5 Reasons to Keep Student Loan Debt to a Minimum

Author, Money Crashers Advisor

Average student loan debt in 2012 was an astounding $27,253, according to Forbes, up 58% in just seven years. As college continues to get more expensive, you can expect this number to keep rising. There are many ways to reduce the cost of college—some are easy, some require a little work. However, cutting down on how much money you need to borrow for school is always worth the effort. If you think you need more reasons to reduce your student loan debt, read on.

1. Ease financial budgets

Once you graduate, finding that first job is likely to be a challenge. The economy hasn't recovered yet, and according to the Economic Policy Institute, the unemployment rate for young college grads is still at 8.8%. When you do find work, you don't want to have to devote a significant portion of your paycheck to student loans in addition to digging yourself out of any debt you accumulated since graduating. Monthly bills, groceries, and rent all cost money, and it sure would be nice to have a little cushion once you're out on your own for the first time. Don't let significant student loan debt cloud the picture.

2. Reduce the need to move back home

According to College@Home, a stunning 85% of college seniors say they plan on moving back home. Although several different reasons for this are listed, one of the most prominent is heavy student loan debt. Graduating from college used to be a rite of passage, signaling your first venture into independence, but that's just not so anymore. Do whatever you can to reduce student loan debt so you can make that time with mom and dad an occasional visit, and not a full-time proposition.

3. Save for retirement

Think saving for retirement at a young age isn't important? Consider this example: Graduate A invests $5,000 per year starting at age 20, while graduate B waits until the age of 30. Assuming an 8% return and a 25% marginal tax bracket, graduate A is going to have well over one million dollars after taxes by age 65 whereas Graduate B is going to have just under $600,000. Keep your debts to a minimum and commit to saving for your sunset years as soon as possible.

4. Start an emergency fund

Live life without an emergency fund and your finances are going to be thrown for a loop every time your car breaks down or you encounter a major medical expense. Get one started as soon as you graduate and your finances are going to be humming on all cylinders no matter what calamity befalls you. Unfortunately, an emergency fund is seen as a financial luxury by too many young people. However, it's not that tough to accomplish, as long as you're not writing significant monthly checks to your student lenders.

5. Avoid the perils of high credit card debt

Graduating with significant student loan debt tempts you to pay for purchases with a credit card. A credit card balance leads only to wasted money on unnecessary interest and nothing more. Keep your student loan debts low and pay your credit cards off on time and in full each and every month.

Final thoughts

The majority of employers now run background checks on job applicants and credit score is certainly one of the identifying factors. Paying your loans on time can in fact improve your score and make the job of finding a job a lot easier. Default on them, and you just may find yourself on the sidelines while your classmates are landing those coveted positions.

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