Money. Can’t find a man with it, can’t live without it.
(That was a joke. If you know me, you know my man has money.)
((That was a joke, too. I’m like a baker, I make my own dough.))
But all jokes aside, today we’re talking about debt. Now I’m no expert, but I do have an impressive amount of debt at the age of 22, so I think I’m qualified enough to tell you all how to manage yours. And since every 18-30-year-old American student is shivering with
antici
pation
for Joe Biden’s proposed student debt relief program, there seems no better time to divulge my debt concerns than the present.
America is the land of the free and the home of student debt. Americans collectively owe $1.6 trillion in student loan debt, a number which bypasses credit card debt and car loans, and is Americans’ second-largest consumer debt (only falling behind mortgage loans). Not to mention the average American has over $90,000 in debt including credit cards, student loans, car loans, and mortgages.
Of course Boomers and Gen X have much more debt individually than us Zoomers, but I don’t have a ton of credit card debt, I don’t own a car, and I’ve never bought a house. Still, here I sit with $50,000 of debt that I’m expected to pay off over the next 10 years for an education that would have been more comprehensive if I went to clown college.
Meanwhile, I know plenty of 20-something-year-olds who have seven maxed-out credit cards and still apply for more every time they go into a new department store. And it isn’t because of elitism or impulsivity. Shit, it isn’t even because we all want lip injections and pay $150 for eyelash extensions every month.
Everyone is in debt because not a single person tried to teach us about money management when it mattered.
Think about it: Who taught you about money? Who taught you how to spend your money? Who taught you how to balance a checkbook (which literally no one does anymore but that’s beside the point)? Who sat you down and taught you how to save your money and plan for the future?
Chances are, you probably learned these skills on your own by observing your family’s behaviors. Or maybe you didn’t learn these skills at all, per se, but rather just adopted the same behaviors as your elders.
Some would say it’s a parent’s job to teach kids about money management. You learn how to cook and clean and behave because of your parents, so it must be their job to teach you about money.
But I don’t think that’s fair.
Many parents don’t have the time to teach money management because they’re out working and living paycheck to paycheck to provide for their families. Others may have the time, but most don’t have the expertise –– or spending habits –– to responsibly teach their kids how to save and invest and minimize their debt.
But I have plenty of time and not very much expertise but a lot of research convinced me that I have the knowledge to teach y’all about finances. Plus I’m only going to talk about student loan debt and credit card debt because, let’s be honest, I’m already in completely over my head here and those are the two monthly payments I currently make. So let’s get into it!
First, student loan debt.
A quick Google search asking “how to minimize student debt” will remind you that your 17-year-old self didn’t do enough to save money or choose a cheap enough college. And, yes, you certainly should have a savings and a plan for the ridiculous expense that a college education has become. But at 17 I had no idea what $40,000 meant, and it’s a little late to turn back time. What’s important is that we learn how to responsibly pay off our debt now that we have it.
Now is also a great time for me to deliver some bad news. Joe Biden is not going to relieve you of all of your student loan debt.
Biden’s current plan, the Biden Plan for Education Beyond High School, is as follows:
- Two-year colleges
- Provide free two-year community college or equivalent trade school program for “hard-working individuals”
- Issue grants to two-year colleges to help increase retention and completion rates
- Allow student to use grants and financial aid to pay for living expenses outside of their degree program (although somebody might want to let Joe know that we’ve been out here doing this)
- Implement financial incentives for student support programs, specifically regarding veterans, students of color, students with disabilities, and low-income and single-parent students
- Initiate a grant program to help community colleges establish emergency funds for students in need
- Invest $50 billion in training programs
- Invest $8 billion to improve community colleges’ facilities and technology
- Four-year colleges
- Provide free education for families making less than $125,000 annually
- Double the value of Pell grants
- Alter loan payment programs (this is where we start paying attention y’all)
- Those making $25,000 or less per year are not required to make student loan payments (the debt is still there, but you pay when you make enough, not six months after graduation)
- Those making more than $25,000 per year will pay 5% of their income (minus housing and food costs) each year for 20 years
- Those who make “responsible payments” will have any remaining student loan debt forgiven after the 20-year mark
- Everyone with new and existing loans will be automatically enrolled in the loan forgiveness program (but you can opt out!)
