8. Plan your debt repayment for student loans. Once you’ve paid down your high-interest debt, set aside $1,000 for an emergency fund, and opened up that retirement account, the next step is to put in place a plan to pay off the rest of your debt, and for most 20-somethings that debt is going to be made up primarily of student loans.
According to U.S. News and World Report, 70% of college grads in 2013 left school with an average student loan debt of about $30,000. Yeesh.
The college debt many young people are carrying is keeping them from pursuing large life goals like getting married and buying a home, even when they’re well into their 30s. To give yourself some more financial flexibility to have a baby or start a business, make a plan to pay off your college debt as quickly as possible.
If you have any private variable loans, pay those off first. Sure, the interest rate on them might be lower than federally backed student loans, but if the Fed decides to hike interest rates in the future, the rate on those variable loans could climb 5-6%, says Mark Kantrowitz, publisher of FinAid.org. That could make your payments on those loans unmanageable. Better to pay them off now.
For your federally-backed student loans, you have seven repayment plans to choose from. Most young people make the mistake of picking the plan that has the smallest monthly payment. Doing so causes you to pay more on interest over the loan’s lifespan.
If you’re single or married with no kids, be aggressive with your student repayment; being a bachelor is a great time to learn how to live spartanly and simply. Slash your expenses,earn extra money through side hustles, and divert your savings and income towards paying off your debt as quickly as possible.
If you’re not in a position to be super aggressive with your loan repayment because you have kids, or you’re just not making enough money right now, at least aim to put 10% of your gross income towards student loan debt. As you make more money, increase the amount of money you use to pay down your debt.
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