A column on personal finance prepared by the Virginia Society of Certified Public Accountants


(May 24, 2004) — Diplomas in hand, many college graduates begin their journey in the real world strapped down by debt. For many students, the accessibility of college credit cards combined with impulsive purchasing habits result in substantial debt by graduation. If you are in this situation, the Virginia Society of CPAs advises that you develop a plan to quickly repay debt and offers some guidance on how to get started.

Track Your Spending

Keep in mind that while you can’t change the past, you can change how you manage your money in the future. The first step in taking charge of your debt is making sure you know where your money is going. Divide your expenses into categories, such as rent and utilities, insurance, food, transportation and entertainment. For one month track how much you spend in each category. Compare your expenses to your income to estimate how much can be realistically allocated to repaying debt each month.

Come up With a Plan

Calculate how much you owe and to whom. Most CPAs recommend that you first pay off the cards with the highest interest rates. But for some, paying off low-balance cards first seems more rewarding since you quickly see progress. To become debt-free faster, once a credit card is paid off, apply the money you were paying on it to your other credit card balances.

Pay More Than the Monthly Minimum

Low minimum payments are a trap credit card companies use to collect interest for years. Find places in your budget to cut back because accelerating your repayment plan can save you hundreds or even thousands of dollars in interest.

Make Sacrifices

It is always possible to live more frugally if you are willing to make sacrifices. Get a roommate to share the cost of rent, utilities and food. Better yet, if possible, live with your parents until your finances are in order. Bring lunch to work. Trim your entertainment budget. If it’s practical, take public transportation instead of buying a car. Use your savings to pay off your debt.

Replace Your Credit Card With a Debit Card

To help control your spending, remove credit cards from your wallet and use a debit card instead. A debit card looks like a credit card, but is the electronic equivalent of a check. When you pay with a debit card, your checking account is automatically debited. That forces you to think before spending.

Check Your Credit History

Timely payments on credit cards and student loans can go a long way toward establishing a healthy credit history. It’s a good idea to periodically check the accuracy of your credit report. To learn how, visit the Web sites of the three largest credit reporting agencies: Experian, Equifax and Trans Union. If you find an error in your report, follow the credit bureau’s instructions for correcting it.

Start Saving

Once you have paid off your debt, you can begin to establish a secure financial future by following one simple rule: Pay yourself first. CPAs recommend that you build a financial safety net by saving three to six months worth of living expenses. This way you don’t have to resort to using your credit card for unanticipated expenses. Once you’ve established an emergency fund, you can begin to save toward your financial goals. Payroll deduction plans that automatically direct money from your paycheck to a savings or money market account or even a retirement plan are a great way to get started. What you don’t see, you don’t spend.

Ask for Help

If you’re having a difficult time meeting your financial obligations, consult with a CPA. He or she may be able to help you establish a budget, consolidate your debt, determine you eligibility for certain loans and devise a repayment plan that is realistic. Another alternative is to contact a nonprofit consumer credit counseling service.

The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at

Lifetime Financial Planning, Inc.

Dean Knepper, CPA, CERTIFIED FINANCIAL PLANNER™ professional

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