Bankruptcy

Declaring bankruptcy is the last resort for flailing loan recipients and should be avoided at all costs. A major “severe hardship” obstacle must be cleared to even obtain a hearing on a bankruptcy. If you’ve been kidnapped by Bigfoot or beamed up to an alien mother ship, you still may not qualify for bankruptcy. It’s the third rail of personal finance—don’t touch it or you’ll be scarred for life.

If there is no other way out and you’ve consulted an attorney and a financial advisor, then you may have no alternative but to declare bankruptcy—only if you have no choice.

Note that a great deal of misinformation is available, especially with Internet hucksters and other scam artists who promise that bankruptcy will wipe your slate clean if you do business with them— probably for a hefty fee. That’s just not so. Some debts, including student loans, cannot be simply “wiped clean.” They will haunt you for life under bankruptcy. As soon as you regain financial solvency the lender has every right to go after you for their money. And they will, using your IRS tax returns as evidence you’re making money again. That’s public information and easily available to your lender.

Plus, your bankruptcy hurts in other ways. It will

• stay on your credit report for up to ten years,

• render it nearly impossible to get additional credit, and

• impact your ability to get a job.

Forbearance

Here’s another term you should become familiar with if you’re having trouble paying off your student loans. Like deferment, forbearance is a mechanism designed to help if you need to either temporarily lower or postpone your student loan payments.

Forbearance is really for those folks who want to pay their loans but can’t and who were unable to get a deferment on their loans. The application process isn’t as onerous as the one for deferments, and the bureaucratic headaches that always seem to accompany deferments and loan discharges aren’t as prevalent with forbearances. Again, however, it is completely up to the lending institution to determine whether you are awarded forbearance.

If you are approved, be prepared to continue paying interest on your loan. If you can’t, the lender will simply add it to the ongoing loan bill and it will cost you even more money.

Forbearance is the loan holder’s way of saying “We feel your pain.” As long as you make a good faith effort to stay in contact with your lending institution and make your financial situation known to them, getting a forbearance shouldn’t be a major problem. Note that the forbearance is temporary, usually awarded in 12-month stretches for no longer than 3 years.

Start by contacting your lender and asking for the right paperwork. Fill it out, send it back, and follow up. Write down the name of your contact and file it away. Ask for that person whenever you feel like you’re getting the runaround from the lender.

More Tips on Student Loan Payments

Let’s talk about some more tips on repaying your student loans. All are designed to help you get to the Holy Grail of student loan debt—the day you make your last student loan payment. Put some of these ideas to work and see if that day doesn’t come sooner than you think.

Don’t wait for a bill to come from your lender every month. Go ahead and send a check regardless of whether you receive a bill or not. It’s habit forming and therapeutic, in the sense that you’re cutting your debt down to size. People who wait for the bill to come are taking, in my opinion, a passive approach to student loan debt. By taking charge and cutting a check no matter what, you’re taking command over your own fiscal situation. And that’s a habit that will pay off over the course of your ifetime.

Know all the repayment options available from your lender. Make sure that the repayment option fits your current financial situation. If you’re f lush with cash, go ahead and pay more than you owe. If not, work with your lender to accommodate a financial dry spell with a different loan repayment plan. Like anything else, when it comes to debt, knowledge is power.

Keep your lender in the loop. If you move, get married, or even change your phone number, let your lender know. Direct contact is the easiest and best way to solve any problems that arise. But you have to know who to reach. And the lender has to know how to reach you.

Take a break before starting graduate school. If you’re planning on going straight to graduate school but don’t have the money to pay the bills, try taking a year or two off and go into the corporate world to earn some money. After that, you’ll have earned enough to defray any further student loan costs. Bonus: By taking time off between schools and spending some time working for a living, you’ll gain a greater appreciation of what you want to do with your life—and what you might want to study when you return to grad school.

Request a deferment. If you do attend graduate school, request a deferment from your lender from any undergraduate student loans. As long as you are in grad school, you won’t be receiving any bills for your student loan from your undergraduate days. But work closely with your lender to make sure you filed all the proper paperwork to gain that deferment. Note that it’s much easier to defer government loans than it is private loans. Again, if you are in graduate school at least try to make interest payments on your undergraduate student loan. That will defray the total cost of the loan and help you develop good repayment habits.

