If you’re a young college grad, chances are good you have a lot of student loan debt. There are 44.2 million Americans who currently have outstanding student loan debt, and the average monthly payments for borrowers between the ages of 20 and 30 is $351, according to Student Loan Hero’s summary of 2017 Student Loan Debt Statistics.
Coping with a big monthly student loan bill — on top of other financial obligations — is bound to leave you feeling stressed about money. This is especially true if your student loans are causing you to delay milestones you’d like to achieve, such as getting married or buying a house.
If you find yourself feeling stressed about money and concerned your debt will interfere with your life goals, you may benefit from taking stock of your financial situation and creating a plan.
“Have an open conversation with yourself and others around you,” Marty Kurtz, founder of The Planning Center, told The Street. “Learn to control what you can control: your behavior and your decisions.”
Ideally, you can take proactive steps to feel like your financial life is under control ASAP so your financial worries won’t keep causing you to put life on hold. These tips can help you to take stock of your situation and get some plans in place to fix some of your financial worries before your 30th birthday arrives.
1. What is the total amount of debt you owe?
Many college grads have no idea how to find out how much student loan debt they owe. In fact, a 2015 study from the Federal Reserve Bank of New York showed that families underestimate student loan debt balances by around 25 percent.
Many people also don’t know what they owe on other types of debt. The same Federal Reserve survey showed households estimated their collective credit card debt at around $440 billion, which was 40 percent less than the $731 billion their lenders said they owed on credit cards.
If you don’t know what you owe, you can’t make a responsible plan to pay off your debt. You’re more likely to spend a fortune in interest and remain in debt for even longer. To find out how much you owe:
- Visit the National Student Loan Data System (NSLDS), which will provide you with information on all of your federal student loans.
- Visit annualcreditreport.com and get a copy of your credit report. This should list all open accounts so you can find out about private loans, personal loans, car loans, and credit card debt.
You can use your credit report to make a list of all of your open accounts you have a balance on. If you’re not sure how much you owe on each, contact your creditors to find out.
2. How much are you paying in interest?
Once you know exactly what you owe, you want to find out how much you are paying in interest per month. You may be surprised to find just how much your debt is costing you.
The Simple Dollar recently determined how much the average American pays in interest each year, based on median home prices, average new car loans, average credit card balances, and average student loan payments. Based on its analysis, a homeowner with a used car would pay an average of $8,037 in interest over the course of the year.
You can find out the total amount of interest you’re paying by using your list of all open accounts and checking your online or paper statements for each account. If you’re paying a fortune in interest, this could be strong motivation to take steps like refinancing your debt to a lower interest rate loan or making a plan to pay off debt early.
3. What date will you become debt free?
In the past decade, the number of seniors with student loan debt has quadrupled, according to a 2016 report from the Consumer Financial Protection Bureau. The report revealed older Americans owed $66.7 billion in student loans in 2015. Seniors are also carrying mortgages into their retirement years, with the Bureau of Labor Statistics reporting 17.5 percent of seniors over 75 still had mortgage debt.
If you don’t want to struggle with your student loans and other debts during your retirement years, find out now when you’re actually on track to become debt free. If your debt repayment schedule shows you’re still going to be paying your debt decades from now, this can be a strong motivating factor to make a debt repayment plan. And if you make a debt repayment plan before you turn 30, you should have plenty of time to prioritize debt repayment so you won’t have to carry debt into retirement.
“As a young MBA student, I was consumed by financial anxiety when I took out my first student loan at the age of 22,” Katy Roby, a marketing associate at Arcusys, said. “Owing someone more money than I have ever saved led me to start thinking about my financial goals, one of which is a debt repayment plan.” She used Mint to help her manage all of her bills and student loan debt, and she describes organizing her financial life as the “first step in taking control of my financial goals.”
You can create your debt repayment plan by looking at statements for the different accounts you have open. Even credit card statements will show you how long it will take to repay debt and what you’ll pay in interest if you make only the minimum payment.
If your payoff date is very far in the future for all of your debts, use online calculators to calculate how extra payments affect your loan payoff timeline. Consider setting an earlier goal to have your debts paid in full and making a plan to pay extra to make that happen.
