While the growth of the debt is alarming by itself, it is not even the scariest part. What should scare us is the way we all consider student loans as a good debt. In essence, it really is a good debt. After all, it makes higher education more attainable. Having a degree can significantly increase your earning potential. College students are convinced that they can afford to pay back this loan since they are expecting a higher salary when they get their first job.
But then again, it is this justification that makes the student loan problem quite dangerous. The loan is being approved based on what is expected of the future. While the statistics will tell us that the chances of getting a higher compensation are possible with a degree, it is still not a guarantee. What if the student is unable to finish their degree? What if there is an economic crisis after the student graduates? All of these can compromise the ability of the debtor to pay their student loans.
Of course, not all students are looking that forward into the future. These loans are being given to 18-year-old students. It is not likely that they will be aware of all the risks and dangers connected to this type of debt.
With this mindset, it is not surprising that student loans are getting worse. According to reports, more than 40 million Americans have student debt. Of that number, 18% of them have debt that is more than $50,000. This is a huge amount to overcome.
How student loans are crippling personal finances
According to the Consumer Financial Protection Bureau, the housing debt bubble is starting to become a student loan bubble. That is how much this loan is growing. Even if you are earning a huge income, it can still compromise your financial position.
Here are some of the areas that can be compromised if you have a lot of student loans.
One of the main things that the student loan problem compromises is the ability of the borrower to buy their own home. If the student loan is taking up a huge part of their budget, it hinders them from saving enough for a downpayment. It is also possible that it will keep them from getting a good rate on their mortgage. And if the student loan is in default, it might also lead to a mortgage disapproval. While it will not keep them from homeownership forever, the student loan can delay it.
Another reason why the student loan problem can be crippling is that it can restrict your spending. Instead of spending your money on things that will make you happy or investments that can grow your finances, you have to pay off your debt. You will be forced to spend less at home because you need to allow some of your income towards your debt. The consequences of not paying your debt are too great so you just sacrifice what you could have been spending for your family instead.
Hinders business ownership
Finally, having too many students loans can also hinder you from owning a business. When you decide to start a business, you go through a period of financial instability. Obviously, having debt means you cannot afford to be unstable even for a while. This makes it harder for you to start your own business. You need to force yourself to stay at your job because it gives you a steady stream of income to help you keep up with payments.
While these three are the biggest financial issues that the student loan problem magnifies, it is not the only disadvantage of having this debt. There are other non-financial issues that can also make your life harder. For instance, you might end up suffering from too much stress or depression because of the huge responsibility associated with paying off debt. It can also cause a strain between you and your significant other. You need to be cautious of these issues when you are struggling with student loans.
Tips to make student loans less of a burden
Without a doubt, it is hard to live a life with a lot of debt – especially if it is student loans. If you want to improve your personal finances, you need to make sure that you can pay off your debts. It is a liability that is pulling your net worth down. It is a hindrance that is keeping you from growing your personal finances.
But for some people, they do not have a choice but to borrow student loans. While it is not completely evil, you need to understand that there are things that you can do to ensure that it will not be too much of a burden.
Fortunately, there are things that you can do to keep student loans from dragging your down.
Borrow only what you need
First of all, you need to keep the borrowing to a minimum. Borrow only what you need and make sure it is strictly for educational purposes only. If it is not for your education, find another source to finance it. You can get a part-time job to finance your other expenses. This will also help you pay off a portion of the debt (at the very least, the interest). This can bring your debt level significantly down.
Keep other debt levels down
Since you already have student loans, you should try to keep other types of debt down. If you have credit cards, make sure you do not abuse the use of this payment methods. These cards are notorious for their high-interest rates so you want to keep this debt low. If you are thinking of buying a car, keep the auto loan low as well. Just buy a second-hand car so it will not cost you too much.
Know your debt payment options
It is also very important for you to know the debt payment options that are available to you. According to reports, it may be possible to declare bankruptcy on student loans in the future. You should know the different ways that you can pay it off so you can determine which ones will suit your financial capabilities. This is to ensure that you can meet your payments without making it too hard on your budget.
Always practice smart spending
Finally, you have to always practice smart spending. Whether you are still in school or you already graduated – you need to be wise about all your expenses. You can opt to live a frugal life so you can focus your limited resources on the things that you really need. If you need to buy something, make sure that you think about it first before you proceed. It also pays to be extra careful with the small purchases that you make. Sometimes, we do not mind them but if you add them up, they become a significant expense each month.
If you follow these tips, you might be able to make your student loan problem less of a burden. Once it stops feeling like a burden, it will be easier for you to manipulate your finances so you can find the motivation to complete pay it off.