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A photo of a Cal U student sitting near the Emeriti fountainA photo of a Cal U student sitting near the Emeriti fountain

Debt Management

First, define your financial goals:

  1. Short-term goals are those that can be achieved in three months or fewer.
  2. Medium-term goals are those that will take between three months and one year to achieve. For example, you might choose to save for six months to take a trip or pay off a credit card.
  3. Long-term goals take more than one year to accomplish. One of your long-term goals could be to pay off your student loans early by paying an extra $300 per month or to pay off your mortgage.

Basic Rules to Money Management:

  1. Determine your living expenses, periodic expenses and monthly debt payments. Compare your expenses to your monthly net income. 
  2. Determine the difference between needs and wants and create a realistic budget by first taking care of your needs (food, housing, clothing, transportation) and then spending on wants.
  3. Always pay bills on time to maintain a good credit rating and avoid late charges. If you are unable to pay your creditors, call and explain your situation and they’ll help you set up a payment agreement.
    1. Do not wait until your accounts have been turned over to a debt collector. At that point, your creditors have given up on you.
    2. Determine what you can comfortably afford to purchase on credit by reviewing your budget. Don’t allow your credit payment to exceed 20 percent of your monthly paycheck.
      1. Pay more than the minimum on charge accounts.
      2. Add a few extra dollars to your payment.
      3. Remember that there are consequences for not paying your bills.

Methods to Pay Down Debt:

Avalanche Method

  • Decide the total amount you can possibly afford to put toward debt every month. Pay minimum payments on the cards with lower interest rates and put the rest toward your highest interest-rate debt. Once the highest interest-rate debt is paid off, apply the total amount you were paying on the first debt to the next highest interest-rate debt. With this method, you’ll be paying less interest over time.

Snowball Method

  • Organizing your cards by balance amounts with the smallest first. Then, like with the avalance method, determine the maximum you can pay toward all your debts. Pay the minimum on all the debts but the smallest.  Apply the rest of your debt-reduction budget to it. Once the smallest-balance debt is eliminated, apply what you were paying to that debt to the next-largest balance. (Often, with this method, a debt can be eliminated within the first month or two).

Freeze it!

  • Freeze your credit card in a bowl of water if you are likely to overspend impulsively. When you find something you'd like to purchase, remove the card from the freezer and thaw it in the refrigerator. This will give you time to think about whether you really want to make the purchase now, buy it later or not at all.