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5 Crucial Steps To Paying Off Your Student Loans Before Your 30s

5 Crucial Steps To Paying Off Your Student Loans Before Your 30s

Student loan debt is a national problem. As of January 2016, total US student loan debt was over $1.2 trillion, and market analysts have warned about how this expanding student loan debt has become a bubble. That bubble bursting could have serious consequences for the US economy, as banks and the government could be crushed under a pile of insolvent student loans.

But the reality is that the student loan debt problem will not be fixed easily, whether at the societal or the individual level. But there are a few things which any student can do to ensure that he is debt free in his 30s. Here are five steps which can make the difference between a manageable debt and a crushing one.

1. Spend less

Let us start with one fact: by and large, people go to college because they want money. College should be viewed as an investment where you spend money on tuition now to make more money later – and despite the concerns over debt, college is still a good investment.

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But the first step to make money is to not spend it. You are in debt. And the reality is that when you are in debt, there are sacrifices which you have to make in order to get out of debt. It may mean delaying a marriage, getting a worse car, or not eating out, but things like that will help to lessen debt over time.

I won’t deny that this is one tough step. But there is no easy way to getting out of student debt.

2. Don’t look for the easy way out

There are thousands if not millions of young adults just searching for an easy way to wipe out their student loan debt and start clean. And that sort of environment attracts scammers looking to prey on the fears and hopes of the desperate.

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Honest student debt relief organizations will never demand money up front, but the simplest rule you can follow is that if a group’s offer seems too good to be true, then it probably is. This example from the Consumer Financial Protection Bureau should serve as an example of some of the things a scammer will do.

There is no easy way out of student debt, and looking for one will get you in trouble. Acknowledging that you are in trouble is the first step to getting out of it.

3. Get a government job

Everyone knows that the military is an option for many individuals to get into college for free. But you don’t have to face bullets in order to qualify for government loan forgiveness programs.

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Most government jobs, and especially teachers, can be qualified for a loan forgiveness program where a set amount is forgiven every year. This can be as much as $10,000 per year for government employees in forgiveness. If you are unwilling to commit to years of government service, then a short-term option is to take a stint in AmeriCorps or the Peace Corps.

It should be noted that these programs have a catch. Most loan forgiveness programs will require you to make 120 payments on time before the loans are forgiven. And some students will struggle when they realize that loan forgiveness programs do not apply to personal finance, such as car loans you may have taken out..

4. Pay off private loans first

The vast majority of student loans come from the government. A 2014 estimate showed that out of the $1.2 trillion in student debt, just $150 billion of those loans are private.

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But private loans are much more dangerous, and should thus seek first priority. The aforementioned loan forgiveness programs do not apply to private loans. And perhaps most importantly of all, private student loans generally have a higher interest rate compared to federal loans.

As a matter of fact, the higher interest rate thing should be noted in and of itself. It may seem obvious, but there are too many people who don’t prioritize paying off the loan with the highest interest rate. This does not just apply to student loan debt: while paying off student loan debt is important, don’t do it if you’ve got credit card debt that will strangle your credit faster.

5. Don’t consolidate your loans.

In order to make paying student loans easier, some people opt for loan consolidation. Loan consolidation combines all of your small loans into one big loan. The government can track your payments based off your income, and the result is an easier to pay off loan which you can just handle month after month.

Except not really. Terms for long consolidation will generally assume that your time for repayment will last longer than if you had not consolidated your loans, which means that more interest will accrue and the loans becomes more expensive over the long term. If you want your loans paid off sooner, then track your loans yourself, and pay off as much as you can every month.

Featured photo credit: Francisco Osario via flickr.com

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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