Five Ways to Dig Out of Your Student Loan Debt

February 5, 2016  |  No Comments  |  by Stephanie  |  Make More of Your Money

dig out of student loan debt

The average student loan debt is upwards of $30,000 for today’s college grad.  How you can possibly establish solid financial footing for the future when you’re struggling to keep your head above water in the now?

Here’s a five step plan to help you dig out from under student loan debt.

Make payments no matter what. You have to make at least your minimum monthly student loan payments in order to maintain your credit,avoid fees, and hold onto the interest rate your loan offers. American Student Assistance, a non-profit group, estimates that 60% of people with student loans miss payments and let their accounts fall into delinquency.

There may be months when missing a student loan payment feels like the easier path, but keep this in mind: You’ll  find yourself in even bigger financial trouble if you miss your student loan payment. Here’s why.

  • Private student loan missed payments could be reported to credit bureaus once the payment is 30 days late.
  • Late Federal student loans may be reported to credit bureaus once they’re past 90 days due.
  • Late payments bring your credit score down (though how much depends on what your credit score was before you missed the payment).
  • Late payments on your credit history (especially recent ones) make it tough to get approved for other credit products, including a mortgage, auto loan or credit card.
  • If you do get approved for a loan with a history of missed payments, don’t expect to borrow at a low interest rate.
  • Many private student loans charge higher interest rate once you miss a payment.

Know your loan options. If you don’t know whether your student loan interest rates are competitive, do some research to understand if you should consider refinancing student loans.  Betsy Mayotte, director of regulatory compliance for the ASA says to add up exactly what you owe, and to whom so you can look into potential repayment leniency programs. Federal student loans offer lots of repayment options based on your income, along with some repayment plans designed for teachers, attorneys,health care workers, and professionals who work for non-profits. Marketplace lenders like SoFi and Lending Club also offer lending options that may help borrow for less than what you currently pay  in interest for your student loans.

Use leverage to your benefit.  You want to get rid of your student loan debt quickly, but make sure it’s your most costly burden. If your student loan rates are  4% but you have credit card debt that costs you 12% interest, for example, you’ll fare better by making the minimum payment on the student loan and being more aggressive with the credit card debt. Simply put, the credit card debt costs you more to carry–even if it’s just $5,000 and your student loan debt is $20,000.

Additionally, some of your student loan interest rate payments may be tax deductible; interest you pay on your credit card debt is not. Once you pay your credit card debt off, you’ll have free up more money to pay down student loans. Then, start using cash so you don’t charge your way back into debt.

Focus on improving cash flow. You can improve cash flow if you’re willing to work for it. There are a lot of ways to come up with more cash: Take on a second job, minimize your costs of living, and/or pay off costly debts.

Start small; identify a fixed number of additional cash you can realistically come up with each month. Let’s say it’s $200. Each month, you can choose to save it, or put it towards your most costly debt. Either way, you’re investing in your future: The emergency savings fund reduces the risk that you’ll have to charge an unexpected expense on a credit card, which could end up costing you even more when you factor in credit card interest charges. Paying down the debt gets you one step closer to reducing what you owe.

Invest in your retirement. Why would you invest in your retirement account when you need money to pay down your student loans? Three reasons: Compounding interest and the power of time, and the tax benefits associated with retirement contributions. You can put up to $18,000 a year into your 401(K) plan, or $5,500 a year into a ROTH or IRA. Both should help to lower your adjusted gross income (AGI), which could reduce how much tax you owe. Plus, whether your student loan interest payments are tax deductible is based on your income. If you’re single, you’ll have to report less than $80,000 to taxable income to claim it.

As far as the power of compounding interest, the little bit you put away each month into your retirement–especially if you invest into stocks or low cost mutual funds should grow over several years. Yes, it may take years to resolve your student loan debt. But once you do, you’ll be glad that you invested simultaneously, so you have a nice chunk of cash waiting for you.


Using a Debt Calculator to Pay off Post-Holiday Debt

January 4, 2016  |  No Comments  |  by Stephanie  |  Make More of Your Money

debt calculator


If you used a credit card to finance your holiday purchases and don’t have the cash to pay your balances in full, now’s the time to form a plan for how you’ll dig out of holiday debt. (Or any debt you’re ready to shed, for that matter).

Despite the many apps and budgeting software tools that now exist, a debt calculator is one of the most effective tools you have at your disposal. With it, you can plan your debt payoff strategy based on what you owe, and what it costs you. Plus, it’s completely free, and requires almost no financial literacy on your part.

Here’s a step by step guide to using a debt calculator to pay off your debt.

Gather the hard numbers. Compile all of your credit card statements and take note of two key pieces of  information on each statement: The total balance owed, and the interest rate each card charges. Create a five column list that includes:

  • The name of the creditor (ie, Chase Freedom card)
  • The minimum payment due
  • Total balance owed
  • Interest rate associated with the card
  • Payment due date.

Sort the list so that the card with the highest interest rate is on top. The credit card with the second highest interest rate should follow, then the third highest, etc.

