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Managing Debt

By KSU Counseling Services Staff

College students in the US are said to be carrying plenty of student loan debt, credit card debts and car loan debts. Recent statistics suggest that college students graduate with around $20,000 debt on average. Graduate students often carry even more, particularly in terms of college loan debts.

Personal finance professionals suggest that students stay up-to-date on all their regular bills first. After all those are addressed, you are then encouraged to pay down so-called negative or “toxic” debts. The more expensive debts should usually be paid down first.

What is "Negative" Debt?

Payday loans, of course, should be paid down first as these are the most expensive kinds of loans out there currently. Once these are paid off, no new payday loans should be taken out, as these are considered highly negative debt because of their cost.

Credit cards with high interest rates are considered toxic debt. These are very expensive to maintain, and any late payments may tip the costs of some credit cards into even higher interest rates. The most expensive credit cards should be paid down first, and the lowest-cost credit cards should be paid down last. Once the cards have been paid off, avoid accruing any debt that cannot be paid off monthly.

Personal loans, car loans, and furniture loans should be retired soon after the payday and credit card loans. These consumer debts tend to be expensive loans as well, without redeeming qualities.

What is “Positive” Debt?

Relatively speaking, long-term, low-interest loans like student loans and mortgages are viewed in more positive light because usually the student loans lead to higher paying jobs, and the mortgages often to go homes that over the long term tend to appreciate (increase in value).

Student loans should be retired once the consumer loans have been settled. The sooner these are paid down, the sooner the new graduate can focus on other life goals and ambitions that involve financing—like a new home, new car, and a new career. Student loan obligations are generally not erased in bankruptcies, particularly if they are guaranteed government funds.

Mortgages have some benefits in terms of being able to write down some interest paid on these when it comes to federal taxes. Debt that is put off accrues and becomes more expensive over time. Debts can be a drag on people’s lifestyles. They can be stress-inducing.

Other Financial Goals

Personal finance professionals do suggest the building up of an emergency fund of at least $500. Ideally, students should have six months of emergency funds that will allow them to survive for that period without an in-flow of cash.

Students who’ve graduated should also be saving for retirement through their employers and individual retirement accounts (IRAs).

© All staff articles are used by permission of the respective author(s). Copyright belongs to the University Life Café. No part of this may be used without authorization.

Managing Debt (pdf)