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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 Most will allow you to have your payments automatically withdrawn from your checking or savings account on a regular interval you set up.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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            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 August 20, 2019

                How to Set Financial Goals and Actually Meet Them

                How to Set Financial Goals and Actually Meet Them

                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. And 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 on how to set financial goals and then actually meet them with ease.

                5 Steps to Set Financial Goals

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

                1. Be Clear About the Objectives

                Any goal (let alone financial) 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 is for. It could be anything like kid’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, however small they may be, that you foresee in the future and put a value to it.

                2. Keep Them 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 out of the line will definitely hurt your chances of achieving them.

                It’s important that you keep your goals realistic in nature for 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”. And this quote sums up the best what inflation could do your financial goals.

                Therefore account for inflation whenever you are putting a monetary value to a financial objective that is far away in the future.

                For example, if one of your financial goal is your son’s college education, which is 15 years hence, then inflation would increase the monetary burden by more than 50% if inflation is mere 3%. So always account for inflation.

                4. Short Term vs Long Term

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

                As a rule of thumb, any financial goal, which is due in next 3 years should be termed as 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.

                More on this later when we talk about how to achieve financial goals.

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                5. To Each to His Own

                The journey of setting financial goals is an individualistic affair i.e. your goals are your own goals and are determined by your want to achieve them. A lot of times we get on the bandwagon of goal setting only to realize later on that it was not meant for us.

                It is important that your goals are actually your goals and not inspired by someone else. Take a hard look at this step at all the goals you’ve set for after this step, you will be on the way to achieve them.

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

                11 Ways to Achieve Your Financial Goals

                Whenever we talk about chasing any financial goal, it is usually a 2 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. So let’s get down to ensuring healthy savings.

                Ensuring Healthy Savings

                Self realization is the best form of realisation 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 monthly expenses. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you would be surprised to see how small expenses add up to a sizeable amount.

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

                2. Pay Yourself First

                Generally, savings come after all the expenses have been taken care of. This is a classical mistake which almost everyone of us do. We pay ourselves last!

                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 then manage all the expenses from the rest.

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

                Taking the automatic route will make us lose control of our money and hence will compel us to manage in what’s left with us thereby increasing the savings rate.

                3. Make a Plan and Vow to Stick with It

                Budgeting is the best to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be made.

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                Nowadays, several money management apps and wallets can help you do this automatically. It’s easy and who knows, you may just end up doing what people fail to do.

                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. Rise Again Even If You Fall

                Let’s be realistic. It’s not like the world will come to an end if you made one mistake. This isn’t called leniency but discipline.

                If you fail to meet your budget for a month, don’t give up the entire effort just like that. Instead, start again.

                Remember that flexible plans are the most realistic plans. So go forward and try to follow your financial goals as planned but if for some reason, the plan gets out of hand for you, do not give up on it just yet. This has a lot to do with your psychology rather than any material commitment.

                All you have to do is to stay on the road and vow to stay on it, no matter how much you fall down.

                5. 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 counter intuitive to many but there are some deft ways of doing it. For example:

                Always eat out (if at all) during weekdays rather than weekends. Usually weekends are expensive. Make it a habit and you would in turn be saving a great deal.

                If you are travelling buff, try to travel during off season. Your outlay will be much less.

                If you go out for shopping, always look out for coupons and see where can you get the best deal.

                So 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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                6. 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. And it would be rather easy to lose the grip over your discipline.

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

                7. Maintain a Journal

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

                So 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.

                Use this journal to write down all essential points such as your short term, mid term and long term goals, your current sources of income, your regular expenses which you are aware of and any committed expenses which are of recurring nature.

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

                At this point, you should be ready with your financial goals and would be doing brilliantly with savings; now it’s time to talk about the big daddy – Investments.

                Making Smart Investments

                Savings by themselves don’t take anyone too far. However savings when invested wisely can do wonders and we are at that stage where we will talk about making smart investments.

                8. Consult a Financial Advisor

                Investments doesn’t come naturally to most of us therefore rather than dabbling with it ourselves, it is 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.

                9. Choose Your Investment Instrument Wisely

                Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about them.

                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.

                Do you remember we talked about bifurcating financial goals in short term and long term?

                It is here where that classification will help.

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                So 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 as compared to equity instruments.

                10. 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.

                So make friends with this wonder kid. And sooner you become friends with it, quicker you will reach closer to your financial goals.

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

                11. 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; taking stock of how our investments are doing.

                If there is one single step where everything (so far) can go wrong, it is at this step – Measuring the Progress.

                If we don’t measure the progress timely, then we would be shooting in the dark. We wouldn’t know if our saving rate is appropriate or not; whether financial advisor is doing a decent job; whether we are moving closer to our target or not.

                Do 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

                This completes the list of tips for you to set financial goals and actually achieve them with not so great difficulty.

                As you can see, all it requires is discipline. But guess that’s the most difficult part!

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                Featured photo credit: rawpixel via unsplash.com

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