August 19, 2019 · Credit, Education, Investment, Scholarship
Student loans continue to help students achieve their advanced education goals—while at the same time creating what may be lifelong debt for them. Last year nearly 70% of 2018 graduates took out student loans and graduated with debt that is just shy of $30,000. Having one (or two) college degrees generally results in higher lifetime earning potential and income, but depending on their career field and the U.S. economy, college graduates may have many financially difficult years of paying that debt down, or ideally, paying it off entirely.
Coping with student loan debt can be challenging as it is becomes second largest U.S. consumer debt, falling short only after mortgage debt. If you started your career recently and joined the world of working professionals, it is important that you build some healthy habits to gain control over your student loan debt.
Here are few tips that will help you get a handle on your student loans:
Understand your current financial position – Understand what you own and what you owe. If you are just starting out you may owe more than you own, that is normal, especially if you have student loans. A great way to understand your current financial position is to grab a piece of paper, or even use an Excel® spreadsheet, and list your assets and debts. Be sure to include the interest rate of each debt which will help you prioritize which debt you should pay off first.
Keep in mind that all debt isn’t equal. You might be surprised to find that your credit card may have a higher interest rate than your student loan. The higher the interest rate the more you are paying to borrow money. While your student loan might feel like an unmanageable monster that you want to pay off as soon as possible, it might be financially wise to focus on paying down higher interest debt first, while continuing to pay the minimum payment on lower interest debt.
Tip: If you are interested in knowing your net worth, subtract your assets from your liabilities. Again, if you are starting out with debt, your net worth may be a negative number—but that is ok! With a disciplined debt payment plan you can begin to increase your net worth.
Understand your student loan situation – Now that you have a list of what you own and owe, you can focus in on what you owe, specifically your student loans. In addition to understanding how much you owe and the interest rate of each loan, you also want to understand additional loan details. On your piece of paper or Excel spreadsheet you will want to answer the following questions:
Create an action plan for managing your loan – Now that you have a deeper grasp of your financial position and features of your student loans, you can begin to create a plan that works for you. Here are some things to keep in mind:
When you’ve completed your analysis, you can begin to come up with a plan that works for you.