MONEY-SMART KIDS


Getting -- and Staying -- Out of Debt

Janet Bodnar

Sticking to a plan to pay off your debt can be tougher than it looks. Increase your odds of success by focusing on one goal at a time.



A couple of months ago I wrote about Brandy Howell, a recent graduate of Auburn University who has laid out a plan for paying off her student loans and starting off on the right foot financially (see A Student Loan Game Plan). Recently, Brandy wrote to give me an update.

She has managed to find a "steal" on a condo in midtown Atlanta that an acquaintance is trying to sell: "I'm paying only $500-a-month rent plus $100 for all my utilities." That saves her about $50 a week on gas, which she is adding to her savings account, along with nearly all of her graduation money. "I only allowed myself $200 to put toward little things for the new apartment. The rest is going toward repaying my student loans."

Brandy has also discovered that although she's trying hard to follow her plan, "it's much more difficult to actually practice what you preach when you come face-to-face with these things."

What I would tell Brandy, and anyone else in a similar position, is to relax. Don't beat yourself up if you can't do everything down to the last penny. Just focus on the one thing you most want to accomplish.

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In Brandy's case, it's paying off her student loans. So she should work out the best deal she can on her high-rate loans, put her payment on autopilot and let it take care of itself. Then she can take the rest of her income, which will go up over time, and parcel it out on other things.

Stories about young people who have cleaned up their finances are always inspiring. (Read a Kiplinger editor's confession in How I Kicked the Credit-Card Debt Habit.) I'd love to hear more. Let me know how you did it and I'll be happy to share your experiences with other readers.

Handling bank fees

I am adamantly opposed to the advice you gave to young people who are penalized because they overdraw their checking accounts. You say, "Throw yourself on the mercy of the bank because it may be willing to excuse a new, young customer." You're telling a young woman that what she did is excusable by showing her a way to get out of it. Young adults need to learn that overspending can ruin one's life, not that it will likely be forgiven, as it most likely will not.

It's not often I'm accused of being too soft! I have to say, though, that a $30-plus fee for a $2.50 overdraft strikes me as over the top. Banks aren't above squeezing fees out of unsuspecting young people, who deserve a do-over or two.

But you're right. Eventually they have to learn to balance their account or pay the piper.



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