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I am trying to save up to go back to grad school but I’m also pretty sure that I can get financial aid also. I have about $5000 in credit card bills that I’m slowly but surely paying off. I have transferred all balances to a card with fixed APR of 1% and I always pay well over the min monthly payment. But in doing this I am not able to save as much money as I would like. So my question is. Is it better to go ahead and keep paying as much as I can toward the balance and keep on saving just a tincy bit at a time. Or should I be putting more into savings and just paying the min monthly payment?
 
Starting school with no credit card debt is a very smart goal!    It’s going to feel so good to have it all paid off.  

Overall, I would advise people to not confuse paying off debt with saving.   You must do both.   For me personally, I found that when we were paying down our mountain of debt (over 60K in credit cards!) I focused completely on eliminating debt.  All those magazines rightfully tell you to examine the interest rates and notice you aren’t saving anything if you carry debt.  But you really have to look at the big picture here too.  For us, we were living hand to mouth and had no emergency fund, so when the next crisis came up, we just charged the crisis.   Which totally destroyed all our progress towards paying off debt.    For us, getting into the cycle of “making savings a habit” was critical to our success.   Even when it was only $10 a week.   Because it changed our mindset.     The money felt more “real” if that makes sense because we remembered how much time it took to save it all.   We were able to develop the skills of prioritization that are critical to accumulating wealth.    And athough progress was slow, when we had crisises come up, we didn’t have to take 20 backsteps and charge stuff.   We just accessed our emergency fund.   Having an emergency fund was a cornerstone in changing how we related to money.

But back to your question.    Since you only have 5K in credit card debt, I think you are right to really focus on that.   Do you have an emergency fund?   I would advocate putting most of your money toward the credit card while you slowly build up an emergency fund equal to at least 3 months of expenses.   Once you have an emergency fund, then focus completely on the credit cards.   Of course a key component of this is not charging anything else on the credit cards. 

Two additional things to think about as you go forward:

1.  Contact the graduate school you are thinking of attending now and find out how they compute financial aid.   This will help you make more appropriate tradeoffs.

2.  If you are still carrying a debt load when you start school, see if you can consolidate your credit cards with a student loan.  Usually the interest rates are very low, some of them don’t start accruing interest till after you graduate, and many of them don’t make you start payments till after you graduate.  

Good luck with grad school!!

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