April 2008

At the end of last year, I sat down and drafted my 2008 financial resolution. The goal was to pay back $10,000 of my student loan debt by the end of this year. This would require approximately $834 per month. After the first four months of this year, I’m still on track to meet my goal by the end of the year.

However, I’ve recently been reevaluating my situation, and I’m thinking about altering my resolution for the remainder of the year. Instead of aggressively paying back my student loans, I’m planning on reducing my student loan payments and using that money to invest in my retirement accounts and increase my emergency fund. I know this probably seems hypocritical coming from someone who has written about how to quickly pay off your student loans, but here is why I’m planning to do this.

• Low interest rate - My student loan debt is consolidated at a low fixed rate of 3%. Based on the expected return on the investments in my Roth IRA and Roth 401(k) in the long run, it makes more sense to pay back less debt now and invest that money instead, especially since I’m still in my mid-twenties. By reducing my monthly loan payment from $834 to $200, I’ll be able to contribute an extra $4000 to $5000 into my Roth 401(k) this year.
• Unexpected expenses - A recent trip to the dentist reminded me of how important it is to have an emergency fund to cover unpredictable expenses. While I was expecting to have to pay for some fillings, I didn’t realize that I would also need a crown, which is a lot more expensive. Fortunately, I’ve been building up an emergency fund, so I was prepared. Reducing my student loan payments will help me replenish my emergency fund.

Has anyone else been in a similar situation before? Do you think I’m making the right decision?

Welcome to the 137th edition of the Carnival of Debt Reduction! With the school year coming to an end for most schools in the next few weeks, I’ve decided to dedicate this edition of the carnival to graduation. While I won’t be graduating until later this year, this cake is a pretty good description of how it’ll feel…

Photo by CarbonNYC

Head of the Class (Editor’s Picks)

Amy shares a great story in One Phone Call ? $1,000 Saved at My Daily Dollars. Sometimes reducing your debt is as simple as making a phone call.

Mike exposes The real truth about credit cards: why Dave Ramsey is wrong at Living the Cheap Life. Are credit cards always evil?

nickel discusses Are Bi-Weekly Mortgage Payment Plans Worthwhile? at fivecentnickel.com. Find out why you shouldn’t pay for something you can do for free.

mbhunter elaborates on nickel’s post in Please don’t pay for bi-weekly mortgage acceleration at mbhunter. Be sure to check out this post after reading nickel’s post.

Personal Stories

NtJS shares things that have made it difficult for them to stay on budget in Our Budget Busters posted at not the jet set.

Molly Saweikis explains how she plans to save money by Reducing Gasoline Consumption at Thrifty Thoughts.

Debbie presents Consolidate or Just Keep on Paying… at Destroy Debt.

AndyS discusses The Rental Squeeze at Saving to Invest.

Randall examines an intriguing topic in What’s Wrong With WANTING to Be in the Middle Class? at Credit Withdrawal - Helping You Kick the Credit Habit.

Heather Allen presents The Entrepreneur Challenge at The DebtFree Playbook Blog.

paidtwice presents Why Debt Stinks: Every Windfall Is Already Spoken For | I’ve Paid For This Twice Already… at I’ve Paid For This Twice Already….

S.B. prepares to celebrate as their Car Loan is under $1,000 Dollars! at Be Thrifty Like Us.

Ways To Reduce Debt

Erin presents Creating Your (dreaded) Budget at Wealth Junkies.

“Setting a budget can go a long way to helping you save money and cut down on debt.” Leaving The Folks presents Creating a Budget at Real World Advice.

Tisha presents Cheap Vacation Idea: Don’t Leave Home at American Consumer News.

William Blake shares tips on Living Debt Free at Becoming Debt Free.

Christopher Johnson asks questions about The Value Of Money at christopheraaronjohnson.net.

Ryan Taylor answers the question, “Why is an Emergency Fund Important?” at Millionaire Money Habits.

Find out how an emergency fund can help keep you out of debt. RC presents Emergency Fund 101: A Crucial Step on The Road To Financial Well-Being at Think Your Way to Wealth.

NCN presents a step-by-step Debt Reduction Guide: Getting Started at No Credit Needed.

