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The Smartest Way to Pay Off Your Student Loans

The Smartest Way to Pay Off Your Student Loans

Graduation is just around the corner for millions of college seniors around the world. Concerns like college rankings, mid-terms and essay samples will be a thing of the past. Of course, these will be replaced by new worries: finding a job, deciding on grad school and for most, the dreaded student loan repayment.

In today’s economy, students have more debt than ever before; some estimate the total amount of student loan debt is well over 1 trillion dollars in the United States alone. While these numbers are daunting, the repayment process doesn’t have to be. By following some simple suggestions, you can reduce you burden and your overall interest payments without living like a broke college student for the rest of your life!

Student loan

    1. Pay a little extra.

    Once you get started with your loan repayments, you might be feeling a little strapped for cash each month. The thought of sending them MORE money might seem a bit of a stretch. However, if you can manage to send even just $5 extra per month, even if it’s not every month, it can save you thousands in interest over the life of the loan. Experts estimate that for every extra dollar you spend, you can cut up to $2 off at the end. That can add up quick!

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      2. Biweekly payments.

      It may sound strange, but sending in half of your loan payment every two weeks will save you thousands of dollars. In addition to paying less interest, you also manage to make an extra full payment every year. Consider the approach, especially if you are paid biweekly.

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        3. Sign up for automated payments.

        Contact your lender and ask about this option. Most will allow you to have your payments automatically withdrawn from your checking or savings account on a regular interval you set up. The other good thing is that lenders will often lower your interest rate by as much as 0.25% if you make automatic payments. It may not sound like much, but it could knock a year, or more, off the life of your loan.

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        You can also have the payment automatically deducted from your paycheck; it won’t hurt nearly as much as writing out a check will. Because you never get to see the money, you won’t miss it as much!

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          4. Let the tax code work for you for a change.

          One of the good things about student loans is that the interest you pay on them is tax deductible, meaning you can subtract it right from your gross income. This means fewer taxes paid and usually a bigger refund for you.

          For example, if you pay $2,000 in interest on your loans in one year, and are taxed at a rate of 25%, that’s $500 less you owe in taxes, or $500 more in your refund check. If you turn that around and apply it as an extra payment towards your student loans, it means you will effectively be using the government’s money to lessen your debt.

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          You Can Save a Ton of Money With Financial Compartmentalization

            5. Pay off variable rate loans first.

            If you have some loans that have a variable interest rate, consider paying them down faster first. While they may have a lower rate than your fixed rate loans, that can change quickly. As the economy improves (hopefully), interest rates can rise drastically, catching you off guard and raising your monthly payments significantly. You might even check into converting these to a fixed rate option. It never hurts to talk to your lender.

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              6. Consolidate.

              This option may not help newer loans that have a fixed interest rate, but for older loans, you can often consolidate them into one monthly payment. This is often at a rate lower than what you are paying on the individual loans. Even if you don’t get a better rate, it may still be easier for you to make one payment per month instead of several.

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              think about what you can do with the money

                7. Get someone else to pay it.

                While this sounds like a great idea, it’s not what you think—unless you have a rich uncle willing to write the check, that is! What you might seriously consider is that some companies that hire college grads may be willing to pay a lump sum payment towards your loans as part of your compensation package.

                You will probably have to accept a reduced salary, and agree to work for them for a specific number of years, but the reduced interest and length of time required to pay off your loans could make it worth it. Consider this option when you get to the salary negotiations stage or at your annual review if you are already working.

                No matter what you get your degree in, if you have student loans, repayment is soon going to be a reality for you. If you use some of these tips, you could easily save yourself thousands of dollars over the course of your loan. That’s no small change for simply applying some of these mostly painless suggestions.

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                Last Updated on June 6, 2019

                The Average Retirement Savings and How to Save Wisely

                The Average Retirement Savings and How to Save Wisely

                Are you on track for retirement?

                If not, don’t worry, I’m not sure either. I save each month and hope for the best.

                Fortunately, I’m at an age where most people don’t save so I’m ahead of the curve.

                But, what if you aren’t in your 20s? What if you’re near retirement and are looking to gauge where you stand?

                If so, keep reading. Here’s how to prepare for retirement and save wisely during the process.

                What Does the Average American Have Saved for Retirement?

                Saving for retirement is tricky.

                Tell someone straight out of college to save $10k a year for retirement and it’ll be next to impossible.

                Make the same request to someone decades older and they’d be more likely to be able to save this amount. But, a 20-year old college student can be “financially ahead” of someone saving more than them. Why?

                Age matters in your financial journey. The younger you are, the more time you have to save and put compound interest to work. As you get older and have more saving power, you’d have less time to put compound interest to work.

                Here are the average savings Americans hold by age bracket:

                20’s – $16,000

                During this stage, most people are paying loans and moving up the corporate ladder. Your best bet during this stage is to focus on eliminating debt and increasing your income. Don’t focus only on getting a high-paying job neither.

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                Instead, focus on learning via Podcasts, reading books, and taking specialized courses. Doing this will make you more valuable and give you more career options.

                30’s – $45,000

                At this stage, you’ve hopefully escaped your entry-level salary and work at a career you enjoy. Your earning power has increased but you now have more obligations. For example, marriage, kids, and a mortgage.

