Diana Schofield, PsyD, has always been an overachiever. In her seven years of graduate psychology work, she attacked her studies with zeal and dedication. It paid off when she began her career last fall as a child psychologist for the Virginia Department of Health in Norfolk, Va.
But last year, Schofield had to reconcile herself to a hard truth: In her pursuit of higher education, she had accrued $15,000 in credit card debt. Schofield is not a spendthrift, but flying to internship interviews, dining out and neglecting budgeting had added up.
"I was so embarrassed," she says. "I had only focused on the academic and buried my head in the sand about finances."
Unfortunately, Schofield's struggle with credit card debt is all too common among graduate students. A 2007 study by Nellie Mae found that graduate students carried an average credit card balance of $8,612 — a 10 percent increase from 2003. Only 20 percent of graduate students reported paying off their cards in full each month.
What's even more alarming is the number of students who are beginning a master's or doctoral program already in debt. A 2009 Sallie Mae survey reported that undergraduate seniors are graduating with an average credit card debt of more than $4,100.
Beginning your career saddled with consumer debt can leave you not only with a bad credit score, but with limited career options since you may need to take a job that pays well off the bat instead of one with a low starting salary but more growth potential, or one that might enable you to work with underserved populations. It's also worth remembering that increasing numbers of employers are running credit checks on job applicants.
On a larger scale, mounting debt is leaving a generation of psychologists struggling to fulfill their professional and personal goals, especially as they look toward retirement, says financial psychologist Brad Klontz, PsyD.
"It's really important to not think of credit cards as a loan," Klontz says. "The biggest thing you need to do is be honest about your cash flow. If you can't fix financial stress, you can still limit the pain."
Desensitized to debt
In his research, Klontz has found those in psychology and other "helping" professions may feel an aversion to money. But it's a necessary tool for success, especially for those with their eye toward private practice.
"We think, ‘I'm in the field to help people, I'm not here to make money,'" Klontz says. "There's this sense that money's bad or unspiritual. This hurts our clients. We need to remember that we are providing a valuable service."
Adding to the problem is the fact that debt tends to attract more debt, says Brian Sherman, a clinical psychology doctoral student at Teachers College, Columbia University. "You become desensitized to all this debt," says Sherman, who accrued about $2,600 in credit card debt over the last four years. With $100,000 in school loans, says Sherman, it becomes easy to rationalize putting the occasional dinner on his card.
That's a learned helplessness applied to finances, says Sharon Berry, PhD, who chairs the Association of Psychology Postdoctoral and Internship Centers Board and is the director of training at the Children's Hospitals and Clinics in Minnesota.
"The future incomes of these students are not commensurate with their debt," Berry says. "First jobs in psychology are on average around $60,000, which makes it hard to pay off $100,000 in debt."
Another common trap students fall into is trying to pay off credit cards with student loans — a move that's unwise, says University of Cincinnati Field Service Associate Professor Margaret Reed, PhD, CPA. While student loans often have low interest rates and repayment is not required until after graduation, they can never be erased through bankruptcy procedures, Reed says.
That said, it's still better to pay your living and school expenses with low-interest student loans rather than high-interest credit cards, says Michael Reynolds, a recent graduate from Iona College's master's program in experimental psychology. He thought that paying for living expenses out of pocket instead of using loan money was the best way to minimize debt, which he says was a big mistake.
"I didn't do a phenomenal job of planning out how much money I would need," Reynolds says. "I painted all debt with the same brush. I know now that not all debt is created equal."
Plan your escape
If you are among the many students carrying a credit card balance, don't despair — there is a way out.
One route, says Berry, is graduation. The more time you spend in school, the more credit card (and student loan) debt you'll accrue — so try to complete your doctoral program in five years rather than six or seven, she says.
It also helps to banish your feelings of shame and tackle the problem head-on, adds Reed. That tack worked for Schofield, who finally got up the nerve to confess her predicament to her family.
"I launched a plan to pay it down," she says. That meant creating a budget and sticking with a routine. "Now I say ‘no' to things, and I make a plan to save for things," Schofield says. "I rarely use a credit card and use a debit card instead."
If you are among the many grad students with credit card debt, here are some ways to dig out:
Make a budget. Klontz recommends spending a month tracking expenses and looking at what you are spending on each item. Everyday expenses, including food, rent and transportation, need to be included.
Cut expenses. After you've made your list, cross out what can be eliminated. For many students, that means Starbucks — a $3 a day coffee habit can add up to $1,095 annually. Another way to cut costs is through book rental programs. Several universities are offering textbook rentals, and businesses, such as BookSwim, BooksFree or BookRenter, offer monthly plans that can save you hundreds of dollars each year. Also, don't buy a new wardrobe for internship interviews: "You only need one suit," Klontz says.
Find a roommate. Rent is probably one of the biggest items on your budget, so find a roommate. Try community bulletin boards, Craigslist, Facebook or even consider moving in with a relative, if you happen to have one near your school.
Learn about interest rates. Make a list of all your credit cards, and start paying down the ones with the highest interest rate first. If you can't make the total payment each month, you still must pay the minimum amount on time. You also can call your credit card company to request a lower interest rate, or to transfer balances to reduce your debt.
Put away the credit card. Put your cards in a drawer for use only in emergencies, such as a computer meltdown or car repairs.
Pay in cash. "There's an emotional distancing that comes with a credit card," Klontz says.
Find a job. If you can spare the time away from your studies, seek out part-time positions that can use your skills. Sherman, for example, held a 20-hour-a-week position at the student clinic as outreach coordinator, which paid him $500 a month. It wasn't enough to save, but it allowed him to pay off the bulk of his credit card balance each month.
Seek alternative funds. If you still can't make ends meet, a personal loan is often a better choice than a credit card, because it may offer a better interest rate. However, you may need to enlist a relative as a cosigner. Remember that those who already have credit card debt may have difficulty in qualifying for a loan. The best interest rates, of course, are available through generous parents — though proceed with caution, says Klontz. "The stipulations need to be very clear," he says, so sign an agreement stating the interest rate and when the loan needs to be paid off.
Ask for help. When debt puts you in dire straits, Reed recommends asking a professional financial expert for guidance. Additionally, ask your graduate program to host a workshop or seminar on managing money.
Ask for a phone interview. Rather than put another plane fare on your credit card, don't be shy about asking for a phone interview during internship matching. "It's sort of a ridiculous assumption that you need to travel to 10 to 20 places," Klontz says. "I expect my interviewees to be dirt poor, and for them to remember that we've been in their exact situation."
Elizabeth Leis-Newman is a writer in Baltimore.