The financial forecast for millennials in 2015 does not look promising. It seems this headline has run across at least a dozen or so newspaper and magazines over the past year. At times it can be hard to see the light at the end of the tunnel. Not only are there fewer jobs available in today's economic marketplace, but millennials are plagued with a mountain of debt unheard of to their parents and grandparents before them.
The problem has gotten so bad that student loan debt has now risen up the ranks to become the single largest form of consumer debt, surpassing even credit cards. The average grad has about $35,000 in student loans. Tack on an additional $7,800 in credit card bills and what you'll likely be left with is an incessant headache. With so many pressing bills it may be difficult to decide which one to tackle first. Take an honest look at your financial situation before reading over these next few financial strategies. With due diligence and the right techniques in mind you can rise out of your financial abyss and come out on top.
Student Loan Debt-A Closer Look
Student loans, in theory, are an investment in your career and future earnings. For this reason, Uncle Sam makes it a point to reward individuals pursuing higher education by allowing them to deduct the interest paid on their loans throughout the course of the year. In addition to that, they typically have a much lower interest rate than their credit card counterparts (which may initially have low APRs but then grow to astronomical rates). Conversely, student loans have some less than favorable characteristics. You're debt-to-income ratio may be severely impacted by high student loan balances since you'll most likely be making a lower starting salary post grad. The final point that's worth mentioning has some weight behind it. Student loans are forever. How long is forever? Unlike other forms of debt, federally insured loans and privately owned student loans cannot be wiped out with a bankruptcy filing. So they're yours through thick and thin!
Examine Your Individual Situation
Now that you have a basic understanding of student loans, you're probably thinking you should pay them off ahead of everything else. In most cases, the answer to that is yes but what you really need to evaluate are the interest rates. If you have a federally backed loan with a low interest rate held next to a credit card with an outrageously high APR, then start a payment schedule to diminish your credit card debt first. If on the other hand you took out a privately subsidized student loan that had a high interest rate, then you'd probably be better off starting there. Again, it all depends on the terms of your borrowings-there is no 'one size fits all answer' to this dilemma.
Prior to selecting one over the other, take the time to explore some of your other options. For example, a handful of federally backed loans allow you the option to temporarily lower your payment responsibility based on your current earnings or income and even defer payments sans interest. You may end up paying more interest over time by utilizing one of the deferment options; however, it could give you flexibility with your cash flow to pay those higher credit card balances.
Always take a cautious approach to loans and other forms of borrowings. Every individual's needs differ so it's important to select the route that works best for you.