Today's column is the first of a regular series by Chatzky, 33, a Money magazine editor, author of The Rich and Famous Money Book, and contributor to NBC's Today show and MSNBC. She'll cover a variety of topics in USA WEEKEND, from how to prepare taxes using the latest software programs to saving strategies for the new millennium.

Issue date:
March 6-8, 1998

So young -- and so deep in debt

The average graduate owes $14,000. Colleges and lawmakers are trying to relieve the burden.

ecky Adams, a senior at Texas Woman's University, worries constantly these days, and not about her grades. Erin Unsell, a junior at Salisbury (Md.) State University, also is losing sleep. What's on their minds? Debt. Thousands of dollars' worth.

Adams and her husband owe $18,000 in student loans, plus several thousand on credit cards. Unsell owes $3,300 on credit cards; her student loans will total almost $7,000. "It's incredibly frustrating," says Adams, who works part time as an insurance underwriter for Geico while studying to be an English teacher. "I didn't have any debt when I entered school, but it's been growing ever since." Says Unsell: "The worst thing is that it took me very little time to spend all this money. Paying it back is going to take years."

		HOW TO GET OUT OF DEBT
		Break the minimum-payment habit. Minimum credit card payments are a trap. If you make the 2 percent minimum payment, your payments can extend for 30 years and you can end up paying back three times what you originally charged, says Marc Eisenson, author of The Banker's Secret. Instead, pay $5 more than the minimum each month, then $10, then $20. After your debt is paid off, try to pay off as much as you charge each month. Pay your highest-rate debts first. Look at all the money you owe -- student loans, credit cards, etc. -- in terms of interest rates. Take all the extra money you can find each month and put it toward your highest-rate debt. Raid your savings account. You need an emergency cushion in the bank or a money market account -- three to six months of living expenses in cash. If you have more than that sitting in the bank earning 3-5 percent, pull it out and pay off your credit cards. Assuming you're paying 18 percent interest, you come out 13-15 percent ahead. Don't be wooed by frequent-flier miles or "cash back." Cards that give you some freebie for charging typically come with the highest interest rates and annual fees. Consider consolidating. Lower the amount of interest you pay by consolidating high-rate credit cards into one lower-cost loan. Bill consolidation loans are available from banks, credit unions and finance companies. And, because they come with a fixed repayment period -- typically three to five years -- your debt won't drag on for decades. Get help. If you feel overwhelmed, there are two places you can turn. Good Advice Press (1-800-255-0899) offers a computer program, "The Banker's Secret Payoff Plan" ($42.95, including a copy of Eisenson's The Banker's Secret), that can show you how to pay off debt faster. Or the company can devise a payment schedule for you; call to order a form to fill out with information about what you owe ($15.95 for the first card, $4.95 for additional cards). To be counseled in person at the nearest office of the not-for-profit Consumer Credit Counseling Services, call 1-800-388-2227.

Today's college students carry more debt than any previous generation. The combination of readily available credit plus loans to cover rising tuition costs means the average student now graduates owing more than $14,000.

The credit card crunch

Every day, as students walk through campus on their way to American Civ or Econ 101, they're bombarded with credit card offers. They're bribed -- with T-shirts, water bottles, even M&M's -- just for filling out the paperwork. Card issuers are eager to grab low-earning students as customers because research shows that the first cards in your wallet are the ones you hold on to longest.

That first card, however, isn't usually a problem. It's when students start stuffing their wallets with plastic that the real trouble sets in. "As long as you haven't screwed up with your first card, you can get five or six with credit limits from $500 to several thousand," says Gerri Detweiler, author of The Ultimate Credit Handbook. "That's what makes it so easy for students to get in over their heads."

Undergraduates' average credit card balance is $2,200. (Graduate students have it even worse: They owe an average $5,800.) The wicked double whammy is that students leave school also owing an average $12,000 in student loans.

After graduation: Adding it all up

What sort of a dent will all this debt put in a recent grad's lifestyle? According to the bank industry publication Credit World, making the average monthly minimum credit card payment will cost $66. Add $153, on average, to the student loan provider. Rent, food, utilities and transportation add up to an average $2,188. So a graduate needs to earn $38,000 a year before taxes. Yet the average starting salary out of college is just $24,000.

Concern for students like Becky Adams and Erin Unsell has spurred some schools into action. New York's Niagara University has banned credit card promotions on campus. Widener University in Chester, Pa., did the same after officials learned students who listed "no employment" on applications were routinely accepted. And the New York legislature recently introduced a bill banning card solicitation at the State and City Universities of New York.

Bob Couch of Visa USA contends that students don't have a problem. A recent study commissioned by Visa found that 56 percent of students typically pay their balances in full each month. By comparison, just 40 percent of overall cardholders hit this mark. In terms of paying on time, "they are probably some of our best customers," he says.

Although Becky Adams is excited about getting her degree in a few months, she often wonders if she should do something more lucrative -- such as working full time for Geico -- till some of her debt is repaid. "The financial insecurity is overwhelming," she says. "My friends are also future English teachers. It's pretty common for us to sit around discussing why we put ourselves $10,000 in debt to make $25,000 a year."