Total the sum of what you owe.  Add the total amount of your debt. It may not be what you want to see and quite frankly, it may give you anxiety. But you need to know exactly where you stand, in order to plan your way out of debt.

Figure out what you can afford to pay.  Check in with your budget to calculate your monthly take home pay.  Write down all of your fixed costs. These are essentially those that are unlikely to change significantly, in the short term. (Think utilities, car, house, and student loan payments). Then, create a list of monthly expenses that could be eliminated or reduced fairly easily (assuming you are willing to make some lifestyle adjustments). This will usually include costs like phone/internet, cable, gas, groceries,  gym memberships and miscellaneous expenses like entertainment, and travel.

Play around with some different payoff scenarios to see just how long it will take you to get out of debt, based on how aggressively you plan to pay your balances down. Subtract your monthly take home pay from your fixed expenses. In theory, this is how much you could pay to debt each month, if you were willing to eliminate many unnecessary expenses. Using that number, subtract your unfixed expenses total. This is what you currently have left to pay towards debt, assuming you do nothing to change your current budget and spending.

Consider the difference in the two numbers. Are you motivated enough by the thought that you could have a lot more money to pay off debt than you realized (which ultimately becomes cash flow), if you make some changes to your budget?

Plug the numbers into a debt calculator (CNN offers a free version that’s easy to use). You’ll get a sense for how long you’ll be in debt, based on what you pay each month. Like knowing the sum total of your debt, understanding about how long it will take you to get out of it based on what you pay can be a depressing view. But it’s the first step to financial freedom. Only when you know where you stand can you can decide how and when you’ll get out of debt.

Maximize the Value of Your Debt Payments.  Despite what debt consolidation services promise, there are but three ways to get out of debt:

  1. Reduce expenses so you can put money towards your monthly debt.
  2. Make more money
  3. Maximize the value of every dollar you put towards your debt balances by tackling the most expensive debt first. Revisit the list you created in step one. If you pay as much as you can towards the first creditor on your list, regardless of the balance owed, you’re tackling your priciest debt first. Though you’re still making the minimum payment due on your other cards, this is the quickest way to put a dent in the debt, because you’re eliminating that which costs you the most.

Learn how to use credit cards responsibly. Cutting up your credit cards will not make debt go away. Freezing credit cards doesn’t remove spending temptation (especially now that you can store your credit cards in a website, or pay using your mobile wallet). Closing credit card accounts won’t help your credit score; it can actually lower your credit score.

So what does help manage credit card spending? You. More specifically, your behavior, and your financial attitude.  Just as a dieter who successfully loses weight will gain it back if they fall into their old habits of mindless eating and not exercising, so will a person who pays down credit card debt but doesn’t change their financial lifestyle.

Consider the personal “triggers” that got you into debt in the first place. Do you tend to avoid thinking about money because it makes you feel vulnerable? Do you spend to resolve stress? Do you live beyond your means to keep up with social pressure? These are all common reasons for spending. But all can be resolved if you understand what leads you to spend. When you can be aware of the factors that lure you into bad spending decisions, you can proactively take control of your financial life.

5 Warning Signs to Get Out of Debt Before It’s Too Late

August 20, 2015  |  No Comments  |  by Stephanie  |  Make More of Your Money


Most people have some kind of debt–whether on a credit card, student loans, an auto loan, or a mortgage. And not all of that debt is a problem. But when your debt climbs to a point that far outweighs your income, starts to lower your credit score,  puts you in jeopardy of missing monthly payments and keeps you up at night, it becomes a problem that’s tough to solve.

Yes, there are debt consolidation options, private loans, and other financing options to get out of debt, but unless you’ve got a really generous neighbor willing to lend you some cash, no debt relief option that comes through a third party is free.

So what’s the easiest way to get out of debt? Spot the trouble signs before it snowballs. Here are five surefire signs you’re in the debt danger zone–and how to manage your growing credit card balances before it’s too late.

Debt Warning #1: You’ve taken advantage of low interest balance transfer offers–but barely made a dent in your credit card debt. Low interest balance transfers offers aren’t inherently bad. They can help you eliminate credit card debt faster than you would by making monthly payments on a high interest rate credit card, and probably at a lower cost. But for that low interest rate to work to your advantage, you must commit to being aggressive about your debt payoff strategy.  That’s because most low interest balance transfer offers are valid for a limited time only. During the low interest rate time period, the monthly payments you make  will help you gain some momentum in paying off your credit card debt–but you have to make as big a payment as you can afford during that time period. Otherwise,  most of the credit card balance you transferred will remain when the low interest period ends. It could be subject to  as much interest (or more) than it was you were before you made the transfer–and you’ll stay on the credit card debt treadmill.

Debt Warning #2: You spend about 20% of your income on debt. Whip out your calculator and log in to your online banking: What’s 20% of your monthly take home pay? Does your non-housing related debt (like credit card monthly payments, car and student loans) add up to more than that number? If so, start managing your debt before it’s too late. That means pay way more than the minimum on your highest interest rate debts, limit your monthly spending–or find a way to make more money. It’s really that simple.