Credit

Ray explains How To Get Your Free Credit Score at Money Blue Book: Personal Finance Blog.

FMF presents Choosing the Right Rewards Card for You posted at Free Money Finance.

Brice Hogan exposes Credit Card Company Secrets at Financialzip.com. “Know the secrets that credit card companies use to separate you from your hard earned money.”

FIRE Finance shares tips on how to Avoid Credit Card Fees And Interest Rate Increases! at FIRE Finance.

Debt Knowledge

Michael Geoffrey explains The Fair Debt Collection Practices Act at Debt Smackdown.

Debt Freedom Fighter warns about Debt Relief Scams: Common Scams People Fall For at Discover Debt Freedom!.

That’s it for this edition of the Carnival of Debt Reduction! I hope you enjoyed your stay, and congratulations to all of the recent and soon-to-be graduates!

The hardest part of saving money is not spending it. I know that sounds pretty obvious, but it’s an obstacle we all have to overcome. So how do I avoid spending the money that I want to save? I make the saving automatic.

By setting up portions of my paycheck to automatically go into my retirement and savings accounts, I almost don’t even realize that the money is missing. It’s pretty hard to spend money when you don’t have easy access to it. This is the beauty of paying yourself first. It’s like spending money on your future self.

Here’s a quick overview of the system I have setup for my current situation. Since everyone is different, this system may not work for everybody, but hopefully, it gives you an idea of some of the options available out there.

Roth 401(k)

A 401(k) is the best example of automatic savings. You specify a percentage of each paycheck that is put directly into the account, and that’s it. I’m currently putting a small percentage of each paycheck into a Roth 401(k). While it’s not as much as I’d like to eventually save, the percentage I’m contributing is enough to get the maximum match from my employer.

Roth IRA

I used to have to mail in checks to contribute to my Roth IRA. This was the only option for the brokerage I held it through. Having to mail in a check left me with so many opportunities to change my mind in the process that I never ended up contributing as much as I planned.

Luckily, I got smarter and transferred my Roth IRA over to Vanguard. With Vanguard, I’ve setup an automatic investment plan which regularly takes money from my bank account and invests it in my Roth IRA. At the moment, I have this set up so that I’ll max out my contribution for the 2008 tax year.

Student Loan Payments

Unfortunately, I haven’t figured out a way to automate my monthly student loan payments. However, blogging about them five days a week serves as a pretty good reminder. Even though the payments aren’t automated, each month I transfer $834 into a high-yield savings account which I use to hold funds to pay back my student loans. This way the money is separated from my spending money, and I also earn a little interest while it sits there until I make the payment.

The Carnival of Debt Reduction will be making its second stop at Broke Grad Student next Monday. It’s been a while since I hosted my last carnival, so I’m excited.

For new readers, the Carnival of Debt Reduction is a weekly roundup of excellent debt reduction stories and debt reduction advice written by bloggers all around the world (even Canada). Every week the carnival is hosted at a different blog, and next week, it’ll be here!

The carnival is published every Monday, so be sure to come back next week to check it out! In the meantime, check out the great articles in this week’s Carnival of Debt Reduction hosted by Kevin at No Debt Plan.

First things first. What is a meme? Remember to come back after you read the Wikipedia article.

Now that you know all about memes, Amanda at Me vs Debt tagged me for the Six Word Memoir meme. The idea is simple — try to sum up your life story in just six words (visual illustration optional). It’s funny how it almost takes longer to summarize your life in six words as opposed to writing out the entire story.

Anyway, after some deep thought, a little soul searching, and a killer chicken salad sandwich, everything suddenly clicked when the song Tubthumping popped into my head. Without further ado, here’s my six word memoir…

Get knocked down, get up again

Here are the “official” rules of the meme if you’d like to play:

1. Write your own six word memoir
2. Post it on your blog and include a visual illustration if you want
3. Link to the person who tagged you in your post
4. Tag at least 5 more blogs
5. Leave a comment on the tagged blogs with an invitation to play

And now I’m gonna tag…

• Squawkfox
• Nate/Luke at RealWorldReally.com
• Blake at Youngdough.com
• financial zen
• Kevin at No Debt Plan

Those of you without your own blog, feel free to participate by leaving a comment!

