One of the main reasons Millennials don’t invest more money toward retirement is that they are saddled with education debt. The average amount of student loans in 2016 was a record $37,172. That’s a 6.05 increase over the previous year, according to Cappex.com, a college scholarship website.
Bankrate.com studied the issue and came up with these suggestions to help those with student debt to get out from under the load faster:
Treat the loan as you would a mortgage, making larger payments to reduce the principal faster. A student loan of $25,000 with 6.8 percent interest and a 10-year payback period would cost $288 a month. Upping the payment to $700 per month would clear off the debt in three years.
Make payments twice a month instead of monthly. That would help even out an increased payment. After the initial push to get the loan paid, the money that had been absorbed in student debt then becomes available for other things, including a mortgage and savings toward retirement. Or it could be used to help a child through college, saving him or her the same burden of student debt.
Many experts advise those with student loans to create a plan for paying off in three to five years. Seeing the plan in black and white gives a better sense that this is something that can end. It becomes the basis for a goal that the individual can commit to.
The example is a couple who have $50,000 in combined student debt. They earned about $100,000 a year jointly. They established a budget and cut back on spending. They had bonuses from their jobs that they dedicated to the drive to become debt-free and they put $800 per month into the loan payment. They had paid off the loans in two years where it would have taken eight years if they had made only minimum payments.
Having money put into savings automatically bysteps the temptation to spend everything you earn. Don’t use checking and/or savings accounts you already have. Keep a separate account for the purpose of student debt reduction.
Minimizing the amount of loan assistance you need to complete college by working part-time is a counter step to be considered at the outset. Planning ahead, being willing to sacrifice to keep loans at the lowest possible figure and keeping focused on long-range personal finances will help. Falling off the budgetary wagon when personal wants and desires get first attention will lead to future problems.
The very best advice: live within your means and be conscientious about saving.