collections is now showing to being removed off my credit report. My credit score is in the low 500s. I have a new job and should be making close to $30,000. I have been budgeting and doing quite well with my budget and saving. I have no problem sacrificing my wants now for a better future.

I’d like to tackle this debt before moving on in my life. What is the best way to handle this situation? Thanks. – Vincent


Dear Vincent,
I commend you on your resolve to take care of your debt now that you are in a better position. You are correct that ignoring debt is not a solution. You are also right to understand that your credit score will become more important as you move forward, especially when it comes to large purchases like homes and vehicles.

It is true that given enough time, certain debts will drop off your credit report when the statute of limitations has been reached. However, one debt that will not go away is your student loan debt. Even with forbearance, these debts will go on and with interest will continue to grow. This is debt that cannot be discharged even through bankruptcy.

 It does appear that some or all of your credit cards may be close to falling off of your reports; I say “some” because according to your question you continued to make payments on one account after you quit making payments on the others, so that one account would take longer to fall off your reports. At this point I would not suggest that you make any payments on any of these cards until you decide what you are going to do, because that will start the clock ticking again on the statute of limitation. I am not saying that the debt is not still owed and if you are dealing with collection companies, I am sure they will pursue you as long as possible to recover at least a portion of the debt that is owed. This could very well include legal action, so you want to be careful to not ignore any court notices. If that happens, you will need to seek legal assistance.

In the meantime, my suggestion is that you contact a nonprofit credit counseling agency that is equipped to deal with both your credit card and student loan debt. Because student loan debt has become such a problem for many, there are several agencies associated with my organization, the National Foundation for Credit Counseling, that can assist you with both.

A counselor will go over your entire financial situation and help you come up with solutions that you might not be aware of, especially when it comes to your student loan debt. Having your credit card debt in collections also poses some unique challenges that a good counselor can help you navigate. Your counselor cannot give you legal advice and it could be that after the review they will suggest you talk with an attorney.

No matter the course you take, there will certainly be sacrifices to make. I am glad to know that you are prepared for that and wish you the best of luck.

Remember to always use your credit smarts!

See related: Credit counselors turn to student debt, Restoring credit score after student loan default

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Updated: 11-20-2017