Use gift money. Remember the scene in The Graduate when people came up to Dustin Hoffman and offered congratulations and encouragement for his graduating from college? If you looked closely, you’d have noticed them giving him an envelope or two in the process, containing hefty checks, no doubt. If you are similarly rewarded with a bonus from relatives and friends for graduation, or received a signing bonus to work for a firm right out college, use it to prepay your student loan.

The Life Stages of Your Student Loan

Life Stages is a very popular term these days, articularly onWall Street, the industry that I hail from. There, the term is meantto encompass the various eras or stages of your life from a financialpoint of view—going to college, finding your first job, getting married, buying your first home, having kids—right on down the line to retirement.

The idea is that you should identify the various stages of your life and develop a financial plan to deal with them. At least that’s what Wall Street firms hope you will do. That way they can collect the hefty fees from all those big financial moves you’re making.

From a student loan standpoint, a life stages view is just as useful, although not as sinister as the kind you see in the financial services sector. In a student loan life cycle, you start the ball rolling by researching your loan options, applying for one (or more), accepting a loan, going to school and graduating, and then the last part of the cycle—paying off your loan—begins. All told, the life

stages thing can last up to 15 years or so, from the time you start looking for a loan to when you actually pay it off

The Early Phase—The Research Cycle

• You, along with your parents or guardian, begin researching financial aid options.

• You’re accepted at school.

• You begin the process of discovering what you can pay for on your own (with savings) and with nonloan financial aid (scholarships, grants, tuition breaks).

• The gap left between what you have to pay for and what you can afford to pay for is the amount of estimated money you’ll need in student loans.

• You begin the process of researching student loans.

• You identify the loan you want and complete and submit your application.

• Your lender approves your loan.

The Middle Phase

• A check is cut by the lending institution and delivered to your home or straight to your school’s financial office.

• The school takes what it needs to cover your tuition, room and board, and other expenses, and returns the remaining amount to you.

• The lending institution sends its first disclosure statement to your home (likely your parents’ home). This is particularly true for federal PLUS loans.

• The lender notifies the credit bureau that the loan has been transacted.

• You attend school, during which time you are not obligated to make any student loan payments.

The Last Phase

• You complete your education, hopefully with a cap-andgown affair upon graduation. Or you leave school early.

• You enter your grace period when you have, on average, from six to nine months before your first loan payment is due.

• Your lending institution, during this grace period, sends you a repayment disclosure statement detailing your loan obligations and the timetable for repaying them.

• When the grace period ends, you receive your first bill, usually a monthly one.

• You begin paying your student loans.

• If all goes well, you pay each month—or even prepay—until your loan is paid off.

• Your lending institution confirms that your loan obligation has been fulfilled.

• Your lending institution sends confirmation to credit bureaus that the loan has been retired.

Terminology in Student Loan

Stumped by the terminology used by lenders? Don’t be. Here is a list of the most common student loan terms and what they mean:

Borrower. In this case, you. The individual who is responsible for repaying a loan.

Capitalization. The interest that builds up over time and is added to your principal (otherwise known as “capitalized” inter-est). Be careful about capitalization, it can hike the total cost of your loan.

Consolidation. To merge some or all of your student loans into one über loan, with one interest rate and one payment per month.

Default. What happens if you fail to repay your loan. Usually a precursor to a bad credit rating and, consequently, financial troubles in obtaining further loans to buy a home or a car or go back to school again.

Deferment. A delay of payments on your student loan. To gain a deferment, a lender may make you prove “eligibility” criteria like being sick or unemployed.

Discharge. A release from your obligation to repay your loan permanently.

Fees. Additional expenses tacked to your total loan amount due, or subtracted from the amount of money you receive with your loan funds.

Forbearance. A time period when you can skate on your loan payments because of extenuating conditions and you do not qualify for a deferment.

Grace period. A six- or nine-month period after you leave school and have to start making regular payments on your student loans.

Interest. The fee you pay for the privilege of borrowing money from your lending institution (it’s their profit margin). Interest is based on a percentage of your total loan.

