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You don’t actually have to pay off your student loan early. In some cases, it might make sense to pay off your debt slowly. Read More...

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Zina Kumok

When I first started my career as a freelance writer and financial expert, my main selling point was the fact that I had paid off my student loans early.

I did it in three years.

While I’m still proud of that accomplishment, I did it because that was the best decision for me. That doesn’t mean it’s the best decision for everyone.

There are plenty of factors that could have made my debt strategy pointless – or even downright harmful. I constantly meet and consult with people who would be better off paying their student loan debt down at a slower rate.

But how can you tell which camp you fall in? Here’s what you need to know about paying off your student loan:

When you shouldn’t pay off your student loan early.

There are times it just doesn’t make sense to pay off your student loan early. It seems like a lot of the advice is to get rid of the debt as fast as possible, but here are some reasons to think twice:

If you have other debt. Student loan debt typically comes with lower interest rates than other forms of debt. Plus, the interest is deductible on your taxes.

It’s better to pay off credit card debt or other high-interest loans before focusing on student loans. Once those high-interest loans are paid off, pay off any loans with comparable interest rates, since they’re unlikely to offer the same tax benefits as the student loans.

If you qualify for a forgiveness plan. Anyone who qualifies for a loan forgiveness plan through the federal government or other organization, such as the Public Service Loan Forgiveness program, should make the smallest payments possible on their loan — especially if they won’t owe taxes on the forgiven debt.

If you’re in this situation and pay more than you have to every month, you’re just throwing money away.

If you don’t have an emergency fund. Paying extra on your student loans only makes sense if you already have an emergency fund in place. An emergency fund allows you to pay cash for crises like car accidents or hospital stays, and without one you may have to use a credit card or high interest loan. Save at least $1,000 for an emergency before putting extra money on your student loans.

An emergency fund allows you to pay cash for crises like car accidents or hospital stays. Without emergency savings, you may have to use a credit card or high-interest loan. Save at least $1,000 for an emergency before putting extra money on your student loans.

If you have a low interest rate. Many people only make the minimum payments on their student loans if they have a low interest rate.

Instead of putting extra money toward their debt, they can earn a higher return by investing that money in the stock market. It might seem crazy to willingly carry debt, but the math could work out in your favor. For example, students who took out federal student loans after 2016 have a 3.76% interest rate, while many index funds have an average 10% rate of return.

It might seem crazy to willingly carry debt, but the math could work out in your favor. For example, students who took out federal student loans after 2016 have a 3.76% annual interest rate, while many index funds have an average 10% annualized rate of return.

Investing isn’t a sure thing, though, so make sure you think it through before taking the plunge.

If you aren’t saving for retirement. Saving for retirement should be the most important financial priority for anyone, including millennials and Gen Z.

Paying off your student loans early is a valiant goal, but it shouldn’t distract you from saving enough for your golden years. You should be saving between 10% and 15% of your income for retirement before you even consider putting extra cash towards your student loans.

When you should pay off your student loan early.

There are definitely times that you need to tackle those student loans right now, and pay them down as quickly as possible. Here are some of the times you can feel free to demolish your debt as quickly as you can:

If you don’t have other financial obligations. There are very few reasons not to pay off your student loans early if you’re already saving for retirement and are otherwise debt-free. Paying your student loans off early could save you thousands in interest – and make it easier to save for other goals like a vacation abroad or a new car. Being debt free will also increase your credit score and make it easier to apply for a mortgage, business loan or rewards credit card.

Paying your student loan off early could save you thousands in interest – and make it easier to save for other goals like a vacation abroad or a new car. Being debt free will also increase your credit score and make it easier to apply for a mortgage, business loan or rewards credit card.

Being debt free will also increase your credit score and make it easier to apply for a mortgage, business loan, or rewards credit card.

If you have a high interest rate. When I graduated and started paying my student loans, my interest rate was 6.8%. That rate is comparable to what I could’ve earned if I invested my money in the stock market. In that instance, paying off my student loans and saving on interest made more mathematical sense. I saved more than $5,000 in interest by paying off my loans early.