- Change tax code so forgiven debt isn’t taxed
- Change loan forgiveness program for public servants
- Relieve $10,000 of student debt per year of national or community service up to five years
- Automatically enroll government, education, and non-profit employees in the program, including those with five years of previous public service
- Initiate a grant program for student support programs, specifically regarding veterans, students of color, students with disabilities, and low-income and single-parent students, and establish emergency funds for students in need
- Allow individuals to claim bankruptcy on private student loans
- Specific and additional investments in Historically Black Colleges and Universities (HBCUs), Tribal Colleges And Universities (TCUs), Hispanic-serving Institutions (HSIs), Asian American And Native American Pacific Islander-serving Institutions (AANAPISIs), Alaska Native-serving Institutions and Native Hawaiian-serving Institutions (ANNHs), and Predominantly Black Institutions (PBIs), and Native American-serving Nontribal Institutions (NASNTIs)
So, that’s a lot (and I glossed over many of the plan’s less-related points). And you’re probably wondering where the “total loan forgiveness” part is. I’ll tell ya where it’s located, right in your imagination that’s where.
Biden has urged Congress to forgive $10,000 of federal student loan debt for every individual in light of the pandemic, but that’s more of a one-time pandemic assistance program than a total student loan forgiveness program.
Essentially this means that Biden (currently) has absolutely no intention of forgiving $50,000 of student loan debt.
But even if Congress passes this $10,000 relief program, or if Biden attempts to forgive $50,000 via executive order (which, again, don’t count on it), getting rid of your loans won’t solve all of your problems, even if it reeeeally feels like it will.
That’s because if you’re anything like me, your student loan payments are a pain and they take resources away from living expenses, sure. But student loan debt probably isn’t the only damper on your finances, and even if it is, you’re going to have more debt in the future.
Debt isn’t bad; we need it to build credit and to buy expensive things like homes and cars. What’s bad is our saving habits and, likely even worse, our spending habits.
So back to your current student loans. How do you pay them off and how do you avoid paying them off for the rest of your life if this 20-year Biden forgiveness plan doesn’t work out?
The first, and most obvious, step is by making your monthly minimum payments. There are plenty of programs to help lower your payments and implement more affordable repayment strategies, but you do eventually have to pay back your debt because you can’t claim bankruptcy on student loans (at least for now).
But be strategic. Right now, federal loans are in a forbearance period until the end of the year, which means you aren’t required to make payments on your federal loans. Still, these loans also currently have a 0% interest rate, so if you can pay off a little bit now, it’s going to save you on the exponential interest your loans will resume accumulating come January.
You can, and probably should, also refinance your loans. I don’t completely understand the refinancing process, but refinancing my private loans (which I haven’t done yet, but plan to do soon) can help me lower my interest rates by over 4%. That might not seem like a lot until you remember that student loans are in the tens of thousands of dollars and 7.5% interest on a $10,000 loan is going to add up very, very quickly.
Personally, I’m choosing not to refinance my federal loans at the moment for a few reasons. There’s no better interest rate than a 0% interest rate, and I’m riding the wave of forbearance baby. But refinancing my federal loans would make them private, and the federal government can’t forgive private loans (at least for now). This might change depending on a multitude of factors, but that’s where I’m at right now.
Bottom line for student loans: take what you need (the more federal loans and fewer private loans the better), make monthly payments (during school if you can), refinance if and when it makes sense for you. And Gretchen, stop waiting for total loan forgiveness to happen, it’s not going to happen.
Now for everyone’s favorite type of debt, or at least mine. Credit card debt.
I love the concept of opening my wallet and seeing 75 credit cards and knowing that 74 of them are completely maxed out. But I also love the concept of eating only mac and cheese every day for every meal for the rest of my life. And honestly, I think the latter would probably be better for my health.
I opened my first credit card the first second I could at the only place I knew how: Pink.
And I swiped that sparkly pink card left and right.
You need yoga pants? Got ‘em. Sports bras? Throw ‘em in the cart. 30 pairs of cheap underwear because they’re $10 for $35? Already done. Oh, you saw a matching velour set on the way out? Better turn around and buy it!
The first month that I was in college I dropped over $1,000 at the mall in just one week and I couldn’t honestly tell you that I still own a single thing I purchased.
I still have my VS Pink card, but I also have a proper Discover card. I make my monthly payments and keep my spending under 10% of my total credit limit. Now I can gladly say that I have phenomenal credit, mostly due to my phenomenal amount of debt, but also partially due to my phenomenal ability to spend money in at least some of the right places (like on my credit card bill).
But understanding that I should keep my VS Pink credit line open even though I will never use it the way I did in 2016 helped me boost my credit, rather than hurting it by closing the credit card just because I don’t really use it as much anymore.
Having multiple credit cards can seriously help boost your credit score, but only if you’re using them right.
