(WTNH) — College can pay off when it comes to your career, but maybe not so much when it comes to your savings account. Financial Consultant John Caserta shares his tips for student debt regret.
According to a recent report from Bankrate, three quarters of American have at least one regret about how they’ve managed their money and millennials are blaming student loans. Because of student loans, millennials are delaying retirement savings setting themselves up for further disappointment down the road.
How do you manage student debt repayments and saving for retirement?
· Automate your payments and your savings
You want to make sure that you’re staying current on your student loan payments by at least paying the minimum amount due.
Automatically defer a small amount or percentage of your income from each paycheck into your retirement account.
· Consider the pros and cons of different repayment options
There are a number of student loan repayment options. Choose one that is appropriate for your budget. Consider the monthly amount due and the total interest you’ll pay over the life of that loan.
· Take advantage of matches in retirement plans.
Employers often offer a matching contribution to your retirement plan. That means if you defer a certain amount, the employer will match those dollars and contribute them to your plan.
· Start small and increase your savings over time.
Financial experts often hear that 10-15% is the general rule of thumb when it comes to saving for retirement – assuming that you start early. But often times, it’s difficult to defer that much. Start with a smaller percentage and increase it every so often until you reach that 15%. Some plans will do that automatically for you.
Should extra dollars pay down debt or be invested for the future?
· Discuss different types of debt.
Which debt to pay off first really depends on the type of debt and the interest rate for that debt. Good debt typically has lower interest rates and some sort of tax benefit – think mortgages, (some) student loans, business loans, etc. Bad debt typically has high interest rates and tax benefits – think credit cards, personal loans, etc.
· Pros/cons of paying off sooner than schedule
Paying off your debt sooner will save you on interest. But you may be forgoing important tax benefits and the opportunity to take the extra dollars going towards the debt repayment and investing them.
· Concept of deductible interest.
If you pay more than $600 in interest, you’ll get Form 1098-E and you can deduct up to $2,500 of the interest you paid (if you earn $65,000 or less as a single filer or $135,000 or less as married filing jointly.
What should you consider when taking out loans?
Ask yourself these questions:
· How much will the future payments be?
· How does the interest accrue while in school vs out of school?
· What options do you have for repayment?
What are the pros and cons of consolidating student debt after graduation?
· Potentially lower payments/interest (but not necessarily)
Consolidation loans often take a weighted-average of the loans so if you have large balances with high interest rates that could push up the interest rate on the consolidated loan.
· Convenience of one payment.
· Eligibility for loan forgiveness
You may lose credit towards your Public Service Loan Forgiveness program.