Financial Freedom:12 Step Plan

Episode: Student Loan Debt

Student Loan Debt is a serious issue for families in the United States. Currently there are $1.2 trillion dollars of Student Loan Debt outstanding. How can we combat this epidemic? We must look at the Now and the Future.

Now: What Do I Do?
If you are currently in student loan debt, there is hope but it's going to be a long journey depending on the amount of your indebtedness. According to the Huffington Post, the average debt levels for graduating seniors with student loans rose to $29,400 in 2012 - a 25% increase from 2008. Private colleges average debt was $32,300, and for-profit average debt was $39,950. If you have advanced degrees such as law, medical, or a Ph.D., your debt can be considerably more - even in the six figure range. Please recognize that Student Loan debt is the most dangerous debt that a person can incur. It is not dismissable in bankruptcy, and your wages, pension, bank accounts, and property can be garnished for non-payment.

My advice to eliminate Student Loan debt is to not defer payment. Deferment will only increase the length of the loan, as well as increase the amount of money that you will repay due to compounding interest. Secondly, avoid Income Based Repayment plans (IBR). IBR's are usually interest only payments, which doesn't decrease the principle balance. Many IBR's, depending on income, does not cover the entire interest that is accumulating on the loan. Again increasing repayment length and total amount repaid. If you have multiple Student Loans, and you are making multiple student loan payments each month, I highly recommend applying for a Direct Consolidation Loan, www.loanconsolidation.ed.gov, through the federal government. The Direct Consolidation Loan will be based upon your average interest of your current Student Loans, and more importantly, your interest rate will be fixed (does not change) for the life of the loan. Most private lending agencies Student Loans are on a variable interest rate which can change yearly. Lastly, pay more than the minimum payment. In order to eliminate your current Student Loan debt before your 90 years of age, you are going to have to make payments above the minimum. Mark any additional payments above your monthly minimum as "PRINCIPLE ONLY PAYMENT". This will ensure that your additional payment is being applied to the principle balance and not the interest.

Future: How Do I Help My Children?
Teach your children to avoid Student Loans like a plaque! Once your own personal finances are in order, establish a college savings plan for your children such as a college 529 plan. Monthly contributions can be direct deposited from your checking account or payroll. Have your children also contribute to their college savings through summer jobs. Additionally, start searching early for scholarships that your children can apply for. Priority should be given to four year scholarships and scholarships that can be renewed annually.

Begin at a local community college. Community Colleges are considerably less than four year institutions. A Community College will enable your children to complete their liberal arts and General Education requirements. No matter your school or major, you’ll spend the first two years of college taking these basic courses. Why not do this at a highly discounted rate? I recommend your child completing their Associates Degree at the Community College before applying to a four year institution. In addition, attending a Community College enables a student to commute from home, reducing the costs of room and board. Lastly, insist that your child WORK while attending college. There is no set rule that your child has to take a full load of classes each semester, or that they have to graduate within four years. It is better to graduate without Student Loans, than it is to graduate within four years. I call this the pay-as-you-learn method. Most students receive better grades and maintain a higher grade point average when they are paying a portion of their own education. I never understood the logic of accumulating $40k - $60k in Student Loan debt, to major in a field that only pays $25k after graduation - if you can even get a job!

Episode: Credit Card Debt

According to the Federal Reserve Bank of New York August 2014 Quarterly Report on Household Debt and Credit, total credit card indebtedness was $880.5 Billion with $15,607 being the average household credit card indebtedness. If you want to increase your household cash flow by 15%-20% here's a hint...... cut up your credit cards, pay off the balance, and stop paying the 15%-24% of daily compounding interest!!!

If you must use plastic, i.e airplane ticket, rental car, online purchase etc., use your bank debit card that has a MasterCard or Visa logo. The amount of protection offered by debit cards versus the level of protection offered by credit cards is identical, as mandated by the law and in common practice. Both debit and credit cards offer zero percent liability, meaning that all consumers who find themselves victims of card fraud will end up in the same place–their money will be refunded.