School Daze

Getting a Ph.D. left Laquita Blockson with dizzying debt. Now, she seeks a financial plan to pay it all off

The Advice

Danny Freeman, founder and CEO of Darda Wealth Management in Winston-Salem, North Carolina, offers Blockson guidance. Also weighing in are personal finance expert Lynnette Khalfani-Cox in Mountainside, New Jersey, and Michelle Oliver, president and CEO of the Oliver Financial Group in Richmond, Virginia.

n Aggressively reduce debt. What concerns Freeman most is Blockson’s breathtaking debt load, which restricts her ability to save and invest.  “Laquita has about $7,000 in cash on hand. Her problem is she only has enough cash to pay her bills for about two months, which is really not enough.”

Khalfani-Cox echoes Freeman’s concern. “While she might be upset about the $38,000 in student loans, the bigger issue is the credit card debt.” The average interest rate on the two cards Blockson used is about 13%. Khalfani-Cox does not recommend consolidation,  which can lead some borrowers to spend more when cash is freed up. Nor should she refinance her homes or get a “cash out” mortgage, putting up her home as collateral. This is risky since missed payments could mean the loss of the home. Instead, Blockson should manage her debt by consistently paying more than the minimum, on time, each month.

n Consider adjusting student loan payments.  Educational loans should not exceed 10% to 15% of one’s monthly income. Although Blockson’s monthly $335 loan payments make up about 7% of her monthly income of $5,050, her monthly expenses of $4,600 might make it harder for her to keep up with payments. If Blockson’s financial obligations increase, Khalfani-Cox says she might want to consider a student loan deferment or an extended repayment plan. The drawback is she would end up paying more interest in the long run. For now, Blockson should stick with the standard repayment plan because it will help her pay down the debt more quickly.

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