USA Today: Young in Debt series week 1/2…how does it apply to us?

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The USA today has a wonderful 6 part series dedicated to the finances of young people. For people like us who are recently out of school or in school still, these groups of articles may provide some important advice to use. The six part series is divided into different topics. They try to chronicle the journey of 5 volunteer individuals that are twenty something years old.

week 1 = struggling with debt, cutting expenses
week 2 = paying off student debt
week 3 = saving money
week 4 = getting rid of credit card debt
week 5 = getting your own place
week 6 = getting health insurance

Week 1 + 2: Struggling with debt: Ms. Fetterman and Ms. Hansen write an article about the student debt amount rising. The average debt rate in 2001 was 12,393 and in 2006 was 14,379. The credit card debt was 4,649 and in 2006 was 5,781. Installment debt which includes auto loans was 16,511 and in 2006 rose to 17,208. I think these are pretty conservative numbers. Even for college I know more people that graduated with debt above 12 grand when I graduated college in 2002. I’m wondering if this also takes into account private loans as well. They do mention that fewer people have debt but of those that do have debt, their absolute amount of debt has increased. With tuition rates rising above the inflation rate, there is great concern that college and beyond will be unaffordable in the near future. They profiled a student named Heather Schopp who racked up 165,000 dollars of debt for chiropractic school. Reminds me of all of us except for a lot of us 165K is a real bargain!

On the video interview, the interesting thing that I learned is what happens when you don’t pay off your loans. Once 9 months of no payments occur you enter into a period of default where the lender sends your bill to a collection agency. Then they start a proces of with holding your tax refunds and possible wage garnishment. Be careful that you don’t forget to pay your federal loans because it can’t be forgiven unless you die.

The strategies they mention in paying off your loans is to pay it off with direct payment from checking or savings that will knock off 1/2 a percent and pay on time to get the extra bonus. Thats a given. Another strategy is that you can consolidate or extend the length of your loan to lower your monthly payment or do graduated loan so that you pay less in the beginning. Those are all options but if you keep track of your loans in a very neat spreadsheet, because you can keep track of the accrued interest and because there is no prepayment penalty…you’ll know how and when to pay off your loans so you can come out good in the end. The general strategy being pay higher interest loans first then lower ones later. And only pay the lower ones off soon if you can’t get a higher return on your money in investments. check out my general strategies post.

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