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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

College Graduate: How to Get Debt Under Control

Diplomas in hand, many college graduates begin their journey in the real world strapped down by debt. For many students, the accessibility of college credit cards combined with impulsive purchasing habits result in substantial debt by graduation. If you are in this situation, the New Jersey Society of Certified Public Accountants (NJSCPA) advises that you develop a plan to quickly repay debt and offers some guidance on how to get started.

Track Your Spending
Keep in mind that while you can't change the past, you can change how you manage your money in the future. Thus, the first step in taking charge of your debt is making sure you know where your money is going. Divide your expenses into categories, such as rent and utilities, insurance, food, transportation, and entertainment. For a month, track how much you spend in each category. Compare your expenses to your income to estimate how much can be realistically allocated to repaying debt each month.

Come Up With a Plan
 Calculate how much you owe and to whom. Most certified public accountants (CPAs) recommend that you first pay off the cards with the highest interest rates. But for some, paying off low-balance cards first seems more rewarding since you quickly see progress. To become debt-free faster, once a credit card is paid off, apply the money you were paying on it to your other credit card balances.

Pay More Than the Monthly Minimum
 Low minimum payments are a trap credit card companies use to collect interest for years. Find places in your budget to cut back because accelerating your repayment plan can save you hundreds or even thousands of dollars in interest.

Make Sacrifices
 It is always possible to live more frugally if you are willing to make sacrifices. Get a roommate to share the cost of rent, utilities, and food. Better yet, if possible, live with your parents until your finances are in order. Bring lunch to work. Trim your entertainment budget. If it's practical, take public transportation instead of buying a car. Use your savings to pay off your debt.

Replace Your Credit Card with a Debit Card
To help control your spending, remove credit cards from your wallet and use a debit card instead. A debit card looks like a credit card, but is the electronic equivalent of a check. When you pay with a debit card, your checking account is automatically debited. That forces you to think before spending.

Check Your Credit History
 Timely payments on credit cards and student loans can go a long way toward establishing a healthy credit history. It's a good idea to periodically check the accuracy of your credit report. To learn how, visit the websites of the three largest credit reporting agencies: Experian (www.experian.com), Equifax (www.equifax.com) and TransUnion (www.transunion.com). If you find an error in your report, follow the credit bureau's instructions for correcting it.

Start Saving
 Once you have paid off your debt you can begin to establish a secure financial future by following one simple rule: Pay yourself first. CPAs recommend that you build a financial safety net by saving three to six months worth of living expenses. This way you don't have to resort to using your credit card for unanticipated expenses. Once you've established an emergency fund you can begin to save toward your financial goals. Payroll deduction plans that automatically direct money from your paycheck to a savings or money market account or even a retirement plan are a great way to get started. What you don't see, you don't spend.

Ask for Help
 If you're having a difficult time meeting your financial obligations, consult with a CPA. He or she may be able to help you establish a budget, consolidate your debt, determine you eligibility for certain loans and devise a repayment plan that is realistic.

If you would like to receive more information on various financial matters, subscribe to E-CPA, the NJSCPA's free, monthly email newsletter. To subscribe, visit www.njscpa.org/finances or email a subscription request to e-cpa@njscpa.org.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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