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Help! I’m drowning in student loans

TODAY financial editor Jean Chatzky shares advice on balancing the bills and resolving your credit problems.
/ Source: TODAY contributor

Need advice about paying off your debts or making ends meet in today's economy? TODAY financial editor Jean Chatzky gives answers to some of the most common consumer debt questions.

Q: I have $120,000 in student loan debt and $8,000 in credit card debt. How can I pay down such a large amount of money when the interest adds up to almost $1,000 a month?" — Amanda, Orlando, Fla.

A: Amanda, now is the time to consider consolidating your student loans if you haven't done so already. As long as those loans are federal student loans taken out prior to July 1, 2006, and you have not already consolidated, you are likely to be able to reduce your monthly payments in this way. If you have already consolidated, or if these are private loans, I want you to call your lender and discuss options.  You may want to extend the term of your loan, apply for deferment until your salary rises or other options. If you've exhausted those options, well, then now is the time to look at your chosen career and see what else you could possibly do to make your cash flow a little easier. This is precisely why so many people in their 20s are moving back home with mom and dad for a few years. Not paying rent gives them the ability to make a big dent in those student loan payments and enables them to move on with their lives.

Q:  We are in so much debt — first and second mortgages credit card debt, son going to private high school. We are so overwhelmed, it is taking its toll on our relationship, kids and life. Any help would be appreciated. — Marie, Malden, Mass.

A: Marie, we talk a lot on this show about making small choices — cutting out things like lattes and premium cable — in order to find money to pay off your debts. But sometimes small choices aren't enough and you need to make some larger, tougher ones. This may mean moving from a larger house to a smaller one; it may mean selling a car or taking on a second job; or it may mean either finding enough financial aid for your son's tuition or pulling him out of private school and putting him in public school. I'm not saying that this is an easy decision, because it's not. But think about it this way: If you are unable to support your family when he is in high school, there is no way you'll be able to contribute to college. I also think you should share with your son enough about your situation so that he understands the pressure you're under, and how hard you have tried to make this work for him. Teenagers can be tough, but yours may surprise you with how he steps up to try to contribute to the family.

Q: I recently had a baby and would like to know the best way to save money for college for him. We live in New York. Is the 529 program the best or a money market account? How much should we plan on putting in the account per month? — Jen, Clifton Park, N.Y.

A: First of all, Jen, you may know my stance on this. You don't start putting money away for college unless you're really socking it away for retirement. Why? Because there is no financial aid for retirement, but, despite the fact that it may come in the form in loans, there is plenty of financial aid for college. Once you're past that hurdle, I do think 529 programs are a good way to put money away for college. In many states, including New York (in which, full disclosure, I contribute money to the 529 every month for my children) you may get a deduction on your state tax return for making the contribution. There are Web sites now that rank the country's many 529 plans. I'd suggest you go to and so that you can compare your state's 529 with others. There's no rule that you have to contribute to your own state's plan.

Q: My wife and I recently pulled our credit report. I am at 825, she is at 857. Our worst scores were 620 and 645. What can we do to keep our credit in good standing? The only credit we plan on keeping is our house and a car, and then paying cash for everything else. Is this a good plan or should we collect more small loans to keep our credit score good? Ken, Westfield, N.Y.

A: Ken, in whose book are you a B? You are an A, no doubt about it. She may be an A-plus but that's just splitting hairs. Excellent job, both of you. I don't know about collecting small loans, but I would make sure that you have at least one credit card in each of your names (it can be joint or you can each have one individually, just be sure one of you is not an authorized user on the other's card). A credit card is an important part of the thickness of a credit file, which is one of the factors that any credit score is based on. I pulled a few no-annual fee cards with sizable programs, although with those scores, I can't imagine a program wouldn't take you. If you want to protect yourself from going crazy with the spending, when your card issuer writes to offer you an increase in your credit line, say no thanks.


  • Disney Rewards Visa from Chase
  • Blue from American Express
  • Capital One Platinum Prestige MasterCard. All have no annual fee — you can find others that might fit on Web sites like

Q: How does canceling a credit card affect your credit rating? I really don't want to hold onto a particular card but I am afraid canceling it will negatively affect my overall credit rating?  — Kenneth, Queensbury, N.Y.

A: Kenneth, it is true (not urban legend) that canceling credit cards dings your credit score.  That's because one important part of your credit score (about one-third) is something called your utilization ratio. It's the amount you have borrowed divided by the amount of credit you have available to you. By canceling a card, you shrink your credit lines (the denominator) so the ratio takes a hit. If you really want to get rid of this card, however — and there are lots of reasons you may want to, including annual fees, high interest rates, etc. — do the following: Make sure that you are not planning to apply for a big loan on a car or a house in the next six months. Then, pay down a little bit of debt (the numerator) at about the same time you're canceling the card. Don't cancel any other cards for the next few months and it should be a wash.

Jean Chatzky is an editor-at-large at Money Magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s TODAY Show and is also a columnist for Life Magazine. She is the author of four books, including 2004’s “Pay it Down! From Debt to Wealth on $10 a Day” (Portfolio). To find out more, visit her Web site, .