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credit & debt

Your Credit and Debt Problems Solved

We tell you whether to save or pay off debt, and how to make sure your Social Security number doesn't get in the wrong hands.

We frequently get questions about handling credit and debt. Readers also want to know how to protect their identity so their credit rating won't be ruined. See our advice below for handling these tough problems.

Should we save or pay off debt?

Do I have to use my Social Security number as ID?

Should We Save or Pay off Debt?

Do a little of both. Invest enough in your 401(k) plan to capture any employer match. That will give you a return of 50% to 100% plus the security of a savings stash. Next, pay off high-interest credit-card balances, which can give you a double-digit return. Then focus on whatever debt keeps you up at night.

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Chicagoans Breighanne and Devon Eggert want to get out from under a whopping $350,000 in student loans, which they amassed to pay for law school. Interest rates on their 14 loans range from 4.5% to 14.2%, and the loans are payable over as many as 30 years. When the Eggerts started working and had to begin repaying the loans, the minimum payments were $2,900 per month. "It was pretty overwhelming," says Breighanne, 26.

Fortunately, both she and Devon, 27, landed well-paying legal jobs. But their strategy for managing their finances makes sense even on a modest salary: Bite the bullet and continue to live like a student, at least temporarily. After analyzing the Eggerts' cash flow, financial adviser Leisa Aiken, of Timothy Financial Counsel, advised them to resist spending their income and to put as much as possible toward paying off their loans. They actually boosted their monthly loan payments to more than half of their take-home pay. "It hasn't felt as if we had to make changes in our spending because we weren't used to having money anyway," says Devon.

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Under Aiken's plan, the Eggerts will pay off all the loans that have a fixed rate of more than 5% during the next five years; loans with lower rates get lower priority. By scrimping on spending, the Eggerts can also afford to contribute to their 401(k) plans and build an emergency fund.

After five years of belt-tightening, they'll have paid off more than two-thirds of their student loans, and their monthly loan payments will fall to about $700. At that point, they can think about buying a house and boosting their retirement savings.

Focusing on the next three to five years makes an extreme plan more manageable and keeps you motivated, says Aiken. "You form a habit and feel a sense of accomplishment when you see those loan statements going down every month." -- Kimberly Lankford

Do I Have to Use My Social Security Number as ID?

You have to give your number to your employer, your bank and the IRS. But when others request it, offer to give another identifier instead, such as your driver's license number, advises Beth Givens, director of the Privacy Rights Clearinghouse. If your employer still uses your Social Security number on your employee-ID or insurance card, lobby to have the company change its policy.

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