Need advice in being debt-free and saving money

[dekita]

Hello everyone. I'm here as a 20 year old college student looking to finally become a financially responsible person. However, I'm really just starting out and I really have no concept on being a financially responsible person, so I need some help.

First off, I have two unpaid debts that have been reported on my credit report. They come up to about $600, but as a college student, $600 is a lot of money (fed work study is my monthly income ha) I also have two unpaid bank accounts, they're also only $100 & $150, and those two are on my ChexSystems report... I have no savings account, only a checking account with Chase. I had stupidly opened up an account with this payday loan place, and because they had access to my checking account, they ransacked my account b/c I couldn't pay them in December... my checking account ended up being $250 in the hole, but fortunately I had a school refund and was able to wash that out and bring my checking account in the positive.

But that whole experience just really woke me up to be more financially proactive. It was hell just going through it. So I want to become better handling money now. I have $500 in my checking account right now, leftovers from my school refund. I could easily go shopping for the latest boots or clothes, but I do not want to be back in the position I found myself in December. And I want to rebuild my credit (constantly being denied for credit cards b/c of the collections on my report) and just be stable. So my question is, where should I start?

I only have my cell phone bill to pay every month, since I live on campus and my living and food expenses are paid for. My family isn't well off, so I really can't depend on my family (and I just don't want to anyway.. I don't want to be financially dependent on other people anymore). So what should I do? Should I pay my bad debts off? Open a savings account and start saving? I don't even have a concept of saving money lol. But my goal is to be responsible with money, pay my debts off, get a credit card and just generally be financially stable. So... please help! Thanks

[disneysteve]

Welcome. Congrats on caring about all of this stuff. Clean it up and get on the right track now, at age 20, and you'll be in great shape going forward.

What is your current income?
What are your current expenses that you need to cover from that income?

Let's start with the answers to those two questions and then we can work from there.

[dekita]

My monthly income is about $300. My current expenses are my cell phone bill and personal expenses. Those two usually come up to be around $130-150 a month, and the rest of it just goes to other stuff like shopping, entertainment, etc etc

[disneysteve]

Clearly, there isn't a whole lot you can do to clean things up with that income. Still, it would be good if you can set aside some money each month, even $20 or $30, to debt reduction. Are the unpaid debts in collections or are they still current? If they are current, send in those monthly payments of whatever amount you can. If they are in collections, don't send them a penny at this point.

What about getting a job? Deliver pizzas a couple of nights a week and you could earn enough to pay off the $600 in a couple of months.

[dekita]

Those debts are already in collections. Though, why do you say I shouldn't send them anything at this point? They're affecting my creditworthiness (I have no credit other than these two debts on my credit report).

[jpg7n16]

Originally Posted by dekita

Those debts are already in collections. Though, why do you say I shouldn't send them anything at this point? They're affecting my creditworthiness (I have no credit other than these two debts on my credit report).

Well it's more that they've already affected your creditworthiness. Paying them off won't take them off your record. And it won't help your current position any either.

DS was saying if they are current, it would harm your credit to let them go to collections, so you should keep paying. But once they're in collections, essentially the damage is already done.

Your decision of: should I pay them? should be based on 1) do I have the money today? 2) would paying them that money leave me in an adverse financial situation? 3) would I still have money to eat if I paid them?

So you almost have the money, but paying it to the bill in collections would literally affect your ability to provide food for yourself. Your survival is more important than your credit report.


Ultimately, you'll want to pay them off. It's just the right thing to do. But right now, you're honestly just not able to do that. So don't pay them a thing.

[disneysteve]

JPG answered for me pretty well. The one thing I'd add is that collections agencies are notoriously difficult to deal with. They often don't want anything short of full payment. So if you can only afford $20 or $30 per month but owe them $600, they may not want to deal with you. It would be better for you to pile up cash and then, once you have the money to repay the debt, call them and make arrangements to do so.

When you do repay what is in collections, make sure you get the payoff amount in writing before sending money. Also, and this is extremely important, pay them with a money order or cashier's check. Don't do anything that would give them access to your bank account. Do not send a personal check. Do not do an electronic transfer.

[preciouslove]

JPG and Steve are right on the money. Follow their advice and you'll dig yourself out of your hole. As for gaining some more income I might have a helpful tip. Donating plasma only takes just over an hour a donation and you can go twice a week. This is good, easy, fast money-I can earn up to $75 a week but everywhere is different. A lot of college kids do it on top of their jobs and bring their studying materials with them. If you're not terrified of needles I suggest you try it out!

[littleroc02us]

Originally Posted by dekita

And I want to rebuild my credit (constantly being denied for credit cards b/c of the collections on my report) and just be stable. So my question is, where should I start?