It’s no secret that it costs a lot of money to go to college these days. That’s why this blog exists in the first place. If you search for ways to get money for college on the Internet, most sites talk about scholarships, student loans, or jobs like babysitting, tutoring, etc. Most college students end up paying their way through college through some combination of these sources and/or a little help from the ‘rents. I know I did.

However, I have to admit that while I was able to pay my way through college this way, it was kind of boring. Everybody applies for scholarships and loans, and everybody works boring jobs just to pay the bills. There are more exciting and unusual ways to get money for college, and you’re only limited by your own creativity. Here are a couple of great examples of college students who came up with weird, creative ways to get money for college.

Grad Student Discos For Dollars

Photo by sierraromeo

A grad student at the School of the Art Institute of Chicago pays for his living expenses by disco dancing on the street.

Jason Hopkins didn’t know how to dance when he was the student body president at his high school. But when he was put in charge of promoting an upcoming school dance, he figured he’d have to learn quick. So he rented Saturday Night Fever and learned all of John Travolta’s moves. He had no idea that one day those moves would earn him around $10,000 a year and would help him through grad school.

Source

A few years ago, I actually saw this guy in person, discoing the weekend away on Michigan Avenue. His moves would often gather a pretty big crowd, but I had no idea he made so much money. Assuming he finished art school, he’s probably not there anymore, but this story is proof that we’re only limited by our own creativity.

Bottled Water Experiment

Photo by DerekNeuland

If you thought discoing for dollars was weird, then brace yourself for this next one. This example comes courtesy of a (now former) college student who wanted to prove that you could make money without little or no startup capital. How? In his own words:

Buy a 24-pack of bottled water and sell it on the side of the road. Possibly utilize the labor of pan-handlers.

Do you think it worked? Follow the link and maybe you’ll be inspired to try your own version of the bottled water experiment.

This roundup of the carnivals I participated in last week is almost a week late, but that’s because I was out of town defending my thesis over the weekend. Also, I must have submitted one article close to the deadline, because I managed to get it included in the Carnival of Debt Reduction two weeks in a row, and it was chosen as an editor’s choice both times!

• An Illustration of Why Saving Money Is Harder Than Spending Money was featured in both the Carnival of Debt Reduction #134 hosted by Real World Really and the Carnival of Debt Reduction #135 hosted by Credit Addict
• Tax Breaks for College Students and Recent Grads was featured in the Carnival of Personal Finance #147: Q1 Financial Advice Edition hosted by Money Ning

If there’s one thing I learned from college, it’s that no matter how carefully you try to plan everything, there’s always the unexpected. Even if you do finally reach your goal, the path to that goal usually takes a few surprising twists and turns along the way. My journey through grad school has definitely turned out that way.

When I started grad school, I was informed that most students take about 3 years to complete the program I was entering. I was more excited to learn that almost all the students were able to find jobs in related industries. Based on how smoothly I sailed through my undergrad years, I figured I would finish up in 3 years and probably get a job with one of the companies on my top 5 list.

But what fun would life be without a few hurdles?

Completing the coursework was a breeze, but the thesis has proven to be the biggest mountain I’ve had to climb. Throw in a bad breakup with my long-time girlfriend in the middle, and here I am, 4 years later, still finishing up the final requirements for my degree.

Despite the setbacks, I’m actually still on track to accomplish my goals. It’s just not quite in the time frame or the order I intended. I’m already working for one of the companies on my top 5 list, even though I haven’t finished my degree yet. However, I just successfully defended my thesis, so I should finally graduate later this year, a full 4 years after I started the program.

Financially, there have also been a few bumps along the way, but I’d like to share a recent bump in particular. I started a new job in January, which means that I moved away from school before finishing my degree. As a result, I only registered for a single credit hour this semester to stay enrolled in the program. While this minimized my tuition and fees, it also meant that I was no longer a full-time or half-time student. Unfortunately, you only qualify for in school deferment on student loans if you’re at least a half-time student.

