Should You Be Borrowing More?

Yes, borrowing more. More people than you might think are racking up the wrong kind of debt, when they don't need to be. Take a look at these debt situations:



The total amount of debt is the same, with drastically different amounts of interest. Don't forget that student debt has deferred payments and is often tax deductible, making it even better than credit card debt.

Students and recent grads often develop terrible financial situations simply because they aren't taking out enough funds through their student loans. Recent grads are often paying back too much, since they feel their student debt is a burden.

If you think about it, it's totally silly if you have credit card debt, but thousands do it. The interest rate is probably much higher and will be more burdensome in the long-run with a credit card, and student loan interest is often tax-deductible and doesn't impair your credit score.

Hundred of thousands of students often borrow money only to cover tuition expenses. Instead of taking out more money for living, food, and other school expenses, they just rack up credit card debt.

The same goes with recent graduates who have agreed to an accelerated loan repayment schedule, which doesn't give them enough money to get by on.

As the new year and new semester is coming around, take a look at your spending over the last several months and see if you need to be borrowing more from your student or home loan. If you're a student, contact your financial aid office to increase your loan amounts and have the funds transferred to your bank account (if you have the self-control to use it wisely) -- you might even be able to get enough to pay off your credit card debt. If you're in the repayment process, call your lender to see if your monthly payments can be reduced, so you don't have to depend on your credit card.

Remember, no matter what the so-called pundits say, getting rid of credit card doesn't have to be solved by cutting spending dramatically. Managing your loans and lowering your interest rates is often much more effective.

Coffee is Not the Problem, Interest Is

Why do people seem to think their financial troubles are solely due to their Starbucks habit? Personal finance gurus love to talk about how making coffee at home will somehow allow you to retire 10 years earlier. Some coffee quitters are so proud of themselves that they want to spread their gospel -- one of these students was so proud of their genius that they made a coffee calculator.

The media likes to blame young people for their financial struggle, as if we are so self-involved and irresponsbile for accumulating debt that we forget to pay our rent because we're addicted to coffee.

When talking about one young person in debt, one journalist writes:

Serves her right, you think? Many twenty- and thirtysomethings raised on MTV and InStyle magazine have tried to mimic the glamorous lives of the rich and famous through the use of credit cards. (MSNBC, February 8, 2006)

But the truth of the matter is that tuition, housing, and life in general is far more expensive than it used to be, and most of us never really learned how to deal with it.

This culture of self-loathing for buying a pair of jeans or a sandwich for lunch is only making matters worse. I've seen people move in with creepy strangers to save on rent or become hermits in order to spend less. But for plenty of young people, you can take control of your debt without really changing your lifestyle.

As of 2001, the average credit card debt of an American aged 25-34 was $12,000. This number is sad, but not because people are spending too much. The problem is getting trapped by credit card interest and finding it impossible to dig yourself out of the hole. Thousands, maybe millions, of Americans are accruing more debt in interest than from new spending.

So if you have credit card debt, spending might not be the problem. In my first post, I talked about someone with credit card debt and student loan payments. One of his many mistakes is making extra student loan payments instead of focusing on the credit card debt.

Here are a few tips on getting rid of credit card debt:

1) Take advantage of a 0% Balance Transfer Offer
A fairly easy to obtain way to buy some time to keep yourself afloat is to transfer your credit card balance that is accruing a lot of interest to a card that will charge no interest for 12 or more months. This is a great way to attack the debt, and if you aren't finished within 12 months, you can transfer the debt to another 0% card!

If you don't qualify for a balance transfer, you can probably move your debt to a card with a low introductory APR to reduce the burden of interest piling up.

2) Focus on the right kind of debt
When attacking debt, prioritize your payments first on the highest interest rates. Don't make advance payments on your student loan payment or mortgage payment if you have credit card debt. Interest rates on these loans are lower and the interest paid is tax-deductible. Pay the minimum on these loans until you can erase your credit card debt.

3) Never miss a payment
Missing a payment can have really negative consequences on your credit history, and it automatically tacks on fees and high interest rates for most credit cards. If you are a forgetful person, consider a credit card that automatically deducts a certain amount of money from your bank account.

While giving up bad habits is always good, don't deprive yourself of things you enjoy when you might be able to manage your debt by transferring your balances and minimizing the impact of high interest rates.

Here is a list of cards that offer 0% Balance Transfers for 12 months.

Now stop thinking about moving to a sketchy place on craigslist and find a new credit card that will let you conquer your credit card debt. Do the math, you might just be able to afford an overpriced latte more often.

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