4 Tips for Saving and Managing Debt
As tuition costs continue to skyrocket, student debt has become the unfortunate new normal of the college experience. If the amassed student debt in the U.S. of $1.2 trillion were GDP, it would be the 16th largest in the entire world. In fact, the 37 million Americans who have student debt are larger than the entire population of Canada. Additionally, 69 percent of those who graduated from public and nonprofit colleges in 2013 had student loan debt, with an average of $28,400 per borrower.
A new study from Principal Financial Group found that workers who take out these loans to may be increasingly regretting the decision. In a recent online survey of American workers, conducted on The Principal’s behalf by Harris Poll, of the 39 percent of workers who reported taking out loans, almost a third (32 percent) regretted doing so, and 34 percent said taking out student loans has prevented them from achieving their financial goals.
Tips on paying for school and managing debt
Jenny Smith, Financial Services Representative at The Principal, has some tips for parents and students on how to best handle paying for college and/or graduate school, and managing their debt following graduation.
Tip #1: Don’t Make Your Budget Like a Bad Diet
Like a crash diet, being too restrictive with your budget will leave you discouraged and exhausted. And maybe hungry. When asked how difficult it is to spend money on non-essential items such as entertainment and dining out, one third indicated it is difficult, very difficult or extremely difficult for them to spend on non-essentials. The key is to be honest with yourself about your spending. Look at your spending history — you might be surprised to see where your money goes. Be sure to set a reasonable budget each month that allows you manage your debt without falling off the wagon.
Tip #2: Research All Options
According to The Principal Financial Well-Being Index, twenty-three percent of employees are saving for their children’s college education, but of that 23 percent, just over half (55 percent) are satisfied with their level of saving. Applying for scholarships is an obvious, but sometimes under-utilized approach to keep college costs down. Another opportunity to boost savings is to utilize a cash back rewards credit card and deposit your total rewards in to a 529 or other savings plan. With consistent savings, this could pay for a nice portion of debt.
Tip #3: Consider Refinancing
When asked if they’re comfortable with the amount of debt they have, about two in five employees (39 percent) are either somewhat uncomfortable or very uncomfortable with their debt level. Some loans have astronomical interest rates that can take a lifetime to pay off. In this situation, you may want to consider refinancing your student loans. By refinancing you may qualify for a lower interest rate and potentially save thousands of dollars and years of loan payments.
Tip #4: Lowest Balance First
It’s basic human behavior that when we don’t feel successful we don’t keep up our good habits. To maintain a good outlook, consider paying off the lowest balance first. This snowball approach will motivate you with a sense of accomplishment and progress on the road to fully paying off your debt.
Hear what others have to say
Many American workers find themselves stuck with student debt. So we asked, what’s the best piece of financial advice you’ve ever received?
The Principal Financial Well-Being Index: American Workers survey was conducted online within the United States on the Principal Financial Group's behalf by Harris Poll between February 9 and February 17, 2015 among 1,111 employees. This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized (growing) businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000.