How a Harvard Grad Paid $90K Debt in 7 Months
Student loans are one of the most hated debts. It's not like a mortgage or a car loan where you get a direct benefit each month you pay the loan. You're paying for something - education - you've already consumed. So the monthly payments feel like a huge burden.
One Harvard Business School graduate decided he wouldn't spend the next 10 to 15 years paying off his loans, handing over an extra $42,000 in interest. So he made some drastic measures as chronicled in his blog, No More Harvard Debt. His goal was to pay off his $90,717 in student loan debt in 10 months (he graduated with $101,000). He did it in seven.
Some of the things he did to make it happen:
- Liquidated his IRA
- Stopped contributing to his 401K
- Sold his stock
- Got two new roommates
- Started a small landscaping business on the side
- Decided against going home for Christmas
- Skipped parties and weddings
- Stopped spending $1,300 a month on entertainment
Maybe you don't have an extra $1,300 to cut from your budget, but maybe you can cut $200. And you may not be able to pay off your debt in 7 months, but perhaps you can do it in 5 years vs. 20 years. Tax refunds, annual bonuses, cash gifts, any windfall can help you reduce your debt. Part-time work, money from a hobby, and selling off extra household items are other ways to generate income. Drastic results require drastic action.
Here's a Fortune article that summarizes Joe Mihalic's debt journey and a 4 minute YouTube video basically covering the same information.
Could you do something this drastic to pay off your debt?
Get a Credit Card Despite Bad Credit
If you have a bad credit score, you've probably been turned down for at least one credit card. It's tough to rebuild a bad credit score since few credit card issuers are willing to give out credit cards to people with bad credit history. Fortunately, there are a handful of issuers who have credit cards specifically for people with low credit scores.
For example, Capital One has two credit cards for people with bad credit - the Classic Platinum and the Standard Platinum. The two cards aren't that different, one has a higher annual fee and lower interest rate and the other has the opposite - a lower annual fee and higher interest rate. You'll get a minimum credit limit of $300, which is just enough to start rebuilding your credit.
Orchard Bank has a line of credit cards for people with bad credit. The one you're ultimately approved for depends on just how bad your bad credit is.
You can get a credit card with bad credit, you just have to know where to look. Don't be afraid to apply for a secured credit card. It requires a security deposit, but after 12 months of responsible use, you can often apply for an unsecured credit card.
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10 Ways to Get Out of Debt
Can you imagine what your life would be like if you didn't have to send checks to creditors and lenders every month? How much money you'd be able to put aside for retirement, vacation, and other goals?
You can get out of debt and there are several ways you can do it. For example, you could knock out your debts one at a time by sending all your extra money to your creditors. Or, if you can't afford to pay your debt in full, you might settle your debts. Check out 10 Ways to Get Out of Debt for more ideas on paying off your debt.
More on Paying Off Debt
- Dozens of Ways to Get Money for Debt
- How Much is Debt Really Costing You
- Sign Up for Weekly Debt Management Tips
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Building Your Child's Credit Score
Thanks to the ubiquitous use of credit scores, today's young adults might have a harder time getting started in the real world without a good credit score. And as a concerned parent, you probably wonder what you can do to give them a headstart.
Start teaching your child the basics of credit early, little by little, as soon as they're old enough to understand. Even basics like "Always return what you borrow" and "Never spend all your money" help instill good credit habits in young ones.
You can help your child build a good credit score, but be careful that you don't do it too soon and that you don't put too much of your own credit on the line.
Help your child open and use a bank account to establish a bank history. A positive bank history won't establish a credit score, but an relationship with a financial institution may come in handy when it's time for the first credit card.
After that, follow these tips on how to help your child build a good credit score.
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Misconceptions About Credit Score Factors
Many people still have huge misconceptions about what influences their credit score, according the results of the second annual consumer knowledge study about credit scores by the Consumer Federation of America (CFA) and VantageScore Solutions.
The bad news first:
- 56% of respondents said that age is a factor used to calculate credit scores
- 54% said marital status is a factor
- 21% believe ethnic origin in a factor
None of those factors is used to calculate credit score. In fact, it's against the law for lenders to discriminate against applicants for any of those things.
The survey also revealed that consumers don't realize the financial impact of having a low credit score or the impact loan shopping has on their credit score.
But, in a few other areas, consumers are more knowledgeable than they were last year. More people realize that businesses besides lenders use credit scores, that serious delinquencies and bankruptcy affect credit scores, and that there's more than one generic credit score.
Test your own credit score knowledge with a 21-question quiz at CreditScoreQuiz.com.
Brush up on your credit score knowledge:
- What Your Credit Score is Made Of
- What's Not in Your Credit Score
- 10 Things That Don't Affect Your Credit Score
- How Credit Mistakes Affect Your FICO Score
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Free Worksheet for Expense Tracking
Tracking your expenses is an important step in creating a debt plan. It's a prerequisite to creating a budget and figuring out how much you can afford to put toward debt repayment.
The Expense Tracking Worksheet (color or black and white) has a place to record all the details about your daily spending. At the end of one month, add up your spending and decide whether it's where you'd like to be. For helpful tips on tracking your spending, read How to Use Expense Tracking to Pay Off Debt.
More Debt Management Worksheets
Prioritizing Your Debt Payments
You have a stack of bills in front of you and you may not be able to pay them all. Which debts are the most important?
Many people make the mistake of paying their credit cards before their other debts. I argue that credit cards fall very low on the list of debt priorities, especially if you have a mortgage and auto loan. Learn why your mortgage should top your list of debt obligations: How to Prioritize Your Debt Payments
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Tactics to Deal With Medical Debt
Even with health insurance, you can end up with medical bills from services your policy didn't cover. If you end up with overwhelming medical debt, don't ignore it. Pretending the debt doesn't exist can make the situation worse. Instead, take steps to deal with medical debt so you don't end up in bankruptcy.
Like other debts, medical bills can be sent to a collection agency. While doctors don't typically report delinquent medical bills on your credit report, a collection agency will. Make a deal with your service provider before the debt goes to a debt collector.
Credit Cards for Book Lovers
If you buy a lot of books, you might be interested in a credit card that rewards you for book purchases, like the Barnes & Noble MasterCard or Amazon.com Rewards Visa.
With the Barnes & Noble MasterCard, you get 5% cash back (credited to your account each month) on all your Barnes & Noble purchases. Other purchases earn one point per dollar and earn a $25 Barnes & Noble gift card once you accumulate 2500 points. You get a $25 gift card after your first purchase or balance transfer.
The Amazon.com Rewards Visa is another great deal - $30 credit when you're approved for the card and the ability to redeem points at anytime. So if you've accumulated 500 points, you can get $5 off your purchase right now. You earn 3 points per dollar for Amazon purchases, 2 points on gas station, drug store, and restaurant purchases, and 1 point on everything else.
Read the reviews to get details on fees, interest rate, and complete reward summary.
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When to Check Your Credit Report
Certain businesses check your credit report to make a yes or no decision about your application. For example, you can almost guarantee your credit report will be checked when you apply for a credit card or loan.
You can improve the chances of getting your application approved by checking your credit report before you put in credit-based applications. This way you have time to clean up your credit if it's necessary. Read When to Check Your Credit Report to see the specific times you should check your report.
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