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Paying Off Student Debt

Paying Off Student Debt

According to the Wall Street Journal: Should repayment of student loans be a family affair? For those who answer “yes,” there are ways to give financial assistance, while still holding the young adult accountable. Listen to this informative podcast from WSJ. Dive into an in-depth discussion of student loans and best options for becoming debt-free.

Parents who want to help their children paying off student debt need to be sure they have taken care of their retirement plans first. To avoid reaching out to their adult children for money as they age, it is essential that parents take control of their personal finances. Don’t allow well-intended emotions to dictate personal financial security.

Some parents offer to pay the loan payments until their child’s salary exceeds the loan amount. Then both parties can create a plan to allow the student to finish paying off the remainder of their student debt. Some parents agree to match payments made by the student. It is often best to pay off private loans, with set terms. Let students deal with the government loans, which may have negotiable terms. Parents need to be aware of the gift tax when assisting a student unless they co-signed the loan. Any payments made by either party would not be affect taxes. Parents should all pay the bills directly rather than giving cash to the young adults.

Other Options

One popular method for paying off student debt is the “debt snowball” method. Pay off the smallest loan. As that loan is canceled out, apply the same payment to the next smallest loan. If you currently owe money and need help, this resource from nerdwallet.com (below) is very helpful.

If you have excellent credit: Student loan refinancing can save you money by lowering your % of interest. Earnest is one of several companies that refinance student loans. To make sure you are getting the lowest rate, get several estimates before choosing a lender.

To qualify for refinancing, you typically need a credit score at least in the mid-600s and enough income to afford all of your bills every month. Not sure what your score is? Find out with NerdWallet’s credit score tool.

***Important fact: If you owe money to the government, you will lose access to income-driven repayment and forgiveness if you refinance federal loans.

Budgeting Tools for Today’s Students

If you have a student beginning their journey into higher education, be sure to check out the online budgeting resource from the affordablecollegesonline.org. This company specializes in ranking the best online college offerings and assisting people to earn college credits while keeping costs down.

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BUDGET FOR YOUR FUTURE

Start a Savings AcctAre you saving? If you are in the hole one hundred dollars this month, and you continue down that path, how long will it be before you get so far behind that you will not be able to turn it around? You need to create a savings habit. Some financial advisors suggest eliminating all debt before saving. I believe you should pay off debt and save simultaneously.

Start putting twenty-five dollars into a savings account. Today. NOW!

Set up an automatic debit with the bank so that, when your direct deposit hits on the 5th of each month into your checking account, an electronic transfer goes into your savings account on the 6th. Start this habit at the same time you learn to pay down your debts. You want to establish a method for both. Yes, you’ll pay a little more interest than if you put the extra twenty-five dollars toward the credit card debt, but you’ll start to see your savings account grow. My experience is that, as people begin to save a little, they feel a sense of accomplishment and can’t wait to start putting more away.

Remind yourself to “pay yourself” first. That is what saving is about – paying yourself for your future. People say they want to pay themselves first, and they usually don’t follow through. I ask my clients, “Why aren’t you saving?” I often hear, “I am waiting to get this big check, and then I’m going to kick-start my savings plan.” Or they say, “I want to pay off all my debt before I start saving.”

My experience with many clients (and my previous self) is that we often promise ourselves to save, and we rarely do. There isn’t usually a big windfall or a money tree that lets us wipe away all our debts and obligations. Assume there’s no big lottery win in your future and just start putting away small amounts.

Get into the new habit of saving. You should start with twenty-five dollars. Start experiencing the gratification of seeing your savings grow while paying down your credit cards and other debts. Incorporate the habit of saving while honoring your prior financial obligations. You are now becoming debt-free while building your wealth and that equation will provide more freedom for future plans.

Each evening, I empty my pockets and drop the change into a jar. I have three or four jars. When one fills up, I add a second one… and then a third. I may have about eighty bucks of change at the end of the year. If you like to save your change like I do, you don’t even have to keep filling those jars. Take the coins down to the bank and throw them into your savings account where it will earn a little interest. It may be little change at first, but lots of small change turns into dollars. Going from being in the red to managing a positive flow of income is a great feeling!

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STARTING THE JOURNEY

3x3 STarting The JourneyHere are some tools to help you determine where you are financially. Learn what your credit score is, plan how much money you want place in your savings account and start a budget for all the important things in life.

Getting ready to buy a house? While it is always important to set intentions and visualize your goal, nothing will happen until you take action and get some momentum flowing. I always wanted to play basketball but sleeping with a basketball under my pillow and wearing shorts and a jersey with a number on it, will not make me a player! To play the game, I have to learn the rules, dribble a ball and practice making a basket. These actions will get me much closer to my goal.

Keep that in mind when your goal seems to be “just out of reach.” Implementing proactive plans and following up with the best action will always take you many steps closer toward the prize!

To help you have a healthy relationship with money and to learn new habits, we have placed numerous tools on the Money Nerve website. It is my hope that these tools will help you to determine how you are spending or saving your income and assist you on your financial journey. Please see the tools page on the #MoneyNerve website for more options.

Here are just a few:
Determine your credit score: https://www.creditkarma.com/

Explore how much your monthly payments would be for a house, depending on the money you have to put down on it and the amount of time your loan is scheduled for: http://www.mortgagecalculator.org/

If you want more house than you have money, now might the perfect time to bump up your savings and plan a budget to make your dreams come true: http://www.aarp.org/money/budgeting-saving/home_budget_calculator/

How to create a balance sheet to determine how your assets and liabilities. And as you purchase a house, learn how to determine what your equity is: https://youtu.be/mxsYHiDVNlk

And last, check out this video from Alexa von Tobel, founder and CEO of LearnVest.com. She shares 5 principles to live a debt free life: