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Breaking the Evil Credit Card Cycle

Managing your personal finances -- especially your credit card debt – is job one when it comes to squaring your student loan debt.

While credit cards are a necessary evil, when you’re trying to free yourself from student loan debt, they can be more evil than necessary. How so? Well, try paying off your college loans when your monthly VISA statement looks like the annual operating budget for Portugal. In many cases, the interest rate on credit cards is 16 percent or more; the interest you pay is not tax-deductible; and quite often the money you owe is for something you've already gotten the most use out of. Pay it off.

But first, make sure the credit-card bill is accurate. Analyze the bill. Make sure it matches your receipts. Sometimes, when you sign on the dotted line, you don't double-check the amount of the purchase.

For example, amid the rush of holiday shopping, you might not have been charged the sale price for an item; you might have been charged twice for a single item; or you could even have been charged for an item purchased by someone else in line. It happens. If you notice a discrepancy, call your credit card issuer and dispute the charge.

Meanwhile, don't fall for any season's greetings from your credit-card company offering to lower your minimum payment or saying that, because you're such a good customer, you can skip this month's payment. That sounds enticing, but remember, the interest-rate clock is still ticking.

With all your holiday shopping, in addition to your regular expenses, suppose that your
January credit-card bill is $2,500, a typical amount. If the annual interest rate is 18 percent, skipping January's payment could cost you about $38 in finance charges that will show up in next month's bill. No wonder the credit-card company is so nice.

Loan Snapshot: Help Yourself, Help Your Country

As I said, all debts are not bad. In fact, your student loan debt, while tough to pay off, is very good debt. Not only is it good for you, but it’s good for your country.

Here is what I mean.

• The U.S. Department of Education reports that every $1 invested in federal financial aid produces $3 to the U.S. federal treasury in tax revenue.

• The U.S. Department of Labor reports that, according to Bureau of Labor Statistics, 60% of new jobs created through 2010 will require a higher education.

• According to the Institute for Higher Education Policy, your college degree means a lot not just to yourself, but to your country. A college graduate means increased tax revenue, greater productivity, increased consumer consumption, decreased reliance on government financial assistance, and greater workforce flexibility.

• The Advisory Committee on Student Financial Assistance estimates that getting more of America’s youth could add $250 billion in gross domestic product and $80 billion in tax revenues to the U.S. Treasury.

Published Jan 08 2007, 01:11 PM by moneycoach
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