                Set a plan to pay off all your debt and focus on eliminating unnecessary expenses. Leverage financial tools like Personal Capital to ensure you’re on track for retirement.

                40’s – $63,000

                This is the stage where you’re at the prime of your career. Top financial institutions recommend you have at least 2 to 4 times your salary saved up. If you’re falling behind, start maxing out your 401K and Roth IRA accounts.

                50’s – $115,000

                During your fifties, you’re close to retirement but still, have time to save. You may be helping your kids pay college tuition and other expenses. Since you’re at the peak of your earning power, max out all your retirement accounts.

                60’s – $172,000

                By this point, you should have about eight times your salary saved up. If not, you’ll depend primarily on social security benefits averaging $1400 per month. Max out all your retirement options as much as possible before retiring.

                Ways to Save Money on a Tight Budget

                The sad reality is that most Americans aren’t saving enough for retirement.

                Even high-earning power isn’t enough to secure one’s financial future. You need to have the discipline to save for retirement while time is in your favor. Don’t wait for you to have a high salary to save, start with having a small budget.

                First, get a clear picture of where you stand. Write down a list of “needs” and “wants.” For example, Netflix and Amazon Prime are “wants” and a “cell-phone” is a need.

                Use tools like Personal Capital to analyze your spending patterns. Personal Capital allows you to add all your financial data in one place–making it a powerful option to gauge where you stand.

                Once you know all your expenses, organize them from highest to lowest expense. When you can’t cut more expenses, call your service providers to negotiate a lower price. If you’re not good at negotiating, use services like Trimm to lower your monthly expenses.

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                How to Save Money Each Month

                By this point, you know the average amount of money you should have saved for retirement based on your age.

                But, breaking this down into monthly goals can be challenging. Here are some rule of thumbs to follow:

                Aim to contribute 10%–15% of your salary each paycheck. Review your progress each week.

                Why so often? The reality is that life gets in our way and you will have many financial setbacks. Your goal isn’t to be perfect but to get back on track instead.

                Reviewing your finances weekly lets you know where you stand with your retirement. This doesn’t have to be a long process either. All it takes is login in Personal Capital to view your net worth and check how much you have saved for retirement.

                Turn saving into a game and aim to save more each month. It will get challenging but you’ll get creative and find more ways to save.

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                To prepare for your financial future and not be another statistic you need to be different.

                How?

                By adopting new habits that’ll help you become a saving machine. Here are some ways you can save more:

                Automatically Contribute Towards Retirement

                If you’re working for a company, you can automatically contribute towards your 401k. If you’re not currently contributing more than 10%, make this your goal. Contribute 1% more today and automatically increase this amount a year from now.

                Odds are that you’re not going to be negatively affected by contributing 1% more. Many times we spend our money on things we don’t need. Contributing more towards retirement is a great way to secure your financial future.

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                Use the Right Tools to Know Where You Stand

                Once you’re contributing more towards your retirement accounts, gauge your progress. Make use of finance tracking apps to help you view the big picture of your retirement.

                When I’d first signed up for the app Personal Capital, I didn’t know I had a negative net worth. Despite saving thousands of dollars, my debt brought my net worth to the negative. Knowing this motivated me to save more and spend less.

                Now, I have a positive net worth. But, it was because I was able to view the big picture using the app. Find out what your net worth is using a finance tracking app and you may surprise yourself.

                Bring in Experts to View Your Blind Spots

                If you have too little or too much money saved, you should consider hiring financial experts.

                Why?

                You may need someone to hold you accountable to help you reach your financial goals. Or, you may need help managing your money as effective as possible.

                Regardless of the reason, getting help may help improve your financial situation.

                Before you hire an expert, find out which areas you need help the most. For example, if you’re constantly overspending, find a debt counselor. If you’re struggling with choosing the best investment options, hire a financial advisor.

                Speed up Your Retirement Contribution

                After learning how to manage your money well, the next best thing is to earn a higher income.

                You’re capped at how much you can save but not much you can earn. Even if your employer isn’t giving you a promotion, you can still take charge of your financial future. How?

                By starting a side-business.

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                This will be something you’d work on after you’ve finished your day job. Once you start earning income from your side-business, you’ll be financially better off.

                The best part is the more work you put into your side-business,[1] the more potential it has to earn more money.

                So start a side-business in an area you’re familiar with. For example, if you enjoy writing, do freelance writing for small e-commerce businesses.

                Once you’re earning a higher income, you can contribute more towards your retirement. Don’t wait for the right opportunity to secure your financial future, create one.

                Reach Financial Freedom with Confidence

                What if you were able to retire tomorrow with no problem, all because you’d have enough money saved up and little to no debt left to pay off? How would you feel?

                My guess is that you’d feel happy and relieved.

                Most Americans are falling behind their retirement goals for many reasons. They’re not prepared, they carry bad money-habits and are thinking short-term.

                For you to retire successfully, you need to work backward and adopt better habits. Contribute more towards your 401K and focus on growing your income.

                If you do, you’ll save money and pay debt faster.

                Don’t beat yourself up if you’re behind your retirement goals. Take the first step today towards a brighter financial future. Isn’t retirement worth the hard work and sacrifice to be at peace?

                Featured photo credit: Huy Phan via unsplash.com

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