Diary of a CFP® Pro — June: Congrats, grads! Now Start Tackling Your Student Debt
This month’s insight from Marguerita Cheng, CFP® Pro: A few simple steps can help new college graduates make inroads in paying off their student loans and setting themselves up for a secure financial future. Graduation is an exciting milestone signifying moving into adulthood. Unfortunately, earning a degree comes with debt.
Reality check: According to the Institute for College Access & Success, nearly seven in 10 seniors who graduated from public and non-profit colleges in 2015 had student loan debt, with an average of $30,100 per borrower. There are ways to alleviate some of the worries of student loans.
- Cut some corners but resist temptation. It is easy to think that you don’t have to worry about money once you land a job. But with newfound freedom comes rent, car insurance, food, and paying back student loans. Think about a monthly budget that shows you what bills you have and what is leftover. Think about the bigger picture and what you can live without. Cable tv is fun to have but not a necessity, and it can cost over $100 a month. Consider streaming methods, such as Netflix and Hulu, for entertainment. Even an Apple Music or Spotify subscription may be better than purchasing music one song at a time. Clothing can be expensive, so search for coupon codes to score savings and free shipping.
- Know your numbers, including your credit score. Before graduation, students receive a letter outlining the six-month grace period before starting to pay back loans. The letter shows how much the loan is and what the monthly payment looks like. Pay special attention to the interest rate before establishing a payment plan. Many payment options include delaying a fee or asking for a lower price available to recent graduates. If you haven’t landed a job — or have lost your job — student loan forbearance may be available. There are several repayment plans to select, thereby providing the flexibility you need.
- Establish a rainy-day fund. Set aside funds for unexpected expenses, such as car repairs or medical costs. Having a cushion can make a difference when you know you need to eat and pay rent but have student loan payments or other looming bills. Many financial experts encourage recent grads to have three months’ worth of expenses as cash reserves.
- Remember: It’s never too early to think about retirement. Many people think only older individuals worry about retirement. Everyone should start thinking about this when they join the workforce. Many employers offer 401(k) plans to help their workers save for retirement on a tax-deferred basis. Ask your HR director for more details on the benefits of your company’s 401(k) plan. While you may think you are too young to think about planning for retirement, you’re never too young to accumulate wealth. Student loans don’t have to be a colossal nightmare. Try these steps to lessen the stress of student loans and plan for your financial future.
- If you don’t choose a repayment plan, you will be given the Standard Repayment Plan, which means you would have to pay off your loans in 10 years.
- You can switch to a different plan at any time to suit your needs and goals. For example, if your finances change due to a new job or losing a job, you can explore options.
- Visit studentaid.ed.gov to check the repayment calculator estimate. This tool can help you determine the most appropriate repayment plan for your situation.
The bottom line: If you have multiple federal student loans, you can consolidate them into a single Direct Consolidation Loan. This lessens the stress if you have separate loan payments from different providers. If you reduce, you will have one monthly payment to make.
Photo by Tom Woodward, Flickr.com creative commons
Stay tuned for next month’s installment of Diary of a CFP® Pro!
About Marguerita M. Cheng, CFP® Pro: Rita is the founder and Chief Executive Officer of Blue Ocean Global Wealth. She has also been a spokesperson for the AARP Financial Freedom Campaign and a regular columnist for Investopedia & Kiplinger. Previously, she was a Financial Advisor at Ameriprise Financial and an analyst and editor at Towa Securities in Tokyo, Japan.
Certifications: CFP® professional, Chartered Retirement Planning CounselorSM, Retirement Income Certified Professional®, and a Certified Divorce Financial Analyst. As a Certified Financial Planner Board of Standards (CFP Board) Ambassador, Marguerita helps educate the public, policymakers, and media about the benefits of competent, ethical financial planning. She serves as a Women’s Initiative (WIN) Advocate and subject matter expert for CFP Board, contributing to the development of examination questions for the CFP® Certification Examination.
Awards: Ameriprise Financial Presidential Award for Quality of Advice and the prestigious Japanese Monbukagakusho Scholarship. In 2017, she was named the #3 Most Influential Financial Advisor in the Investopedia Top 100, a Woman to Watch by InvestmentNews, and a Top 100 Minority Business Enterprise (MBE®) by the Capital Region Minority Supplier Development Council (CRMSDC).
Rita volunteers for several organizations: CFP Board Disciplinary and Ethics Commission (DEC) hearings, she has also served on the Financial Planning Association (FPA) National Board of Directors from 2013-2015 and is a past president of the Financial Planning Association of the National Capital Area (FPA NCA).
Click here to learn more about Blue Ocean Global Wealth and here to email Marguerita!
Blue Ocean Global Wealth headquarters:
9841 Washingtonian Blvd., #200
Gaithersburg, MD 20878
301.502.5306 / 888.731.3117 (fax)