Debt Warning #3: You’re using  more than 30% of your available credit. Your credit card company has given you a $10,000 credit line; why not use it all? I’ve got plenty of reasons. For starters, your credit line and what you can afford are two very different things. According to MyFico, your credit balance compared to available credit shouldn’t exceed 30%. For a cardholder with a $5,000 card limit, for example, that means should never charge more than $1,500–even if you pay it off in full at the end of the month.  Once you use more than 30% of your credit, your credit score could be lowered, and you may find competitive loans harder to come by. Basically, it tells lenders you’re living beyond your means, and you’re a greater risk. Do the math, see where you stand and if you’re over the 30% limit, change your habits.  To boost your credit score, pay your creditors before the statement close date; your lower balance will get reported to the credit bureaus. Then, stop using credit for new purchases altogether until you’ve paid down the balance. Not only will it “self correct” any tendencies to overspend, you’ll make more progress in getting your debt utilization back in check.

Debt Warning #4: Your credit card balance is bigger than the one in your savings account. Yes, deposit interest rates suck. But your savings account isn’t a place to make money; it’s a place to invest in the uncertainty of your future. If your debt is greater than what you have in a liquid savings account, it’s time to spend a little less and save more.

Debt Warning #5: You won’t look your debt in the eye. Don’t want to open your credit card statements when they arrive? Avoid a budget or adding the total cost of your debt like the plague? I’m willing to bet you have too much debt. Like most things in life, we tend to know more than we think. You know when you’re overextended. Forget about what brands are in your closet, or the car you drive compared to your friends. Money should not keep you up at night. If it does, take control. Figure out what you owe, what you own, and what you can really afford in order to feel good about your financial security. What you see might not be a positive picture at first. That’s okay. It takes small steps to make big progress. The more steps you take in the right direction, the further you move from the wrong one.


Should You Open a Target RED Card?

August 11, 2015  |  No Comments  |  by Stephanie  |  Make More of Your Money

target redcard

If you shop at Target frequently, you’ve likely been offered the option to save 5% on your purchase that day—and every other time you shop at Target—if you apply for and open a Target RED Card. Typically, there’s one answer to stick to when you’re offered a store-branded credit card: “No thanks.”

Why? Because store-branded cards generally come with more baggage than they’re worth, including high interest rates, low credit lines, and few benefits (other than discounts designed to tempt you to spend on things you may not really need). If you’re overzealous with offers to apply for store credit cards, you could even lower your credit score.  (Too many “hard” credit inquiries–like those that take place when a creditor performs an “instant credit” check– can lead creditors to perceive you’re desperate for cash).

On the other hand, the facts are the facts. Regardless of the rewards credit card you use the most, Target purchases are probably excluded from points programs—even when your credit card touts the ability to earn 5% on department store, or grocery store purchases. Don’t believe me? Read the fine print on your rewards cards’ program details.

To level set, there are two types of Target RED Cards. One is a credit card, the other is a debit card. If you don’t have complete confidence that you’ll pay your balance in full each month, go with the debit card. You’ll still save 5% on your purchases, and the money comes right out of your checking account. Otherwise, I advise the credit card. Why? Because credit cards offer more protection against fraud. By law, your liability is only $50 if your credit card is lost or stolen or otherwise compromised, and charges are made on it without your authorization. Though you have some protections with debit cards, the laws are far less robust.

Regardless of which you choose, owning a Target RED Card may mean that you’ll at least save 5% on your purchases, that you won’t be rewarded for  otherwise. Is the Target RED Card the one store-specific offer you should say “yes” to? I spoke to some RED cardholders for their take on the benefits, and drawbacks of this card.

Susanne Whited of Colorado Springs, Colorado has been a cardholder since 2011. She says that though the RED card sends her special offers in the mail, she doesn’t usually use them (to avoid temptation). She pays her card in full each month to avoid interest rate charges—which is key, given that they’re nearly 23%. As a result, she really does save 5%, and generally buys sale items to maximize her savings. Though she does say she is mindful not to overspend, she admits that she doesn’t shop around like she once did, because of her Target RED card.   “My biggest issue is that I frequently get $5-$20 gift cards with sale purchases and I do not want to redeem them because I do not get 5% off. My solution? Now everyone gets Target gift cards as gifts from me,” says Whited.

Though Hilary Kline has been a Target RED cardholder for just a few months, she has equally good things to report: “For someone who shops at Target regularly and pretty often (sometimes 2-3 times a week), getting the card meant that I would be saving money. For each purchase, you get 5% off – even when you make a big purchase.”

Like Whited, she says she does use the card more than she
normally would because she knows she is saving money—but she also uses the “Cartwheel” app on her phone to save money in tandem.

Emily Hawkins has had the Target RED card for two years. Though she says the discounts she receives as a cardholder “are not huge” compared to other branded cards which send high value coupons and the ability to earn rewards points for purchases, her favorite part about the card is that it allows free shipping on all purchases with no minimum. In fact, she says she’d recommend the card for the online benefits alone.

I could go on, and I think it’s worth sharing that of the ten Target cardholders I spoke to, not a one had a complaint.

Personally, I’m sold. How about you? Will you get a Target RED card?