Principal. The total amount you owe on your student loan.

The Players in Student Loan

Who takes center stage on student loans? Well, you are on one side and a public or private lending institution is on the other. Who are these other players and what roles do they play in the loan process? Let’s take a look.

Federal government. Yes, Uncle Sam, under the official guise of the U.S. Department of Education, runs the federal student loan programs. The federal government can be either a lender or a guarantor, which is an institution that guarantees your loan.

Borrower. You, basically, unless your mom, dad, grandmother, or grandfather have signed off on your student loan. The borrower is the person who gets the student loan and is obligated to pay it off.

Lender. The institution that cuts you the check for your student loan. A lender can be the government, a bank, a credit union, or another financial institution. Here’s a list of potential lenders:

• Bank

• Savings and loan association

• School

• Credit union

• Pension fund

• Insurance company

• Consumer finance company

• Federal government

Your school. Don’t forget old almamater. Your school can identify financial aid options, figure out how much you need, help you get the loan, and administer it. They’re also on the back end when you have to pay the loan when you leave.

The guarantor. Usually a federal agency that guarantees to your lending institution that you’ll actually pay back the money you borrowed. If you don’t pay off the loan, the guarantor has to.

The credit bureau. The private agency that keeps tabs on your loan payments and makes your “credit score” available to others interested in your ability to pay back money that you owe. That could be a mortgage company, or a retail store, or an automobile dealer—in short, anyone who is going to make a financial commitment with you.

The collection agency. The agency that will come after you, sent by the guarantor, if you default on your loans and make no arrangements to pay them back. Usually, the collection agency earns about 30 percent of your total outstanding loan if they can get you to pay it back.

The credit counselor. In some cases, you might need professional advice on getting out of student loan debt. A reputable credit counselor can show you how to rearrange or consolidate your loans so you’re not in default. Not all credit counselors are reputable, though

What is My Credit History?

The term credit history merely refers to how you have managed your credit and debt over a period of time. It looks at how you have financed purchases, as well as how you made your payments on the amounts financed in terms of the amount paid and whether or not the payments were made on time. It is used by lenders to evaluate how you will handle future loans. They look at your past to predict your future.

A bad credit history has become an increasing problem. There are two basic reasons for this. First, it has become very easy to get credit. You are probably inundated every day with solicitations from credit card companies. College students can now easily get credit cards without any work history. Auto dealers advertise that they will sell a car to people with no credit history or a bad credit history. This allows many people to receive credit who cannot handle it well. The inevitable result is a failure to pay the debt on time or at all.

The second reason is that these loose lending practices have caused many people to believe that paying bills on time is not very important. Much of this comes from advertising. Companies, even some dealing with mortgages, say things like, “Bad credit shows that you are only human.” Since credit is often easy to obtain—even with a poor credit history—paying on time does not seem to be very important.

But when it comes time to try to buy a house, a good credit history is a major factor in qualifying for a mortgage. To some lenders, it is the most important factor, even over your income-to-debt ratio. For example, many retirees are able to get loans that their income does not seem to support. This is because they have excellent credit. The lender believes that they will budget properly and repay the loan on time.

Your Rights As A Student Loan Borrower

When you accept the conditions of a student loan and sign on the dotted line, then, by law, you become the holder of certain inalienable rights, too. For instance, it’s up to the lender to provide you with the following student loan data:

• The complete amount of the loan

• Your loan’s interest rate

• When you must start repaying the loan

• The effect borrowing will have on your eligibility for other types of financial aid

• A tally of any charges you must repay (loan fees) and information on how those charges are collected

• The annual and total amounts you can borrow

• The maximum repayment periods and the minimum repayment amount

• The straight skinny on default and its consequences

• Information on debt consolidation and/or refinancing

Note, too, that because you are a student loan recipient, the lending institution must give you a grace period before you have to start paying off your debt. Your original loan contract should stipulate the specifics of your grace period. Or contact your lending institution for the information.

