No one can argue that current economic times are tough. But recent survey result shows that times can be tougher for fresh college graduates. According to a recent survey from the National Association of Colleges and Employers, just about 20 percent of 2009 graduates who applied for a job actually have one; accompany this with the report from Sallie Mae that an average student is graduating with over $3,000 in credit card debt — and you’ll have the perfect recipe for financial disaster.
How can you avoid this potential financial disaster if you’re graduating with credit card debt? Here’s five ways to take control of your credit card debt so you can get a fresh start on the new chapter in your life:
1. Continue living the college lifestyle. If you enjoyed living like a college student, then showing refrain from upgrading your lifestyle will make it easier for you to combat your credit card debt. Other cost-saving actions such as having a roommate and taking public transportation are ways you can further keep more of your dollars in your pockets so you can pay more off your debts.
2. Tackle the highest interest rate credit card debt first. If you unfortunately have more than one credit card debt, you should always pay the highest interest rate card first. Spread out your statements and check the line where it shows the Purchase Annual Percentage Rate. Find the highest APR card and make that specific account your first debt to tackle.
3. Establish an emergency fund. Although an emergency fund may be the last thing on your mind because of the debt you’re carrying (student loans and credit cards) — having an emergency fund can be crucial in unexpected time to prevent the further accumulation of debt. Determining the amount you should save up for the emergency fund will depend on a few factors. 1) How stable is your current income source? 2) Do you have other financial responsibility such as children or a home loan?
A general rule of thumb for the amount of emergency fund is 3-6 months worth of income. For those with more financial responsibility or job outlook that may be uncertain, you should have a larger amount of emergency fund stashed away. If you feel that you’re in real financial hardship with your loans and credit card debt, try to put away at least a month’s worth of income as an emergency fund so you have a ready source of cash to draw from when the car breaks down or the laundry machine goes kaput (instead of tackling more charges on the maxed-out credit cards).
4. Take advantage of lower rate cards to transfer balances. This is a tricky step that will require great care, but it has the potential to save you thousands of dollars in interest rate per year if you execute the step correctly. If your credit card has an interest rate over 13%, you should consider finding a new credit card with lower interest rate or a card with a promotional offer that offers significantly low rate (think 0% or 1-2%).
Depending on your credit worthiness, your ability to apply for these balance transfer cards will vary. You can also consider approaching your parent or spouse to open a joint account credit card with you. Finally, when transferring balance to save money on interest, you should consider cards without annual fees, pay extra attention to timely payments (so that your new low rate balance won’t have its rate increased), and select cards with introductory low rates that has a time frame you’ll be able to handle (e.g., 6 months might not be enough time or savings in interest to make opening a new account worthwhile).
5. Sock-drawer credit cards until they’ve been paid off. Taking on new credit card debt will be a sure-fire way to make the debt repayment an impossibility. While you’re paying off the cards with the highest interest rate first, consider switching your spending device to a check/debit card (cold hard dinero works too). Sock-drawer your old cards, hide them, use credit card sleeves (with reminder message), or freeze the cards in ice — whatever you do, make sure you don’t do yourself a disservice by adding oil to the fire.
Do you have other tips for fellow graduates on managing credit card debt? Please feel free to leave a comment below. Sharing is caring :)
photo credit: CarbonNYC