Moreover, you may be using debt without even realizing it. While credit stimulates the economy, it does have to be used judiciously. Credit is not money. Derived from the Latin word for "trustworthiness," credit is based on faith that the borrower will repay the debt with real money.
One should not use credit in place of money when there is little or no likelihood that payment in real money will be made—using credit without the intent or ability to pay is theft. Today, credit has become a business in its own right. Credit is issued by banks, savings and loans, credit unions, public utilities, and even merchants. This represents hundreds of billions of dollars in interest earnings to lenders. This is why credit card companies aggressively compete to get you to use their credit cards and services.
The marketing is so aggressive that consumers may lose sight of the fact that this is not free money and make excessive purchases to the point where they find themselves in financial difficulty. While credit is very important to the economy, its abuse is harmful. Credit is extended with the faith that borrowers will repay the debt. The standard repayment plan for federal student loans is calculated on a year timeline, with the expectation that borrowers should be able to pay off their debt within a decade.
If that's unrealistic for someone's budget, an income-driven repayment plan might allow a qualified borrower to make smaller payments over 20 years instead. With that timeline in mind, it's not surprising that a study from New York Life , which polled 2, adults about their financial mistakes, found the average participant reported taking But while many Americans might be student loan debt free by their 30s or early 40s, data from StudentAid.
It can be frustrating to make payments on debt that isn't building equity — such as a mortgage — especially while trying to prioritize retirement and also managing day-to-day expenses. When considering how aggressive to be when tackling your student loan debt, take a lesson from people who've successfully paid theirs off. Sometimes, it's best to simply wipe them out as fast as possible, but there can also be some advantages to taking your time.
Not all debt is toxic; federal student loans tend to have lower interest rates, so you can feel OK about paying them off slowly while you save for other goals like retirement or home ownership. However, some people prefer to pay down student debt aggressively , which is a good route when you can afford it and feel comfortable making some sacrifices.
Before you make any plans, take a minute to look at your student loan debt. Familiarize yourself with the total balance, you interest rate and the date when your final payment is due. That will give you a better overview of how these loans could impact the other goals you're trying to achieve. If you want to pay off your debt quickly, consider how much you would need to pay every month to knock out your loans within a few years — and whether you can afford to make such aggressive payments.
New graduates who get a well-paying job right out of college or grad school could be in a better position to do this when their cost of living is low.
For those not making a high salary right away, there may be other tradeoffs to consider so you can prioritize paying down your debt, like living with family after graduation. If you take advantage of this opportunity, make a plan to put the money you save toward your loans.
However, maybe you can't live at home or simply don't want to pass up your dream job in a more expensive city. You can always try popular gigs like driving for Uber, delivering food for DoorDash or grocery shopping through Instacart, but these jobs often only pay minimum wage. If you want to earn more money, try putting your unique skills and interests to use. Graphic designers, writers, software engineers, photographers and other service providers can find extra work on platforms like Upwork, TaskRabbit, Craigslist and Fiverr, but the rates are often low.
Use those sites to build a portfolio, and then increase rates steadily as you gain more experience and accumulate positive testimonials. To find out how much more you can pay toward your loans, start by tracking your expenses with a monthly budget. Monitoring your expenses will show any areas where your spending could be reined in, allowing you to put more money toward your loans.
Reducing that amount can free up more money with little effort required. If you receive a raise, move to a cheaper apartment or get a roommate, take the savings difference and add it to your student loan payments. When you get a random windfall, like a tax refund or work bonus, apply the bulk of it to your student loans if you can.
If you have federal student loans and are currently on an income-driven, graduated or extended repayment plan, you can switch to a different plan to pay them off faster. The standard year plan is the fastest way to pay off your federal student loans. Ask your loan servicer how to switch to this plan and what your new payments would be.
If you have multiple loan servicers, make sure to switch your repayment plan with each company. If you have private student loans, the only way to switch to a new term may be to refinance your student loans, but this depends on your particular lender. Contact them and ask if you can change to a different payment plan without refinancing. If you have student loans with a high interest rate, you could refinance them for a lower rate and a quicker potential repayment timeline.
Refinancing to a shorter term can help you qualify for the lowest interest rate possible, but will usually result in a higher monthly payment. Before you choose a shorter loan term, make sure you can easily afford the minimum payments. You can use a refinancing calculator to see how much you could save.
If you have federal student loans, think twice before refinancing. Borrowers who have both federal and private loans can choose to only refinance their private loans and keep their federal loans intact. Zina Kumok is a freelance personal finance writer based in Indianapolis. She paid off her own student loans in three years. She also offers one-on-one financial coaching sessions at ConsciousCoins. Select Region. United States. United Kingdom. Zina Kumok, Alicia Hahn.
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