Funding your education

When it comes to paying for your education (and everything else you’ll need to live while you learn), you’ll want to think critically about the different funding sources and how they will impact you in the long run.

Start by working through the Managing Student Loans track. This track will help you figure out how to finance your educational goals through financial aid.

Investigate other funding options, such as jobs, scholarships, and employer matching programs. The more expenses you can cover with these funding sources that don’t require repayment, the better.

Remember that not all loans and debt are created equal. Student loans usually have lower interest rates with more repayment options while credit cards and other forms of loans/debt can have extremely high interest rates that require immediate payments.

Think about the full life cycle of your debt: from what you’ll be spending money on, to how much it will cost you in the long run, and how you can repay it in the future.

What you need to know before you borrow

Wise use of money?
Is this a wise use of money?

If you are financing something that will grow in value, is a true necessity, or will still be there when the bill is due, then it is probably “good debt”. For example, carefully financing your education (one that will lead to a career at the end!) is “good debt”.

Using your credit card to pay for a vacation or a fancy meal is probably “bad debt”. It might be fun at the time, but how will it feel when you are still paying for that dessert several months later? Probably not so great.

Interest rate
What is the interest rate?

If you spend $80 on your credit card you may pay up to 24% interest on that purchase, making the actual cost $99.92 after just one month. And the interest will continue to accrue if you don’t pay off your credit card balance in full every month, which means the final price could end up doubling quickly.

Repayment
How long will it take to pay back?

It is tempting to tell yourself “I’ll worry about how to pay it back later.” But you can create thousands of dollars of not-so-good debt over time with small purchases (like a daily coffee or smoothie), and at some point, you will have lots of debt with nothing to show for it. Before borrowing money or using your credit card, consider the interest rate, monthly payments, and how long it will take you to pay it back.

Test drive your debt
Take your debt for a test drive!

Use a credit card debt calculator to see how much you will pay in total and how long it will take to pay back before you borrow any money. Once you know the big picture, you can make a better decision about what to borrow, and if it is worth it over time.

How will I get out of debt?

If you borrow money you’ll need a plan to repay your debt.

  1. Make a list of all your debts, the minimum monthly payments, interest rates, and the total amount owed.
  2. Create a budget to make sure you can pay all your minimum monthly payments.
  3. Figure out if you can pay anything beyond the minimum toward your debts. Even if it doesn’t seem like very much “extra” to start, it can add up quickly if you keep up with it. And you can take years off repayment of a loan by making larger-than-minimum payments.
  4. Choose a repayment strategy that works best for you. Below are a couple of options.
    • Debt Avalanche focuses on the debt with the highest interest rate first.
      • Pay any extra money you can towards the debt with the highest interest rate.
      • Once you have paid off that debt, add the amount of that monthly payment to the monthly payment you make on the debt with the next highest interest rate.
      • This strategy will mean you pay less money in the long run.
    • Snowball Method pays off the debt with the lowest balance first.
      • Pay more than the minimum on the debt with the lowest balance.
      • Once that debt is paid off, move that monthly payment amount on to the debt with the next lowest balance.
      • This strategy will help you see wins right up front and can keep you motivated.
    • Remember, whatever strategy you choose, you need to make sure you pay the minimum monthly payment on all of your debts. And as you pay off each debt, plan to add its minimum payment onto the monthly payment for the next debt until you are debt free!

Did you know…

If your total debt (not including housing or college loans) is equal to or more than your projected earnings for 5 years, it is time to get expert advice. The National Foundation for Consumer Credit can direct you to a certified non-profit debt consolidation service. You may be able to find a way to pay off your debts through debt management or be advised as a last resort to consider bankruptcy. Avoid scam companies claiming to settle your debts for a fraction of the cost. If it seems too good to be true, it is!