You also have the right to a loan repayment schedule provided by your lender, stipulating when your first payment is due, how often you have to pay, and the amount you’ll be paying with each installment. Your lender must also:

• Give you a prespecified time limit to repay your loan

• Allow you to prepay your loan at any time without penalty

• Cancel if you become permanently disabled or kick the bucket

• Provide you with a “graduated” loan payment option where you pay less at the start (because money will likely be tighter when you are 25 than at 35) and pay more later as your income rises

• Provide you with an extended repayment schedule of up to 25 years, but only if you are a Federal Family Education Loan Program (FFELP) borrower whose debt exceeds $30,000.

Cancelling Your Student Loans

Want a free ride on your student loan? You practically have to die to do so. Lenders really want their money back and are loath to let you out of your loan obligations. But, in special circumstances, you can cancel your student loan, or at least part of it. You may be able to cancel your student loan if:

• You pass away. If that unfortunate occurrence takes place, then your family or financial steward can cancel your student loan.

• You are permanently disabled. You can cancel your student loan if you can prove you are unable to work because of an injury or illness that is expected to continue indefinitely or result in your passing away. You’ll need a letter from your physician describing your situation, and you probably won’t get the loan canceled if, as they say in the health care insurance industry, you had a preexisting condition when you took out the loan.

• You are a member of the armed forces. God knows that we don’t do enough for our fighting men and women, especially in this day and age. So who wouldn’t approve of a loan cancellation or deferment for former students serving in the U.S. military, the National Oceanic and Atmospheric Corps, or the U.S. Public Health Service.

• You teach in poor neighborhoods and communities or provide some community service. If you teach in underserved or poor areas, you may be able to get your student loan either deferred or canceled outright. The same goes for teachers who help the disabled.

• You were the subject of a trade school scam. Trade schools are an iffy proposition and lenders know that. Some schools close, some offer diplomas that are fraudulent, and some slam their doors while you’re still in school. If any of those cases apply to you, then you have a good chance of getting all your student loan obligation canceled.

Recognizing The Red Flags That Lead to Debt

When you’re paying off your student loans, or paying off any debt for that matter, it’s a great idea to know where you stand financially. Specifically, it’s a great idea to recognize any warning signs that might foretell a personal economic plunge that may take years to recover from. For example, in the student loan repayment realm, three unopened invoices from your lender lying in a pile on your desk is a big red f lag that you’re not keeping up with your loan payments. Here are some common financial red f lags to look for in your busy life:

• Your bank account is consistently overdrawn.

If you keep getting those thin envelopes in the mail from your bank telling you that your checking account is overdrawn, it’s time to regroup and find out why you’re not keeping up.

Tip: Ask your bank for overdraw protection against your checking account. For a few bucks each month, most banks will be happy to comply.

• You are only able to make the minimum monthly payments on your credit cards.

A biggie. If you can’t maintain a clean credit card bill each month then you’re staring at big trouble down the road. At 15 percent or so interest, credit card companies clean up when you pay only the bare minimum of your monthly bill. At those rates, that new jacket you bought for $80 three months ago can cost you $350 in a few months if you don’t pay your credit card bill in full.

Tip: If you have multiple credit cards, cut all of them up save one. And use that only for emergencies.

• You and your partner, if you have one, are arguing about money.

Money is an emotional issue, a power struggle sometimes between couples who usually have different ideas of how cash should be handled. If you and your spouse or partner are haggling over bills more than usual, it’s probably because your bills are higher than usual.

Tip: Agree on a budget and a spending allowance, if necessary, then stick to it.

• Your savings account is busted.

Money experts agree that a savings reserve of six months of your annual salary is mandatory to ride out rough economic times, like the loss of a job or a serious illness. If you don’t have any money at all in your savings account, it’s time to reexamine your budget and see where your money is going every month.

Tip: When you get paid, pay yourself first; take 10 percent of your check and stash it in a savings or money market account.

• You are juggling your monthly bill payments.

If you’re applying selective reasoning to your monthly bill payments (“Hmmm, we’ll pay the phone bill this month, but not the dog walker.”) then you’re in over your head financially.

Tip: Lose the dog walker and any other luxury item on your “to pay” list. In tough times stick to the staples: home, heat, groceries, and electricity. You might not think about it, but 20 years ago, nobody had an Internet bill or a cell phone bill. But you probably do now.