Thanks

I would say Good to that!!! Having a credit card when you don't make good money is a very bad idea. Not even sure what justifies the Credit Card Companies from giving CC's to kids who don't have jobs to pay their debts. Stupid!!!!! The advice I can give to you is to work, save, work some more and study.... As for the collections, I would save up some money and call up each creditor and offer them a deal..

[snshijuptr]

If you have $150 a month to send anywhere you want it to go, set aside at least 25% of each paycheck ($75) into a savings account to pay off your debts.

So here is your debt:

2 debts in collections - $600
Overdrawn account 1 - $100
Overdrawn account 2 - $200

You have $500 in your current checking account. So here you go:

Month 1 - $570 in checking
Month 2 - $640 in checking, arrange debts with collections, new balance $40
Month 3 - $110 in checking
Month 4 - $180 in checking
Month 5 - $250 in checking
Month 6 - $320 in checking, arrange overdrawn checking with banks, new balance $20

There you go in 6 months your finished paying your debts.

Until then make sure you watch your spending to keep within your budget. When you get your paycheck, deposit it in the bank and then pull out cash for both "personal expenses" and "shopping, entertainment, etc etc". Then when the money is gone, you're done for the month. In college I found it helpful to pay myself daily. So if you have $70 for the month you get $2.33 a day (for a 30 day month) or $16.33 a week.

[cjscully]

Originally Posted by dekita

And I want to rebuild my credit (constantly being denied for credit cards b/c of the collections on my report) and just be stable.

The last thing you should be thinking about is obtaining more credit. Follow the advice already given above and get the debts handled and start saving some money. You're just learning how to handle finances responsibly, rebuilding your credit comes after establishing good financial habits. Don't even apply for credit until you've got a good solid foundation to build on.

The time to think about obtaining new credit is after you've graduated and gotten a full time job.

[MonkeyMama]

I have to second (third?) the idea to get a job. Whether it ve VERY part time, or just in the summers, seasonal, etc., doesn't matter. You have an extraordinary opportunity to save money and get a head start on your savings.

[jd68]

You need to get another job. $600 + $250 you owe the bank. You're now talking about a huge amount. Try to find at least a part time job where you make a steady income, ideally find full time night work. Get it all paid off quick (1-2 months?) then save up at least $1000 and keep that in a savings account earning some interest. Don't touch it, consider it your emergency money in case something comes up or you get hit with fees and whatnot like you did now.

I worked full time all through school and still don't have the money to finish. Consider all that interest you're paying on your loans. Pay some now and save a lot later.

[MrPolarZero]

It was definitely nice of you to make that move. This will certainly prepare you for the things that can happen. But take note that you still need to be worked out on this one.

[Frugal]

Sometimes, it is best to do what I did, and get any kind of part-time job you are able to help pay for school and that expensive, pesky cell phone bill. Even waiting tables or ringing cash registers at the college can help make a dent in your monthly bills, and help you put food on tbe table when you work your way on your own without much help from your mom and dad, like I did.

Avoid further debt in college at any cost. Especially credit card debt. Take it from someone who is out of school, my friend put about $10,000 on her credit card of tuition alone, and her husband had to pay if off years down the road. The interest rates are much higher than regular subsidized Stafford loans, and you can defer Stafford repayment when you graduate from college for at least six months, longer if you cannot find a job (as was my situation when I first left school, a year later than I thought it would take me due to transferring several times).

Hope this helps. These are just my opinions, not the advice of a professional.

[canada94]

Save 10% of your income, it may seem hard at first, you just have to start, i recommend you get a book by George S Clason 'the richest man in Babylon'its a classic, it got me financially free just using the principles.

Hope this helps

kevin

[nwins002]

Don't ever ever go out to eat. Not sure if you do now, but that's what takes so much of my income. Shop cheaply and wisely for food, and only eat out (fast food included) once a month or less.

[KennySoward]

I agree with everyone here. Some great budgeting tips. Also, very important to get some income rolling. I know school is hard (I went through it and my g/f currently is too) but it has to be worked out.

Flexible jobs like waiter, pizza delivery, etc are all good. Also, if you have any writing skills, you can try getting on at Demand Studios (DemandStudios dot Com) which pays around $15 per article (I work for them between freelance jobs and selling my book). The point is, be creative about it.

The trick is to work enough so that you aren't killing yourself. Don't be afraid to cut back when finals approach or to work more hours during breaks.

[CCCFree]

I completely hate pay day loans places and they are just hideous for you. I figured out the annual interest rate for one of these thing sand it was completely out of control!

[Eric80]

My niece was in a similar situation and then i took her to go and see a debt advisor where they advised her on how to resolve this. They suggested an IVA which allowed her to manage her debt. As far as I know she id doing really well with it and is close to paying it all off now. She is a lot happier and is now able to enjoy her life now.