In that instance, paying off my student loans and saving on interest made more mathematical sense. I saved more than $5,000 in interest by paying off my loans early.

If you get anxious about your debt. A study published in the European Journal of Public Health found that adults with debt suffered from significantly more mental health issues than those without.

It’s not surprising, given the omnipresent weight that debt represents. Debt can cause constant pressure. You feel the nagging at the back of your brain. Paying off your student loans earlier can relieve anxiety, stress, and depression, plus increase your quality of life and stifle that subconscious negativity.

If you want to switch careers or start your own business. Not having to pay on your student loan every month frees up your budget for other things. It allows you to switch to a low-paying job you love or even become self-employed.

Becoming debt free faster means you can gamble on your salary without the risk of missing payments or defaulting on your loans.

Where do you stand? Are you aggressively paying your student loan early? Or are you taking it slow?

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Broke AF? Worried about your debt? You might think you can’t invest, but maybe you can. Here’s how to decide what step to take next on the road to financial freedom. Read More...

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One of the best ways to build wealth for retirement is to invest.

Putting money in a retirement account now is a good way to get a good start on building a nest egg that leads to financial independence later.

But what if you have debt?

Can you invest when you have debt and feel broke AF? Does it make sense to pay off your debt before you begin investing?

This week, we talk about the considerations that come when trying to decide whether or not to start investing when you still have debt.

Concepts

The importance of investing.
Ways debt can slow you down.
Are you really ready to invest?
Can you balance paying down debt with investing?
Have you taken care of other areas of your finances, like an emergency fund?
Tips for making investing more effective.
How to decide if it makes sense to invest instead of pay down debt early.
Different types of debt and which you should tackle first.
The importance of being able to sleep at night.

Don’t forget to listen to our “Do Nows” this week. We’ll take a look at how to create a debt payoff plan, open an investment account, and assess how much you need to start saving today to hit your retirement goals.

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Hosted byHarlan Landes and Miranda Marquit
Produced byadulting.tv
Edited and mixed bySteve Stewart
Music bybensound.com

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Do you have a true concept of what is “real” about money after college? Read More...

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Zina Kumok

I had plenty of money in college. I was rolling in it. My parents had given me a credit card so I could charge anything I needed, like groceries, utility bills, oil changes, and more. They paid my rent and didn’t ask questions when I spent more than $250 a month on food.

I worked during college, too – sometimes two jobs at once. Those jobs helped me buy what I wanted (which was a lot). If you’ve ever been to a college town, you know that there’s a plethora of shopping options nearby. Within a five-minute walk, I could access boutiques, vintage shops, and record stores.

If I wanted food, I could get anything delivered. Even if I had a fridge full of groceries, I’d get pizza, pad thai, or fried chicken delivered to my house. In a given month, I’d spend more than $100 on eating out.

I never told myself “no.”

That is, until I graduated.

Welcome to the real world.

The summer following graduation, I had an unpaid internship and a part-time job. For the first time, money was tight. I was paying my own rent that summer and commuting an hour one way (this is back when gas was close to $4 a gallon).

Suddenly, I had to reign in my spending. I said no to going out and shopping. I read blogs about couponing, cooking cheap meals, and getting free stuff.

That summer was a wake-up call. I couldn’t keep spending the same way. When I finally got a full-time job and started being totally responsible for all my bills, I realized how important it was to budget. I was only making about $28,000 a year, and after bills and student loan payments, there was hardly anything left.

Even though my budget was cramped, I decided I wanted to pay off my student loans early. I started tracking every dollar religiously. I was now saving money with the same intensity that I had spent money in college.

I found freebies, coupons, and special deals. I shopped at Aldi — my favorite discount grocery store — and stocked up on the essentials. I avoided eating out and always brought my lunch to work, even when it was Chef Boyardee ravioli.

In 2012, I created my blog to chronicle my debt payoff progress. I wanted to see if I could actually pay off my debt in three years. I thought my blog could serve as inspiration to anyone else trying to do the same thing.