Should You Apply for Student Loan Consolidation?

Think of consolidating your student loans as reorganizing all your key business contacts and putting them into one Blackberry or one Rolodex. Or think of it as combining your DVD remote, your stereo remote, your VCR remote, and your satellite TV remote all into one easy-to-handle device.

Imagine that? Bundling all your debt into one loan with one bill and one payment—maybe even with a lower interest rate of student loan consolidation. By consolidating, you’re actually lowering your monthly loan payments past the average ten-year student loan limit. The downside is that you’re shelling out more money in interest payments because you will be making loan payments over a greater length of time. That’s a big downside of student loan consolidation.

Should you consolidate your student loans? It depends on what your financial situation is and what your financial goals are.

If your goal is immediate financial liquidity, that is, more money in your pocket for the short term, then student loan consolidation may be a good way to go. But if your goal is to get rid of your student loan debt ASAP and you can manage those regular monthly payments, then it’s not such a great idea, unless you can consolidate your loans with a bargain-basement student loan consolidation rates that’s much lower than the one you have now.

In US, student loan consolidation interest rates are fixed, meaning they can’t and won’t change. The rate you get the day you consolidate your loans is the rate you have the day you pay off your consolidation loan. To make things even sweeter, Congress made sure that the fixed interest rate on student loan consolidation could never exceed 8.25 percent.

So far, It’s look like easy to jump right in and consolidate your student loans without thinking the whole thing through. One loan, one payment, maybe a lower interest rate. What’s not to like, right?

There are, however, reasons not to consolidate your student loans. That’s especially true if you have other, better options available to you. Consider these scenarios:

• I need a lower monthly payment. Most lenders will be happy to discuss different loan repayment options, such as the graduated payment and income-sensitive payment plans.
• I’m having trouble keeping up with my loan payments. You can temporarily stop paying your loans, or at least reduce them, under either a deferment or a forbearance plan.
• I just want all my loans rolled into one. Your lending institution may be willing to purchase all your other student loans and bundle them together under one “roof.” In financial circles, that’s known as loan serialization.

So, student loan consolidation, a good deal or not?

source: Book by Brian O'Connell. "Free Yourself From Student Loan Debt"

Control Your Student Loan Bill by Managing Your Lifestyle.

Irish humorist Joseph O’Connor once said, “I feel these days like a very large flamingo. No matter which way I turn, I have this large bill attached to me.” While O’Connor aptly states the emotional condition of the high-debt sufferer, there’s no need to flap your wings over a big student loan bill. No need, that is, if you know how to control your debt.

The idea here is simple. Control your debt by managing your lifestyle. Consequently, the key to controlling debt is to first try to live as inexpensively as possible. If that means renting an apartment with a roommate or bringing a bag lunch, then so much the better. Once you pay off your student loans you can ramp up your lifestyle, because you’ll have more cash at your disposal.

Let’s start with a household budget. Without going through the punishing ordeal of ranking your spending priorities, it is difficult to guarantee you will have anything left over at the end of the month to pay your student loan. If this sounds too taxing, then use the paperless budget method. Start by holding out a reasonable portion of every paycheck to pay down your student loan and other debts and force yourself to live on the balance.

If every now and then you come out ahead, be sure to apply your windfall to eliminate student loan debts before you start to accumulate savings. This makes sense for a number of reasons. Borrowing rates typically exceed savings rates. Interest expense is usually nondeductible, while savings are taxable. Interest charges are a certainty, but investment returns are volatile. Sure, these terms seems dry and boring. But let’s face facts, it’s not your father’s economy anymore. In an era when consumer spending is high and there’s plenty of new goods and services to buy that weren’t available even 20 years ago, knowing how to budget properly is a big key to your financial success.

According to a recent American Express consumer survey on everyday spending, today’s list of typical, day-to-day expenses is still dominated by traditional items such as groceries, fast-food lunches, tolls, and gasoline. But they’ve been joined by certain 21st-century wallet-sappers such as cellular phone service, paging fees, and Internet service costs.

