I graduated law school a few months ago
and am thinking of taking a public-interest job that only
pays $35,000 a year. Although I have no credit card debt and
my credit report is otherwise clean, my student loans are
about $120,000. Assuming I can handle the payments, will these
loans prevent me from getting decent credit cards and car
loans? I've been too scared to apply in fear of damaging my
credit report with rejections.
Congratulations on graduating law school. You are making an
admirable choice to take a public-interest job for less money
than you could earn otherwise. I have been working in the nonprofit
sector for the last 13 years and have found the trade-off of
dollars for ideals to be alternately uplifting and at times
frustrating. On balance, though, if you make this choice for
the right reasons and with your eyes open, it can be very rewarding.
America needs people like you who are willing to put larger
interests ahead of their own.
You are right on target
to look at the implications of a lower salary and how it will
affect your ability to obtain credit with a substantial student
loan balance. You also may have already figured this out,
but your underlying question of the effect of earning less
money will be mirrored in every other aspect of your life.
Not only that, but if you have a partner in this great adventure
we call "life," this question will concern that
person as well.
So, although looking
at your credit situation is smart, you may want to start with
building a comprehensive
spending plan for your $35,000-a-year salary. Put pencil
to paper or hands to keyboard and work out how much you will
need for housing, transportation, food, entertainment, student
loan payments, etc.
Don't forget to fund
account and savings for your long- and short-term goals.
Once you have a good feel for how your income and expenses
will align, then and only then should you be considering credit
cards. A bank card is important for things such as renting
a car, reserving a hotel room or shopping online, and with
your limited income, you will need to be careful about what
and how much you charge.
As you have already
stated, the student loan payments will cut into your available
funds. If you have not already done so, I would recommend
that you shop around for the best consolidation
loan you can find at the lowest interest rate and best
terms. To guarantee a low, fixed interest rate you may need
to decide fairly quickly. A proposal now before Congress seeks
to ban fixed-rate interest for federal student loan consolidations
in favor of variable rates that change along with the current
Now, finally, to the
question you asked: With your clean credit rating and gainful
employment, it should not be a problem to secure a car loan
or a credit card even with a large student loan debt. A potential
lender will give more weight to your payment amount and payment
history than the total amount of the loan. Try to keep your
student loan payment and the car loan payment for which you
are applying at 20 percent or less of your income (your debt
to income ratio) and you should not have any problems. Credit
card issuers are even less stringent than that. The Bankrate
power of credit scores," goes into details of how
credit scores are calculated.
The Debt Adviser, Steve Bucci, is the president
of Consumer Credit Counseling Service of Southern New England.
for additional debt
advice or click
here to ask a debt question.