“The More Debt You Have, The More Impact It Has On Your Goals”

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Any type of debt can have a serious affect on your ability to save money.

You’ve gotten a job, moved out of your parents’ house, and you’re steadily chipping away at those student loans. Now what?

Beth Napper graduated from college in 1999 and wanted to figure out how to manage her own money, which naturally turned into a career as a financial adviser, helping others understand how to manage theirs. Here, she tells our own Aaron Weber about the importance of savings, as well as debt’s impact on it.

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(Check out part I of Aaron’s interview with Beth here.)

Does Student Loan Debt Affect The Ability To Save?

To the person asking, the fact that it is student loan debt rather than other types of debt matters. But when I’m talking specifically about saving and investing for the future, I don’t typically differentiate between types of debt. Any debt is a draw on your income. The more debt you have, the more impact it has on your goals, including saving for the future.

As the debt load increases, so potentially, does the volume of deferment, forbearance, and payment extension requests. In the short term, any of those solutions can feel like a lifesaver, but in the long term, delaying tactics can (with the exception of subsidized loans in deferment) result in paying quite a bit more than if they had stayed with the original terms.

Higher debt loads also mean having a relatively smaller percentage of income available to buy other things, so people borrow more debt to provide what their available income cannot. Credit cards are part of that, but so are 7-year car loans and 40-year mortgages—all of which result in borrowers paying more for items in the long run and continually having less money available from income for anything other than debt service.

That being said, I think college generally pays off in terms of higher future earnings potential, making student loan debt a net positive.

The First Step To Prevent Money Problems 

When I was trying to figure out my own finances, I read books and articles and talked to my family, my friends, and my friends’ parents. The answers and advice I got varied and frequently conflicted with each other. So it was more trial and error in my own life that led me to this answer: Everyone needs savings.

I’m talking about money in the bank or credit union, not investments for retirement here. I consider a savings fund to be a form of self-imposed insurance. It can help prevent an unforeseen event from derailing your other financial goals.

A rule of thumb is to save 3 to 6 months of living expenses. That is the average amount of time it takes for most people to find a new job. If job loss is less of a concern than car repairs, dropping a roommate, losing an inexpensive daycare provider, fixing a furnace, or whatever possibility you would hate to live through, then that is the savings goal amount you should look to achieve.

What would you suggest as the first step to prevent money problems?

(Photo: www.SeniorLiving.Org)

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  1. Sasha February 10, 2014 / 1:06 pm

    Reality ✔

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