Consequently, as everyday expenses increase, managing a household budget becomes more complicated. The best solution? Get those costs into your budget as soon as possible, because people tend to spend whatever money is left over after paying the fixed expenditures and stop only when either the ATM won’t give them more cash or the bank calls.

One way to keep money from flying out of your pocket is to write down what you’re spending as you spend it. You may not realize it, but that glass of Merlot after work, the dry cleaning you picked up on the way home, and that four-cheese pizza you had delivered to your door for dinner all add up. A record of your daily, weekly, or monthly expenditures makes for some interesting reading in most American households, testing the patience of millions of spouses in the process.

As I’ve mentioned, some consumers like to use a credit card to buy everything (the credit card companies LOVE to push that strategy). That way, at the end of the month, they have a readymade laundry list of expenditures sent to them by their credit card firm. Bad idea. Sure, you get a nice, clean list of what you spent each month. But getting into the habit of using a credit card is never a good ploy. It’s easy to treat that Visa card like cash, but it ain’t. Sooner or later you’ve got to pay for it, with high interest payments to boot if you’re not on time every month.

Besides, in the age of the laptop, it’s easy to sit down at the end of the day and compile your own list. You’ll have your record and you won’t get sticker shock opening your credit card bill every month.

Breaking Your 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.

Some Responsibilities for Student Loan Borrower

When you accept the terms of a student loan, it means you have to take those loan obligations seriously. Even if you don’t, the lending institution will, and they’ll want their money back. In fact, they’ll want it back so bad that they’ll hound you like a dog, stick to you like a barnacle to the hull of a boat, and be like bubble gum on your shoe until they get their money back—or ruin your financial life if they don’t. Believe me, lending institutions aren’t charitable institutions. They have absolutely no problem making your life miserable if you’re slow or a no-show in paying off your loan.

Also remember that when you take out a student loan, you have certain responsibilities. Primary among those responsibilities is your promise to pay back the money you borrowed. As stated by the U.S. Department of Education in the Student Guide— 1996–1997:

When you sign a promissory note, you’re agreeing to repay the loan according to the terms of the note. The note is a binding legal document and states that, except in cases of loan discharge, you must repay the loan—even if you don’t complete your education (unless you were unable to complete your program of study because the school closed); you aren’t able to get a job after you complete the program; or are dissatisfied with, or don’t receive, the education you paid for.

Some other responsibilities you have as a student loan borrower— and the excuses you cannot use—are as follows:

I never got the bill. Sorry, but not receiving a bill or loan statement in the mail is not grounds for not paying your student loan bill. Lending rules state that loan recipients must make payments on their student loans even if they do not receive bills or repayment notices.

I need more time. Sometimes you hit a rough patch and you

can’t pay your student loan bills perhaps for months at a time. In those instances, it’s a good idea to ask for a deferment or a forbearance— basically a “loan holiday” when you don’t have to pay your student loans until you get your financial act together. If, that is, your lending institution goes along with your request. But, according to the U.S. Department of Education, if you request such a delay you still have to make payments until you are notified that the request has been granted. If you stop paying on your loan anyway, you could be in default. A tip: Keep copies of all deferment request correspondence because they could come in handy if your loan is in question later on.

I thought you had a crystal ball. When you graduate from school, transfer to a new school, or drop out or attend as a parttime student, it’s your responsibility to let your lending institution know about it.

I didn’t think it was that time of the month. Your loan payments are expected each month.

Credit Card Debt from Your Student Loan Perspective

Not all debts are bad ones. Using a mortgage to buy a home, tackling the rising costs of college with a loan, even borrowing money to buy a car—all are good debts with high return values.

But there are bad debts, too, debts that can limit or even prohibit your cleaning up your student loan debt. Of the bad debts, few are worse than credit card debt.

Simply stated, credit card debt can kill you from a personal finance point of view. Massive credit card debt can choke your ability to deal with all your other financial responsibilities, taking over your life and limiting your ability to grow and prosper.

