Student debts reach beyond university years as many employees are still saddled with them after having graduated for at least four years. Although no one wants to be buried in debt for a long time, financial analysts say that not everyone seems to be very sensible when it boils down to prioritizing payments for balances in students and bad credit loans. So in order to help those who are still struggling with debt, financial analysts share the following cures.
Reconsider The Student Loan As Your Priority
It is likely that the interest rate of your student loan is less than all your other debts – including mortgage and a short term loan that you have probably took. If this is the case then it would be best if you settle your other debts first before your student loan.
Also, the interest rate that you will have in a savings loan could be higher than your student loan. So experts recommend that you save the money, which is supposed to go as your loan payment, in your savings account and pay the remaining balance one-time using the money that you have saved.
However, it will be useless to keep a cash savings and have debts in place if the interest in your savings is less than your debt. Although cash savings come in handy during emergencies, it is best to save only in moderation. You must focus on prioritizing paying off your high-interest debts. Anyway after you’ve paid off all your debts you should be able to free up enough money on your monthly income and keep that as your savings.
Know The Terms of Your Savings Account
It has been mentioned that you will only save if the interest rate is higher than the interest of your loan. Now you must know the instances which would lead you to paying taxes for your savings account. Taxes will apply if you save your money on a normal savings account.
So to avoid taxes, financial analysts advise that you put your money in a cash individual account or an ISA. Here you can invest without incurring tax on all interests earned.
But other than that interest rate, you must also review your bank’s protection policy. This is in case the bank losses investors and has to close, how much money will you be assured to get back?
Increase Your Pension Contributions As You Grow Older
Your pension is also considered as your savings – only that you can only get them upon your retirement. At your current level of debt, you cannot put too much pension contribution so you can just stick to the minimum required by law.
However, as you slowly clear your other debts go ahead and start boosting your pension savings too. It is likely that the amount you put in will increase as you get older and your career progresses. Remember that contributing only 5% of your income for your pension will not be enough to have a decent income upon retirement.
To be sure that you will be getting enough pension funds upon your retirement, ask for a projection from a professional. This will help you understand how much you will need to make for additional contributions later on. You can review your existing policies to make sure that you do not get caught in the insurance mis-selling scandals. Also, make sure that you understand all the benefits that you will get in order to correct all miscommunications early.
Lastly, if you are with a partner, you should learn to coordinate all your expenses and money sources. This way, you do not overspend. Financial analysts add that your ability to pay off all your debts can lead to better consumer spending, which would in turn, aid the economy.