Q: I'm 33 and in the second year of a five-year PhD program. I went back to school knowing I'd be living on a small income for a few years, but now I worry that I'm getting too far off track. I have $45,000 in student loans, $19,000 in credit card debt, and no savings, stocks, or retirement funds. I'll earn $16,000 a year for the next three years and will probably have to borrow $12,000 to cover my living expenses. Can I develop a plan to get my debt under control and kick-start my savings while finishing school, or am I in such dire straits that I should scrap the PhD?

A: The first thing you need to do is think about why you started the degree program. Is it absolutely necessary for you to advance in your career? If so, then you've got your answer. But if you really aren't clear about why you decided to tackle a PhD, then it makes little sense to stay with it and pile on more debt. Forget about the money for a moment and answer this question: Is obtaining the degree going to make you happier in three years than you are right now?

If you choose to stay in school, focus on smart debt management. I want you to do everything possible to maintain a great credit profile so you can qualify for the lowest rates on credit cards. As I've said before, if you have a FICO score of at least 700 and an interest rate above 10 percent, you should call your card company and ask for a better rate. Consider doing a balance transfer to a new card with a lower rate if you're refused; you can shop for deals at CardWeb.com. And remember, the best way to keep your credit in good shape is to always pay at least the minimum due every month, on time.

While it would be nice to start saving and investing, that's not realistic on your income. In fact, if there's any way you can take on some extra part-time work, your priority should be using the money you earn to cover your living costs while you're in school. By generating cash rather than borrowing it, you're going to save plenty in bypassed interest charges.


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