A year after I started my first job after graduation, I got a new job and a small pay raise. When my rent went down, I put the difference toward my loans. Any time my expenses decreased, I just added that money toward my debt.

When my then-boyfriend and I moved with another friend, my rent was cut in half. Again, I put the amount I was saving toward paying down my student loans. That year, half of my paycheck went toward my debt. In November 2014, I made my last student loan payment.

Friends and family members started asking how I paid off my loans so quickly. I directed them to my blog, where I had written about my debt payoff journey. But soon I decided that I wanted to create one simple place where people could go and learn how to pay off their own student loans.

That’s why I created the Student Loan Knockout: A 20-Day Journey to Debt Freedom, my self-paced online course where you can learn the steps I took to become debt free. There are action items for each module and basic steps you can follow. This is not a course for finance experts. It’s for people like you feeling overwhelmed by your student loans and wondering where to turn.

In the real world of money after college, you need to make tough choices and get serious about your budget. Even though the road to debt freedom was filled with sacrifice, being debt free feels sweeter than any shopping spree or take-out meal.

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If you MUST lend money to friends and family, try to keep these 7 essential tips in mind. Read More...

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Zina Kumok

The common advice about lending money to friends and family is pretty straightforward: don’t do it. It’s generally said that if you’re going to give away money to the people you care about, it should be in the form of a gift. The expectation of repayment can lead to resentment, guilt and the general dissolution of relationships — so why expect anything at all?

But unfortunately, real life isn’t always so straightforward. Sometimes a friend or family member desperately needs financial assistance, and the amount they need is just too much to part with permanently. It may not be an ideal situation, but it’s common enough to warrant discussion.

So how do you go through the fire of money lending and come out the other side with your relationships still intact?

1. Don’t let it affect your credit. It’s one thing to loan your sister $500, but it’s another to cosign on her car loan. Cosigning means you could become responsible for her debt if she fails to pay it. No matter how much you trust someone, this is a huge risk to take — especially if you can’t afford to pay off a $20,000 Toyota. Your credit score can also take a hit if they fail to make their payments in a timely fashion.

2. Write it down. Miscommunication can turn a friendly loan into a relationship killer. What your brother considers to be timely repayment could be completely different from the time frame you’re expecting to wait. That’s why it helps to write the details out, so everyone is clear about the terms of the loan. You can also set up late fees so they have incentive to pay you back on time instead of a few days after the fact.

3. Keep a record of the repayment. If your friend or family member sets up a repayment schedule with you, find an online method to track how they’re paying you back. Splitwise is a great option, but there are plenty of other sharing and debt tracking services. This way, there’s concrete proof that each payment has been made. This is easier than getting separate checks in the mail or random amounts of cash.

4. Find out what the loan is for. Just like a bank wouldn’t loan you money without a stated purpose, don’t give your loved one money just because they ask for it. Maybe they want money to invest in what seems like a scam or a legitimate business venture – you won’t know until you find out. Plus, if they have to explain their reason to you, it may help them come to a better understanding of how reasonable their request is.

5. Discuss it with your partner. If you share finances with someone else, you should get their approval before you lend someone else money. Being on the same page will ensure that you don’t ruin your relationship with them as well as the person you’re lending money to.

6. Let them know they can talk to you. If you set a hard deadline and your friend can’t come up with the money by then, they may feel too embarrassed to talk to you about it. Don’t be a pushover, but let them know you’ll be flexible. This can make it easier to preserve your relationship, and your friend or family member won’t feel the need to give you the silent treatment out of embarrassment or fear.

7. Don’t turn the loan into a gift. While there are exceptions to this rule, you generally don’t want to change the nature of the transaction after the details are set. It may be preferable to give a gift rather than a loan, but voiding your right to repayment after the loan has been given can make you look like a pushover — and could lead to you resenting the person you’re giving the money to. No matter what you do, make sure your decision isn’t heavily influenced by a pushy friend or relative.

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