Sure, eating at a five-star restaurant or buying season tickets to watch the Red Sox are worthwhile pursuits—if you can afford them with what you bring home in your wallet every payday. Using a credit card to finance these endeavors is being a long-term loser, if only because most of the things you buy with credit cards depreciate rather than rise in value. Those high-top Reebok basketball sneakers may look great in the box, but once you slap them on your feet, their value resides only in your mind’s eye, because few others want them anymore. Unlike other depreciable items, like a car that provides vital transportation or a pair of eyeglasses that allows you to see, most things you buy with a credit card don’t offer much to your personal bottom line.

From your student loan perspective, any money that is earmarked toward your credit card debt is money that you can’t use to free yourself from student loan debt. That’s the primary reason why credit card debt is invariably bad debt.

It’s bad from a student loan point of view, as well. In fact, student loan debt and credit card debt are joined at the hip. For decades, credit card companies have targeted college students, offering them their first shiny new plastic card while downplaying the dark side of owning a credit card.

Well, that plan worked. Millions of young Americans who received their first credit cards in college (and millions more who didn’t, but got them right after they graduated and obtained their first job) have developed the nasty habit of using their credit cards with alarming regularity. In the process, younger Americans have put a real dent in their financial health and made it even harder to address their student loan debts.

According to the college-lending agency Nellie Mae, U.S. college students in 2000 racked up an average credit card balance of $2,748. That’s up from an average $1,879 in 1998, the agency reports.

More disturbingly, Nellie Mae also says that a college student who makes the bare minimum credit card monthly payment (with an 18 percent APR interest rate) would need a whopping 15 years to pay off that entire debt. Worse, the cardholder would have to pay as much in interest alone as he or she would the original $2,748 debt. And that’s operating with the dubious assumption that the cardholder would never use the card again.

As if, right?

Then there’s another study published by New York State’s education agency that reports 78 percent of college students carried at least one credit card while 32 percent carried four cards or more. Furthermore, 10 percent of students shouldered a credit card balance of $7,000. Another 14 percent owed between $3,000 and $7,000.

Know Your Student Loan, One Step to Financial Freedom

Some people treat student debt like the plague and make no special effort to pay bills right away or at all. The good news is that the number of those who elect to ignore their student loan debt is declining. Educators attribute that decline to an improved U.S. economy in the 1990s and an improved awareness on the part of loan recipients of the importance of paying off their student loan debts.

Obviously, student loan borrowers are taking their debt more seriously. And people are beginning to understand that knowledge is power and that the fastest way to pay off student loans is for borrowers to face their loans head on and know what they’re up against.

This is a highly significant occurrence. By knowing your debt and understanding how it impacts your financial life, your chances of eliminating that fiscal albatross around your neck increases exponentially. But what, exactly, does “knowing your debt” mean?

For starters, it means knowing how much you owe on your loan. If you owe $8,000, then, if nothing else, you know where you stand. It seems like a simple concept, but some people can’t be bothered about their debt amounts. They’re too busy starting their careers or tackling other, more appealing, fiscal responsibilities such as buying a new Jeep or grabbing a vacation rental on the beach for the summer. These people are in the highest danger of defaulting on their student loans, simply because, for whatever reason, they stopped paying attention to their loans.

Don’t be like that. Know your loan. Know its terms, its payment schedules, its repayment options. Know that if you make higher monthly payments you can pay the loan off more quickly. Know who your lender is and where you can reach them. Know that if you move, you need to contact your lender and let them know your new address. Hey, young people move all the time. They get jobs in different cities or decide that they want to live in San Francisco or Boston at least one time in their lives and up and do so.

Knowing your debt also means knowing what to do if you can’t make a monthly payment for some reason. Lenders are usually fairly gracious about this, as long as you let them know you won’t be paying and when they can expect the next payment.

Keeping your lender in the loop is a huge part of knowing your debt. Closing them out or ignoring them will only lead to complications and possibly default. And if that happens, good luck landing that new brownstone apartment in Haight-Asbury or Harvard Square.

Above all, knowing your debt means reading and understanding all the correspondence you’ll receive from your lending institution. Yes, the language lenders use in their statements reads like the Dead Sea Scrolls. But read it anyway. Remember that it’s all part of knowing your debt.

And knowing your debt could mean the difference between financial freedom down the road or financial fiasco.