Fresh graduates: Pay off your student debt

A lot of students are now graduating college and ready to take on the big leap to “real life.” Thing is, that college degree might have been obtained through a lot of hard work and perhaps a student loan.

One thing you really have to prioritize now, aside from landing a decent job, is to pay off that student loan. Try to make prepayments. Sure, the job market’s hasn’t really recovered yet but it’s better to get out of debt real quick than lose more money in the long run.

Simple math would show that you stand to lose more by opting for longer terms. A $10,000 loan at 5% fixed interest for a 5-year term means that you have to pay $189 a month to pay it off. You spend $1,340 on interest. If you opt to pay $250 a month, in just 44 months you’ve paid it off and you save $340 on interest.

Laws have it that you can make advance payments to get rid of the load quicker. Payments are also tax deductible so that’s another load off your back.

However, make sure that you shore up your emergency funds first before making any big financial moves. If possible continue contributing to your 401(k) and retirement funds as well. You might have to sacrifice a lot of other comforts but doing all of these should safeguard you from the rainiest of days.

How financial institutions encourage bad habits

In an ideal world, all banks, financial advisors, credit card companies, and other financial institutions would have your best interest in mind. But, that’s not the case.  Most of the time, these are the same institutions that would encourage you to breed bad habits.

Student loan debt

We were all made to think that student loan debt is responsible debt. A good education leads to jobs, right? Well, think again. This might be true, but you still have to evaluate your college spending plans. When going to college, be conscious of the debts that you’re taking. Remember that most fresh grads are still struggling with employment and that it may take years before you land into a career that can liberate you from the burdens of student loan.

Overdraft protection

If you’re the kind who shows tendencies of overdrawing your bank account, then banks are scouting for you. Banks would first allow you to spend more money than what you actually have in your account and then would cover your excess expenses for $35/advance. What’s wrong is that that $35/advance rate snowballs into a large burden, together with the amount of money advanced. Nowadays, laws are now in place to prevent banks from enrolling you to their overdraft protection program automatically.

High interest rate mortgages

Some mortgage brokers are out there to trick you. Their goal is to tempt you to get high rate mortgages through incentives. This kind of payment is referred to as yield spread premium. In the end, you have to remember two things: first, it’s in the broker’s interest that you pay more. When you pay more, your broker gets more as well. And second, do your homework: research and be an informed customer.