One of the keys to managing your student debt repayment is to have a financial management plan, not only for your loan debt, but your financial future. Outlined below are ten strategies for ensuring a sound financial future:
1. Live the first five years after graduation as a student.
You simply can’t spend your entire pay check. Use the same spending limits from college and use the remaining money from your pay check to pay off your loans and invest in a 401(k). See item (5) below for more information on a 401(k).
2. Treat your credit card as a debit card.
Pay off the full amount of your credit card each month. Also, try to only use one credit card. Don’t have separate credit cards for stores, as it can become difficult to keep track of all of these accounts. One card will make it easier for you manage your credit. If you’re going out for a social night, try leaving your credit card at home and take cash. This could help you avoid stupid spending when you are inebriated.
3. Limit long term borrowing to a home and a car.
What you want to avoid is running up debt to buy furniture, appliances, and similar capital purchases. Create savings accounts to build up the cash to pay for these.
4. Pay off student loans as fast as possible.
Use the strategies at https://www.studentloansguy.com/ to develop a repayment plan that works for you. This could mean refinancing to lower the amount of interest you pay or using extra cash to pay off your debt faster. Check out our student loan calculators to see how you can save. Also, ask family and friends to consider student loan repayment gifts rather than more traditional gifts.
5. Max out your employer’s 401(k) contribution.
This will require putting in enough money to get the full contribution from your employer. Also, try to avoid changing jobs until you have reached the vesting period for your 401(k).
6. Buy a home as soon as possible.
Often you can rent out rooms in your house to earn income that is equivalent to your mortgage payments. Also, you won’t be able to reduce your income taxes until you have mortgage interest. If you can make the down payment, a home can be equivalent in cost to rent.
7. Divert the money you would spend on a big wedding to make the down payment on a home.
What you are essentially doing is building permanent financial equity instead of spending money on a party.
8. Use strategies to reduce home mortgage interest.
– Making a payment above the required monthly payment. Think of the money you spend on some items (e.g., beer, shoes, going out) and devote this to an extra payment.
– Always pay your mortgage one month in advance.
9. Ask parents to contribute to a 529 college plan at your children’s birthday and Christmas rather than indulging in flashy gifts that get sold in yard sales in a few years.
A child’s college education after a home will be the largest financial obligation you will have. 529 plans can make this expense much more manageable by spreading out costs over 18 years.
10. Own your financial future.
You can whine all you want about your financial situation, but if you manage your finances, you can have a comfortable and fulfilling life. This will require converting needs to wants and deferring some purchases until you are more financially secure.
To reinforce the points made above, estimate the money you spent in college on things you didn’t really need, or have very little value to you today. Then do this calculation (assuming an 8% annual return over the next 40 years):
Future Value = Wasted money x (1.08)40
Let’s say that you estimate the wasted money to be $2500. The value of this wasted money 40 years from now (when you retire) would be $54,311. Small changes that you make now mixed with the long-term effects of compound interest can have a large impact for your financial future.
This article was written in partnership with University Survival.