Under normal circumstances, this situation would just mean that my six month grace period would have started this semester, because I no longer qualify for in school deferment. However, I consolidated my student loans while I was still in school (students can no longer do this). This allowed me to lock in a low 3% interest rate for all of my student loans, but it also meant that I gave up my six month grace period. This means that my student loan payments start immediately!

Needless to say, I was a little surprised to get a statement for a student loan payment last month. Fortunately, I started saving up to repay my student loans back in November (when I started this blog), so I was prepared for this unexpected event. In fact, I’ve officially knocked out $2850 of my student loans already even though I wasn’t expecting to start paying them back until later this year. As much as we try to plan things in life, even if we do eventually reach our goals, things almost never quite go as planned along the way. I just wanted to share my experience as a reminder to be prepared for the unexpected.

Well, it’s official. I successfully defended my thesis this past Friday, so in a few months, I’ll be the proud new owner of a $20,000 Master of Science degree. This means that I’ll no longer be a broke grad student, but a broke former grad student. Sweet.

Anyway, it feels great to make it over this final obstacle. Now all I have to do is finish up some revisions and corrections to my writeup, and I’ll be done for good.

“So what’s next?” you ask.

Well, I figure if I put as much effort into paying off my debt as I did into finishing up my thesis, then I can shoot for becoming a debt-free former grad student as soon as possible. The great thing about life is that as soon as one adventure ends, another begins.

This is a guest post from Tisha Kulak. Tisha Kulak is a writer for Creditorweb.com, where she writes about credit card offers, student credit cards and responsible credit card use.

Targeting teen and young adults, credit card offers start pouring in often before college and all too often before kids are even aware of how a credit card works. This can lead to a long future of financial struggle and a history of bad credit. There are several things every young adult need to learn before accepting responsibility for a credit card, even as an authorized user on a parent’s credit card.

1. Items Purchased on Credit Are Not Free – It may seem all too easy to walk into the convenience store, load up on hot dogs, soda, and some other late-night snacks and simply charge it to your credit card. However, that late-night junk food run will cost you big time in the future, especially if you are late or miss a payment entirely. If you can not pay for the items you want in cash, it means you can not afford it.
2. Credit Cards Should Be For Emergencies – Many college students and their parents opt to have a credit card account to use in emergency situations. Students often need books or other materials related to education. It is more responsible to utilize a card under those circumstances or other emergencies (ie: flat tire, emergency plane ticket) than it is to finance your spring break trip or off-campus concert on credit. Just because you have a card does not mean you have to use it.
3. Credit Cards Are Not All The Same – There are many credit cards on the market today and each one of them is a little bit different. Varying interest rates, repayment options, and fees could make a big difference. Signing up for just any card could cost you more than you anticipate. Make a well-informed decision by comparing several cards and understand what the fine print really means. Don’t open an account with anyone just because you got a cool t-shirt or free music downloads.
4. Cards Designed for Students – When doing your research about the various credit cards available, do not overlook the cards designed with college students in mind. Many offer advantageous benefits and rewards programs to those who fit into a college demographic. Make practical decisions based on your spending habits and what rewards would best benefit your situation.
5. You’ll Now Have A Credit Report – As soon as you open a credit card account, you will establish a credit report. The credit bureaus will update and add any account information to your credit report consistently but the information may not always be correct. Take the time to review your credit reports, know how it works, and what information it contains. Check it for accuracy at least once a year. A lot of weight is placed on your credit report and it will reveal how many accounts you have open and if you are making regular payments on time.
6. Account Numbers Must Be Secured – Identity theft is so prevalent these days and it can be all too easy for a stranger to have access to your credit cards. College campuses are notoriously busy, active places, full of people you may not know very well. This also includes the internet world. Unless you keep your account numbers and card information top secret, you will risk getting taken for a ride. As soon as you discover your card has been stolen, lost, or used fraudulently, report it to the credit card company immediately.
7. Credit Card Use Now Impacts Your Future – After college, if you anticipate buying a house, furthering your education, or getting a car, you best have an excellent credit report. You need to pay your bills on time, every month. It is also becoming more common for employers and landlords to do a credit check before getting a job or an apartment. Mismanaging your financial situation as a young adult can be detrimental to your future.