September may be back to school for many families, but did you know it’s also College Savings Month? If you haven’t started saving for college yet, this is a great time to start and make a game plan.
Why Save for College?
- Saving for college reduces student loan debt. Every dollar you save is about a dollar less your child will have to borrow. Every dollar you borrow will cost about two dollars by the time you repay the debt.
- College savings increases flexibility in college choice. College savings lets children choose a more expensive college than they could otherwise afford. College savings empowers children.
- College savings improves college access and success. Saving for a child’s college education significantly increases the likelihood that the child will enroll in and graduate from college, because it establishes an expectation that the child will go to college. Research published by Washington University in St. Louis shows that students with dedicated college savings – even less than $500 – are 2.5 times more likely to attend college and earn a degree.
- College is one of the biggest expenses a family will face, behind buying a home and saving for retirement. Having saved for college will also reduce stress. What greater gift can a family provide?
Money Smarts for Every Graduate
If you’re a recent graduate, you are probably being bombarded by all sorts of advice these days. So while we won’t tell you to backpack across the country or join the military, we will offer you some thoughts pertaining to starting off your financial journey on the right foot.
- Start Building Your Credit History Now. This isn’t using a debit card to buy stuff. It’s paying for bills consistently. Grads are always receiving offers for credit cards. Approach with caution! Shop for the best interest rate and never-ever carry over any monthly debt. You’d be shocked at how quickly a credit card purchase debt and grow out of control. Having a credit card requires discipline. However, paying it regularly will build your credit and in time, your effort will reward you with lower interest rates.
- Budget. Budget. Budget. Live within your means. Figure out all of your expenses/bills and compare to your income. Start saving at the same time. Recognize that retailers will lay out their stores in a manner that tempts you to buy, often what you don’t need. Impulse control is your best friend. Teach yourself to ask, “Do I really need this?” Often, that answer will be no.
- Health equals Wealth. Do you eat poorly? Party a lot? Avoid the gym? Bad habits! Learn how to read food labels. Avoid cigarettes and all food loaded with sugar. Your body is one of the best long-term investments you have. While your metabolism is high now, it will be short lived. Changing bad habits will be easier now than waiting until you have to do it.
- Interest Rates Are Not As Important. So this might have you saying “whaaaa????” At this moment, it’s the amount you’re saving that’s more important than interest rate. Not that interest rates aren’t important, but you’re saving for the long haul and how much you’re saving is more important. Figure out what you can save each month. Let’s say it’s $100. After four years, you’ll have about $5000 (based on an interest rate of 1%. Then just try to add 20% more. That’s $120. In four years, you’ll have $6,000.
So start saving, pay off your credit card monthly, and swap that doughnut for an apple!
Want to learn more? Come see one of our experts at Planters First Bank!
Your Study Guide to Paying off Student Loans
Did you know that the student loan debt in America is almost 1.5 trillion dollars? More people owe on student loans than credit cards. If you’re paying off a student loan, you know the pains that go with that debt. Let’s look at a few things you can do to speed up paying it all off.
- Make extra payments. It sounds simple, but there’s a caveat. If you don’t tell the borrower to place everything over the payment to the balance, they will simply apply it to the next month’s payment.
- Refinance your loan(s). If you’re working steadily and keeping a good credit score (690 or higher) look around to find a better interest rate. If you have more than one loan, consolidate them into one load. You might find a shorter payoff, but that might require a higher payment. Get options to determine which loan is right for you.
- Stick to the standard repayment plan. Most federal loans use a 10-year standard repayment plan. You may be tempted to extend or consolidate loans to a 25 or even 30-year loan. Try to avoid this if you can. As you get older, other debts will come into your life, including a house, cars, and a family. Then you’re trying to pay off your loans while trying to budget for their education.
- Make biweekly payments. Pay half of your payment every two weeks instead of making one full payment monthly. You’ll end up making an extra payment each year, shaving time off your repayment schedule and dollars off your interest costs.
- Use “found” money. Expected income, like a raise, bonus, or any financial windfall should be divided up and a portion go to loan debt. A rule of thumb is 50/30/20. That’s half going to pay off debt. 30% goes into savings and 20% goes to fun and discretionary spending.
The key is consistency and commitment. It takes time to pay down any debt. Be patient. But be vigilant in making your payments.