Graduate wonders what to pay off first

Dear Dave: I’ll be graduating college in December with a degree in elementary education, and I have a job waiting for me. It will be the first time in my life I’ve made more than minimum wage, and it will bring our household income up to about $75,000. I’ve got $15,000 in student loan debt, $6,000 to pay off from a repossession a while back and $3,000 in credit card debt. How should I handle this salary increase? — Mickey

Dear Mickey: Congratulations on your degree and the decision to get serious with a plan for your money! And here’s some more good news for you. If you guys keep living the way you have been and put the rest toward debt, you can have it knocked out in about a year.

But just because you’re making some money doesn’t mean you should double your entertainment budget or pick up a car payment. Sit down together and work out a written monthly budget. Give every dollar a name before you spend it, and don’t forget to work the debt snowball, too. List your debts from smallest to largest, pay minimum payments on the two largest and then attack that credit card debt with a vengeance! Chances are you can get these taken care of in a month or two. Once you’ve paid that off, roll the money from that payment over and apply it plus any other cash you can scrape up toward the car repo. If that debt has any age on it you can probably work a deal for 50 cents on the dollar and get out paying just half.

Once you have done, this you’ll have a bunch of cash to throw at those student loans and get the debt off your back once and for all. Good luck, Mickey! — Dave

Bad timing on 401(k)

Dear Dave: I’m married, make $50,000 a year and we have no debt. We also have no retirement savings. I’d hoped to invest in my company’s 401(k), but they stopped matching the contributions two days after I became eligible to invest. Should I still invest in their 401(k) or do my own thing somewhere else? — Jim

Dear Jim: Wow, talk about crummy timing! But if your company doesn’t have the match anymore you’ll be better off doing a Roth IRA because it grows completely tax-free.

Right now you can contribute $8,000 a year, or $4,000 each for you and your wife. And let’s do a little math. Based on average returns, if you contribute this amount every year from age 30 to age 70 you’ll have more than $5 million waiting on you at retirement. How cool is that?

You can even go the easy route and have the contributions auto-drafted from your checking account each month! — Dave

Protecting your credit

Dear Dave: My husband just left me after not working for months and developing a drug problem.

We lived in an apartment together, so there’s no mortgage to worry about. I love him and want him back and well, but I’m scared and wonder if I should protect the bank account and credit card. There’s about $12,000 in the bank right now. Nothing is owed on the card, but it has a $20,000 limit. — Heather

Dear Heather: This is a scary situation, and you need to protect yourself. Pull out at least half of the money that’s in the bank today! Take your name off the account, and open a new one at another bank under your name only. Right now, you’ll be liable if he runs up $14,000 worth of hot checks and your name is still on the account.

Call the credit card company, and get your name off that account, too. Send them a certified letter overnight — return receipt requested — stating that as of today you are no longer responsible for any charges on the card.

Here’s the thing. If either of these places try to come after someone for money, they’ll come for you. You’ll be easier to find and harass than a druggie who’s trying to run away from things.

Heather, I’m really sorry you have to go through this. But remember, even if you do the things I’m saying it doesn’t have to mean the marriage is over. It just means that you protected yourself financially. Hopefully, he’ll come back, come to his senses and get some help! — Dave

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