Students -- the real world comes with a lot of new responsibilities. Sure, you had a blast in school, but now it's time to get down to business and pay off those student loans. And it's not impossible, trust us. Here are some tips and tricks for keeping on top of your game and being a debt-free adult.
1. Cut large pieces of the debt pie.
The fastest way to eat a pie is to eat large slices. And in turn, that's the fastest way to get rid of your student debt. If you can swing it, try to up your payment amount to get it out of the way. This will end up saving you money. The longer you leave the pie out, the staler it will get. Interest rates will end up making your loan more expensive than it originally was.
2. Give yourself a deadline.
Your loans are just more to-dos on your list. It will give you comfort to know that in 3-5 years, you'll be saying sayonara to student debt. Stick to that schedule and pay on time. It's like taking your daily medication or exercising. It must be done.
3. Budget, budget, budget.
Budgeting is not a bad word, like dieting. Instead of thinking about budgeting like it's a restriction, think of it as an evaluation of what's truly valuable in your life. Create a list of the essentials you must pay for in your social life, personal life, and professional life. Be as minimalist as possible. Your rewards will be more rewarding when you limit yourself. Here's how you can make your own budgeting plan.
4. Save, save, save.
Savings accounts are like a security blanket. You might think of it as cutting away at your spending money, but it's like a squirrel burying nuts for the winter. It's worth the wait! You'll be so surprised at how much more money you have that your debt won't seem as intimidating as it did before. Also, consider investing in an account that will accrue interest over time. Here's how.
5. Consider a part-time job.
Any extra income you can get will be valuable to you when it comes to getting those loans paid off for good. But don't overexert yourself, and don't be too picky. Find a low-stress job that will give you that extra cushion of support for anything you might want to do on the side. (You don't have to give up Margarita Mondays, necessarily!)
Now that wasn't so bad, was it? With these simple steps in mind, you'll make your way to financial freedom before you know it.
- How to Pay Off Student Loans - Real Simple ›
- The 5 Fastest Ways to Repay Your College Loans | Bankrate.com ›
- How I paid off $34,579 in student loans in under 4 years - The ... ›
- Don't pay off your student loans — yet - MarketWatch ›
- Want to get rich? Don't pay off your student loans - Dec. 11, 2014 ›
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.