The best way to use –– and pay back –– a credit card is to buy only what you need and what you can afford to pay back, and to make payments on time and in full.
I know it seems like you need that $1,300 Gucci bag, and in the grand scheme of life $1,300 isn’t really that much money. But if you can barely afford to make your $35 monthly payment, then that $1,300 is going to start gaining interest (just like those student loans!) pretty quickly. Then $1,300 turns into $2,000 turns into $3,000 and you’re swimming in credit card debt for a purse you can’t even use during winter.
Having multiple, mostly unused, lines of credit shows potential lenders (like mortgage lenders or car dealerships) that you are a responsible borrower. As long as you make payments on time and you pay off your full credit line when you can, your credit score and future self will thank you for all of the new credit opportunities you’ve created.
Bottom line for credit cards: have a few designated for different purposes (like groceries and gas), pay them off completely when you can, always make payments on time, keep your credit utilization (how close your spending gets to your limit) low (ideally less than 30%).
We’re going to finish our time together today discussing two basically foreign concepts to me and those are saving and investing.
I have such little money that saving it seems impossible, and investing it seems impulsive. But the reality is that saving is very possible (in my current financial situation) and investing is one of the best things you can do for your future self.
Now I’m not telling you to go buy $5,000 in Tesla stocks, that’s unrealistic and overall irresponsible. But once you can confidently stand on your own two feet and providing for yourself isn’t a regular concern, you should absolutely start saving and investing.
When it comes to saving, I would rather starve to death than put money away instead of spending it. But savings are there to help you in times of need, like during a global pandemic when everyone is losing their jobs and the government isn’t doing all that much to help them, for instance. Savings can also help you prepare for large expenses so you don’t have to rely on your credit card for that $1,300 Gucci bag we talked about earlier.
The most important part of saving is understanding your budget. I have a spreadsheet for my finances that lists all of my income, expenses, savings, and my monetary goals (because I’ve apparently become a 98-year-old fiduciary for myself). But regardless of whether or not you spread out your finances into a beautiful visualization, saving your money starts with understanding how you spend your money.
As an avid spender, I try to be very realistic about the amount of money that leaves my checking account each month. I know I’m going to get Starbucks a few times each week and splurge on clothes every so often. But recognizing my unhealthy spending habits helps me cut back on them while still allowing myself to indulge in a latte once in a while.
Bottom line for savings: know your budget, understand your expenses, cut down on excessive spending. Your savings is intended for short-term purchases (within roughly five years) and emergencies (to cover living expenses up to six months if necessary). Keep saving until you’re there.
Now I absolutely do not have six months worth of rent and groceries and living expenses saved up but I’ve decided to start investing regardless. I’m not planning on day trading or waking up before the sun to check where the stock market stands, but investing is a long term, well, investment.
There are plenty of places to invest your money, whether it’s the stock market or real estate or whatever weird scammy start-up your brother is working on this month. If you can put in money and grow your returns, call it an investment and reap the benefits of exponential growth opportunities. The most important thing to remember is to diversify your funds, which is really just a fancy way of saying don’t put all your eggs in one basket.
I’m not going to leave you with an in-depth analysis of how to invest or where to invest or how much to invest. (I know my limits.) But there are plenty of Youtube tutorials and tools you can use to invest on your own, and you don’t have to start out with a huge investment.
What I will do is leave you with a simple insight in the form of a simile.
Investing in stocks, bonds, real estate, start-ups –– pick your poison –– is like planting your money in its own little garden. Some seasons will have great turnouts, some will bring drought, but at the end of the day you’re increasing the amount of plants you can harvest for years to come. And the better the season, the more you can replant and expect to bloom the next year.
Bottom line for investing: start young, educate yourself, invest what you can without being frivolous, use a robo-advisor if you want to invest in stocks but don’t know how, diversify your portfolio. And be patient; understand that there will be losses but gains come in the long run.
Whew. (And by “whew” I mean “holy shitballs.”) That’s a spicy amount of information.
If you read it all, thank you and god bless.
If you’ve scrolled to the bottom for a quick summary, check the pink bolded sections for the tl;dr.
I’m out here talking out of my ass like I know something, but don’t get me wrong, I still hate finances. I hate being responsible and I hate that Joe Biden isn’t going to come flying into my apartment on a unicorn and wave a magic wand to rid me of my student loan debt. But this is the world we live in, and I think facing our financial responsibilities can help us take control of our money and not have to live in fear of financial crisis (even when our finances are, in fact, in crisis).
With love and definitely not enough knowledge to have written this blog,
Jacklyn
All Who Ponder 