College Kid in need of advice

[theaudist]

Hey Guys,
I'm a 22 year old college student who is putting himself through school. I work full time and pay off my tuition every semester at the University of Alabama, but find myself digging into more and more credit debt every year. This year, I've resolved to make a turn around on my finances. I recently came into a $2000 windfall, and want to know your ideas on how I should manage this money. I currently have $2100 in credit card debt, no student loans, no car payment, no savings, and I take home about $16,000/year after I pay tuition ($1333/mo). My share of rent & utilities is $475/mo.

Thanks!

[disneysteve]

Welcome. What are your total monthly expenses?

I would park $1,000 in savings as an emergency fund and put the other $1,000 toward the CC debt.

The bigger question/problem is why do you have credit card debt? It indicates that you are living beyond your means. Stop using your credit card immediately. If you don't have cash, you can't afford it. Adjust your spending so that your income covers your expenses and still leaves some surplus for saving.

[theaudist]

Generally speaking, I use the credit card whenever an unexpected event occurs such as emergency car repairs, hospital visit, etc. My parents tried to teach me the importance of saving, but for whatever thickheaded reason, I didn't understand why until this year. If I could only kick my 18 year old self in the pants....

anyways. Thanks for the help. I'm working on getting a handle on my monthly expenses, and here's what it looks like right now:

Rent: $325/mo (changed apartments from $500/mo when I made this resolution)
Utilities: ~$120/mo
Internet: $35/mo
Food: $190/mo
Gas: $75/mo
Saving: $200/mo (started this month)
Health Insurance: $65/mo
Recreational Spending: $130/mo (fast food, significant other, etc)
Homebrewing Hobby: $70/mo
Credit Card Payments: $100/mo

How does that look?

[NewBeginnings]

Im not a guru like some of the folks here and im still learning but personally i would take from saving and put more into getting your credit card debt done with.

[theaudist]

I'm very tempted to drop the entire windfall into paying off my entire cc debt.

[maat55]

I'm very tempted to drop the entire windfall into paying off my entire cc debt.

This would be a good thing but the problem with your logic is that you accept your card as a crutch.

You need to set aside 1k, put 1k towards the card and work towards paying off the rest of the card with extra effort.

You should never use your card except when you can pay-in-full. The reason you carry a balance is due to not preparing properly for unexpected expenses. You are forming a bad habit.

[Mr Nice Guy]

I'd toss the entire thing at the CC debt. I imagine your interest rate is brutal being 22 years old.

Yeah an emergency fund is nice but he is 22 and is getting cold cocked by interest. I don't think I have to run the numbers on this one.

The only caveat dude is you need to STOP all further CC usage. Your dog needs food, tough. give him away. You need food, eat your dog. Whatever, just no more CC. (KIDDING!!!!)

[Hector]

I would put entire amount into credit card debt if I am paying interest on this credit card. Its nice that you are putting yourself to school without taking student loans. Keep doing it and you will come ahead. I wont keep EF at 22 while I am in the school. Interest on credit card is horrible. You should not pay interest on it. If emergency comes up, use new credit card with 0% APR and make sure to pay it off before they starting interest. If you can not, rollover to different card with 0% APR. But do not get in the habit of keep using them more that your need - that happened to most of us and it played a key role in housing crises. Debt is bad and try not to have it.

I don't know how does it work when you are already enrolled into a university. But I see that a lot of students take classes at community school and then transfer those units to a university. In doing so, you can save good amount of money in tuition fees.
Is there an option to take some classes at community school and transfer them to your university while you are in university? If so, I would recommend doing it.

[kork13]

In this particular case, I think I'd recommend just paying off the credit card entirely... Use the full $2k windfall against the credit card, then at your next paycheck, payoff the last $100 or so balance. You can then focus $300/mo into your savings.

From there, as the rest are saying, you need to be careful about not charging more than you can pay off when your statement comes due. As long as you pay it off entirely, you never need to pay a cent in interest charges.

[theaudist]

Well its kinda hard to decide which would make better sense. I think I may just go ahead and pay down my debt immediately though as I feel like that extra $100/mo I don't have to pay in CC payments would be relieving.

Would I then go ahead and get my $1000 EF set up? Do I close any credit cards? The debt is spread across 3 cards.

[kork13]

I feel like that extra $100/mo I don't have to pay in CC payments would be relieving.

Sort of my thinking as well...

Would I then go ahead and get my $1000 EF set up? Do I close any credit cards? The debt is spread across 3 cards.

Truly, with monthly expenses around $1000, you should aim to set up an EF of around $6k (6 months' worth). But even $1k is a good start to give you some security.

As for the credit cards, you can keep them if you plan use them (responsibly) in the future, or if you don't need/want them, you can close them down. That does, of course, assume that you can stop using your credit cards for any and every "unexpected event." If you won't be able to keep your credit cards paid off every month, you should definitely consider closing the accounts, or at least destroying the cards so you don't use them irresponsibly.

[Hector]

Well its kinda hard to decide which would make better sense. I think I may just go ahead and pay down my debt immediately though as I feel like that extra $100/mo I don't have to pay in CC payments would be relieving.

Would I then go ahead and get my $1000 EF set up? Do I close any credit cards? The debt is spread across 3 cards.

I wont close any credit card. After paying it off, just shred it if you don't want to use it.
1. One should not close down oldest credit card unless you are paying annual fees on it.
2. Keeping all your cards open will help with better debt to credit ratio.
These two are important factor in calculating credit score.

[vitalogist]

I'm very tempted to drop the entire windfall into paying off my entire cc debt.

I'd also do that if I were you. Afterwards, I'll get a debit card, makes swiping much more harder because that's actually MY money that I'll be spending.

[kaleida]

I'd toss the entire thing at the CC debt. I imagine your interest rate is brutal being 22 years old.

Yeah an emergency fund is nice but he is 22 and is getting cold cocked by interest. I don't think I have to run the numbers on this one.

The only caveat dude is you need to STOP all further CC usage. Your dog needs food, tough. give him away. You need food, eat your dog. Whatever, just no more CC. (KIDDING!!!!)

I agree with Mr Nice Guy

[BudgetSurgeon]

Welcome. What are your total monthly expenses?

I would park $1,000 in savings as an emergency fund and put the other $1,000 toward the CC debt.

The bigger question/problem is why do you have credit card debt? It indicates that you are living beyond your means. Stop using your credit card immediately. If you don't have cash, you can't afford it. Adjust your spending so that your income covers your expenses and still leaves some surplus for saving.

I agree. Put 1/2 away for emergencies and put 1/2 toward paying down your CC debt. Have a solid plan in place for paying off the remainder of this CC debt over the next few months. Now for the lecture -- do not EVER rack up debt on your Credit Cards again. Use your Credit Cards as a 30-day short-term payment vehicle, with any charges put on your card immediately paid off when the bill arrives. The general rule is if you don't have the cash to pay for an item, then don't use your Credit Card to purchase it. Only use your CC to purchase something when you have the collateral savings to pay it off in the next 30 days. If you stick to this rule at an early age, you will be well ahead of the bell-curve in that regard, and you will be well on your way to sound financial and prudent budgeting practices.

Good Luck!