4. What is your current net worth?
Kevin Langman, co-founder of Finovo, calculates his net worth every three months. “This has been great to use as a measure of my progress and overall financial health,” Langman said.
Your net worth is the amount by which your assets exceed your debts. To calculate your net worth, add up the value of everything you own, including your home, your car, money in investment accounts, your 401(k) balance, any jewelry or collectibles, and any other items that belong to you. Then, add up the total amount of money you owe on all of your different loans. Subtract the amount you owe from the amount you own to get your net worth.
- If you own only a $100,000 house, a $20,000 car and $10,000 worth of furniture, you own assets worth $130,000.
- If you owe $80,000 on your house, $10,000 on your car, and nothing on your furniture, your liabilities (the amount you owe) total $90,000
- Subtract your liabilities ($90,000) from your assets ($130,000) to get a net worth of $40,000.
Tracking your net worth gives you a broad overview of how you’re doing financially. As you pay down debt and your assets go up in value, your net worth will grow. However, if you took on more debt, then it would shrink. Your net worth should be moving up over time and, ideally, by the time you reach retirement age, you will own so much more than you owe that your nest egg will be able to support you once you cannot work anymore.
5. How much do you need to save for retirement?
Retirement may not be on the top of your mind when you’re young, but it should be. The median account balance in 401(k) accounts was $24,713, according to the Vanguard How America Saves 2017 report. The average contributions made to 401(k) accounts was just 6.2 percent of an employee’s total salary in 2016. If you’re contributing the average of 6.2 percent or less, this probably won’t give you enough to live on as a retiree.
It can be challenging to find ways to save when you’re struggling to pay student loan debt and to cover basic living expenses. Unfortunately, the longer you wait to start saving, the less compound interest will help your nest egg grow and the more you’ll have to invest each month to have enough to retire.
While investing around $300 monthly throughout your career would allow you to save around $1 million by age 63 if you started investing at age 20, you’d need to invest more than $2,300 every month to end up with a million-dollar nest egg if you waited until age 45 to start investing.
By calculating your retirement number now and starting to invest, you can set yourself up for the future. This guide will help you determine exactly how much you need to save for your retirement so you can decide how much to save each month to hit your retirement goal.
You can put your retirement savings into a 401(k) if you have access to one at work to take advantage of the ability to save with pre-tax dollars. If you don’t have a 401(k) at work, a traditional IRA account would allow you to invest pre-tax money up to $5,500 annually, or more if you are self-employed.
6. How much money do you spend each month?
If you want to have enough money to do things like saving for retirement or paying off debt early, you need to know where your money is going. Tracking your spending can be the best way to do that.
“For my first year of working, I spent every dollar I made, and realized that continuing on like that was not sustainable,” Langman said. “When I was 23 I started tracking all of my spending using a spreadsheet tool that I built myself.” Langman used this data to adjust spending habits, cutting out wasteful spending on eating out and drinking to prioritize spending on travel instead.
Langman credits his expense-tracking as a “foundational” tool in helping him to quit his corporate job after eight years with a six-figure net worth to start his own business. Tracking his spending also allowed him to take an international trip every year, visiting 32 countries.
To track your spending, you can use an app like Mint or can simply enter your purchases into a spreadsheet as you shop. At the end of the month, tally up what you’re spending on different categories like eating out, clothing, entertainment, and transportation. You can use this information to set a realistic budget, see where you are overspending, and find ways to cut costs.
7. What is your top financial goal?
Finally, you should take the time to decide what you want your financial life to become. To set your goals:
- Think about your short-term and long-term plans. Where do you want to be next year? In five years? In 10 years? What do you need to do, financially, to get there?
- Consider what your spending and saving priorities are. Focus on how you can put your money to the best use.
- Consider your stressors. Is there something frustrating about your current financial life? What can you do to do remove this source of stress?
By asking yourself key money questions like what your top financial goal is, you can prioritize your spending and make sure your money is working for you to help you achieve that goal.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.95% – 6.37%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.72% – 8.32%6||Undergrad & Graduate||Visit Citizens|