Credit Card Debt Accrued During School Ought to Be Focus for Post-Grads

The time immediately after a young adult graduates from college can be an extremely exciting and fun one, but these days, many students are leaving school with significant debts that can be a major hindrance to their becoming financially independent.

While the average kid now leaves college with tens of thousands of dollars in student loan debts, and many have car payments that need to be addressed as well, one of the most significant financial burdens young people face today is with credit cards. Even with federal rules now limiting the ways in which those under the age of 21 can access and open new credit card accounts, many leave school with thousands of dollars or more in this type of debt spread across several cards, and those balances might have them wondering how to repair credit histories they’ve already accrued.

Where to begin
Admittedly, dealing with massive outstanding credit card debts can be a daunting task for anyone, regardless of their age. And in fact, this may be especially tough for recent college graduates for two reasons. First, their other debt obligations also need to be addressed so they don’t slip into delinquency and default — particularly for their student loan bills — and second, because it’s so hard for these people to gain financial independence soon after graduation. Even for those who are lucky enough to find full-time jobs immediately or in the few months after they leave school, the mental change that comes from spending money like a college student to budgeting like an adult in the real world isn’t always easy.

So when dealing with credit card debt in particular, it might be best to take a measured approach. One’s first instinct might be to attack the largest balance possible, but it may be wiser to go after the one that carries the highest rate; that way, a recent grad is making sure they cut into the debt that leads to the most additional debt through interest charges.

Fortunately, this is also one of the easiest ways to improve one’s credit score: Making several months’ worth of payments on time and in full accounts for 35 percent of one’s rating, and another 30 percent is comprised of the amount of debt being used versus total allowable limits.

Maintaining a healthy repayment habit
Once a borrower has been paying off their outstanding debt for some time, they might have a little more financial flexibility than they did immediately following their graduation, and might begin wondering about whether it’s a good idea to slow their efforts to reduce their debt. However, it’s usually a better idea to continue down the path toward reducing debt, and if more money is being freed up every month, contributing that extra portion to whatever outstanding balances remain might be the best possible use for it.

That’s because federal law now mandates that any contributions made above the minimum listed on the monthly bill must be applied directly to the loan principal, rather than interest accrued. That, in turn, will reduce the amount a borrower pays for the card every month, meaning debt comes down more quickly with the same size payments. Continuing this method across a number of accounts will help to get debt under control as quickly as possible.

Of course, during this time it’s also important to avoid spending on any credit card accounts if at all possible. Taking on debts while also trying to reduce them is counterintuitive and can put a borrower back in the same position they’ve been trying to get out of for some time.

Once it’s done
When a borrower gets to the point of having a zero balance on one of their cards, the temptation can be to cancel it and avoid the temptation of spending again, but this isn’t always a good idea. Instead, they should keep the card open because another important part of a good credit score is the average length of time a borrower has had all their accounts. Closing old accounts, therefore, lowers the average age and, simultaneously, one’s rating.

If a consumer wants to cut up the card, they are free to do that; it’s a great way to avoid using it again. But they shouldn’t cancel unless they want to see their credit score take a dip after the months or even years of hard work they put in reducing their debt.

Another aspect of credit repair that can be critical for new college graduates is ordering copies of their credit reports and checking them over closely to see if there are any unfair markings that might be dragging down their ratings. If so, working with a credit repair company may help to correct the issue and return a borrower’s score to where it deserves to be.

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