Handle Your Student Loan Debt to Make Your Retirement BetterThese days student loan debt has become one of the highest in the United States, only beaten by the sheer numbers in mortgage debts, and it is still rising regularly. And it’s not like it is focused around one age category, there is plenty owed by 40+ individuals, but the highest source does remain to be anyone under their 30s, based on a 2013 research project by the Federal Reserve bank.

Chances are, this is something you have probably already heard about. Student debt is getting worse and there really isn’t much that can be done about it. What you probably aren’t aware of is how significant an impact this has on retirement plans, especially if you are nowhere near thinking about retirement. After all, even if you are paying off your student loan debt, chances are you will be doing so for at least the next ten years (possibly longer depending on whether you consolidate, and how much you are paying off regularly).

There are some people who have been paying off their loans for thirty years, and that means they are well into the range of being able to retire, but they likely won’t be unless they had been following a few key points when it came to their money management around their loans and retirement.

Start Saving Right Away

This concept often eludes people, because they think if they pay off more of their loans now instead of putting that little extra cash in the bank for a savings or retirement fund they will be able to start saving sooner in larger amounts. This would normally be a sound logic, but there are a few factors around this. Any amount of savings you have accumulating will cause a snowball effect with your savings, and it’s all thanks to time. Just by having money sitting in your bank over time, you can draw in thousands of extra dollars.

And that isn’t the only factor too. If your company currently runs a 401K program, the more you are putting into your retirement fund the greater the return becomes, as you instantly increase your savings amount for retirement by usually around 100% on top of whatever else you will gain from the ‘good’ interest. Of course you still want to be paying above the minimum when it comes to your student loans, as paying just the minimum is what gets people into their 30 year trek of constantly paying their student loans. That brings us to the next one.

Handle Your Interest

This one all comes down to making sure if you have multiple loans, you should be consolidating that, otherwise you are paying interest across far too many loans and you will just drown in the accruing interest. It gets better too, because many places will even offer a method of consolidating all loans you might have… such as a mortgage, which means even less interest.

In the same breadth you should take advantage of your ‘grace periods’ with subsidized loans. If you are making money don’t wait the six months till your interest kicks in for those loans, you can start paying them off now! Take a proactive approach during your grace period by setting up a repayment system right away. While you’re at it, seriously consider consolidating your loans.  And when the interest does kick in, it’s significantly lower and in the long run could save you many months of more payments.

Don’t Throw Away Your Extra Cash

When I refer to ‘extra cash’ I am talking about those tax refunds you might get back, or a raise to your job when you were living comfortably at the pay you were at. Many people when they get things like a tax refund they instantly start thinking about all the electronics or things they can go buy with all that money at once! But think about it, you just got either a steady increase across your pay or a lump sum all at once. Whether you put it in your retirement fund or toss it to your debt repayment, you are going to be doing the right thing over just spending that money. Your retirement fund will give you a nice boost from interest, and your debt repayment will drop the interest.

These are of course just a few things to keep in mind. There are plenty of other things you should pay attention to when it comes to your money. You should seriously consider how you want to handle both your retirement fund and your debt repayment; especially the student loans which you can’t get rid of from a bankruptcy claim most of the time. And remember to use your tax refunds the same smart way you should be using your normal income!

Guest Post: About the Author

David Walker finds joy in balancing his budget and staying financially stable. He also enjoys going to the Oregon Coast with his wife and his daughter.

 

 

Handle Your Student Loan Debt To Make Your Retirement Better

Handle Your Student Loan Debt To Make Your Retirement Better

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