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    How to Handle Student Loan Debt

    How to Handle Student Loan Debt

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    Millennials are entering adulthood with record levels of college debt. In fact, two-thirds of all millennials with a bachelor’s degree have student loans.

    The average student loan, according to the 2013 Urban Land Institute Study, is $27,000 vs. $15,000 from 20 years ago.

    This kind of college debt is burdensome, but not impossible to manage. Given the right guidance and approach to budgeting and financial planning, you can take steps to reach your financial goals. It starts with figuring out where you stand and educating yourself on savings and investment options.

    Know Your Finances

    Everyone should start with setting a budget. Online tools and apps at various digital sites can be of use, especially when it comes to figuring how much money should go toward necessities versus discretionary items.

    After you've budgeted day-to-day expenses, consider stashing away three to six months’ worth of expenses in cash in an emergency fund such as a savings account.

    Then, you can start to figure out how much you can put toward reducing your student loan debt. Of course, you may have other debts to consider as well. When prioritizing which debts to pay first, it’s important to take into account interest rates. Find out which of your debts have the highest interest rates and pay those down first.

    Although you may not think of paying down your debt as an investment, it is. And it’s actually a relatively safe one, because it prevents interest from continuing to add up. That’s why it’s important to target the debt with the highest interest rates first.

    Another common strategy is to pay off your smallest debt first, and then work your way up to the larger ones. It’s also good to consider exceeding your minimum payments and avoiding late payments. Doing this also helps reduce the cost of the loan in the long run since you will be paying less interest.

    Where your student loan debt falls in these considerations depends upon the amount outstanding and the interest rate.

    It’s important to remember that not all debt is necessarily bad. It’s true that bad debt that doesn’t add value to your bottom line, such as credit cards or auto loans, can tether you to past purchases by draining your pockets. But good debts, such as student loans or mortgages, can serve as investments that can offer a return over the long run. They can also help you establish a good credit rating, which is critical for everything from buying a home to obtaining insurance.

    Saving and Investing Your Money

    When you’re ready to invest your money, how you decide to do it will depend on considerations like your risk tolerance, your financial goals and how much you've saved. (Related: Plan for My Financial Future)

    If you haven’t yet opened a retirement savings account such as a 401(k) for example, you should consider starting one. 401(k)s offer tax-advantaged savings and many companies today will match part of your contribution. That’s free money! It’s important to start contributing as early in your life as you can because the younger you are when you start saving for retirement, the more time your money will have to compound and grow.

    Despite student loan debt or and financial challenges, the good news is that because of your age, time is on your side. If you start making small, positive steps with each new paycheck, you can make tangible progress toward securing your financial future.

    Plan for Life Changes

    It’s important to remember how quickly life can change between the ages of 22 and 34. Just like everything else in your life, from your address to your hairstyle, how you allocate your money may change over the years, too. Remember to take a look at your financial strategy with each milestone you achieve — whether you get promoted, get married or have a baby.

    Indeed some financial moves, like setting up a 401(k) or IRA or buying certain kinds of life insurance policies, can offer more advantages the earlier you make them. (Related: How to Get Started on Your Financial Future)

    The key for millennials is to begin assessing your finances early and to continue to review them as your life changes.

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