Q: I graduated with my degree last year, but I’m in a world of debt. Right now I have $22,000 in subsidized Stafford student loan debt, and $17,000 in credit card debt from covering what FAFSA, SNAP, and a part time job didn’t. My current income is enough to keep a roof overhead and put food on the table, but it’s really, really tight. I took a new job that pays me a lot more, and I will have about $1,500 more at the end of each month starting in September. I’ve been trying to figure out which debt I need to hit first, and can’t decide – can you give me some clues?
A: Congratulations on the new job! I’m glad that you are making professional progress and can see a light at the end of the tunnel. The first few years after leaving school are some of the hardest anyone will ever experience, especially with piling credit card debt on top of that. Let’s also keep in mind that I can’t offer you my best legal advice in this forum. In order to do that I would need to see you in my office, go over your paperwork, and ask you some more questions.
In order to decide which debt to pay first let’s take a look at the interest rates on both. You didn’t mention if you have a consolidation for your student loans, so I am going to go with the interest rate that was raised this past July. Right now the interest rate is 4.45 percent, and you are paying close to $1000 a year in interest on your student loans. Your credit cards are another matter, and if you have a regular student credit card you could be paying close to 20 percent in interest on that $17,000 figure – roughly $3400 per year.
In my opinion, knocking down that credit card debt is going to be more beneficial to you. If you can pay down the balance using one third of that $1500 discretionary income per month, you will save a lot more money, and have a lot fewer headaches. You did not mention if that is the balance on one card, or spread across multiple cards. If the balance is spread across multiple cards, a consolidation loan can help by pushing everything into one lump sum, one interest charge, and one payment. Once those cards are paid off, you can also start shopping around for a much better interest rate.
A lot of people are facing student loan debt and credit card debt simultaneously. It can feel overwhelming to have to stretch every dollar to do double duty. If you are struggling with your student loans and credit card debt, call us at Van Horn Law Group. We have experience in helping our clients to handle all kinds of debt, and we can help you. Call our Fort Lauderdale or West Palm Beach office, and set up a free initial consultation seven days a week. Get started on the life you went to college for!
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