Getting out of debt is tough for a lot of people. It's both a financial and psychological challenge. Think of it this way: Getting out of debt when you haven't learned how to manage money is like running a marathon without preparing physically. Both tasks are possible, but they're much more difficult than they would be for someone who was actually prepared.
This is why many folks need to use psychological "tricks" when they repay their debt.
For example, I'm one of many who used the Dave Ramsey version of the debt snowball to finally achieve debt freedom. I tried (and failed) to use the mathematically optimal method -- repay your high-interest debts first -- several times. Once I shifted my focus to repaying low-balance debts first, I was able to plow through my debt without a problem.
It's not often that I find stories about money bloggers in my local newspaper. But that's just what happened when I opened the "Neighbors" section of the Lake Oswego Review last week!
Jacob (26) and Marissa (23) Lyda graduated from college with a combined $87,000 in student debt. With degrees in business management and business accounting, the newly-married couple decided to become money bosses instead of pursuing the standard consumer lifestyle:
Each time tuition rises, students become more dependent upon loan programs to pay for school.
But the long-term consequences of those decisions means students and graduates will spend years working to get rid of the financial strain associated with student-loan debt.
Time.com put it best: "This year, more than two-thirds of college graduates graduated with debt, and their average debt at graduation was about $35,000, tripling in two decades."<
My favorite scene in the 1985 movie “The Sure Thing” is when John Cusack and Daphne Zuniga are stranded in the middle of nowhere, cold and hungry, and it starts to torrentially pour. Seeking shelter in a locked trailer, John bangs incessantly on the padlock with a stone, while Daphne reaches into her bag looking for lock-picking tools and pulls out … a credit card.
“I have a credit card. I have a credit card,” she says. “Oh. But my dad told me specifically that I can only use it in case of an emergency.” Stopping with the rock raised in his hand, rain pouring off his face, John replies, “Well, maybe one will come up.”
Cut to the two of them having dinner at a beautiful bed and breakfast inn, she eating salmon while he tucks into veal, warm and dry and cozy.
The graduation parties are over, and it's time to get down to business. Armed with a sense of maturity and independence, you are ready to conquer your coursework in order to snare your first dream job. But if you're like most college students, your pocketbook has nary a dollar to its name.
Whether you're a rising freshman, a dorm veteran or a parent of either, here are 21 commonsense money-saving strategies that can stretch your dollar and ease your financial strain while in college.
1. Drop the latte habit
This one is a no-brainer. Skip the white-chocolate-cinnamon-chai-latte* with extra pumps and learn to love ... plain old coffee. And, of course, brew it yourself in your room (single-serve coffeemakers are quick and easy) or get your coffee as part of your meal plan. Consider this: According to a report by CBS News, the average cost for a single trip to a nationally recognized coffeehouse is $3.25. Not bad for a quick pick-me-up, right? But three trips a week add up to $42.25 a month. Even cutting back on one trip a week puts $126 back into your pocket over a typical school year of nine months. Other ideas: Instead of ordering a latte, ask for an Americano and add your own half-and-half. Or ask for a medium-size specialty drink with a large-size cup full of ice for a larger iced coffee drink at a lesser price. (*real drink!)
It was all over the news last week that the college Class of 2016 will graduate with an average — an average — of $37,000 in debt, the most ever. This is a 6 percent increase over the Class of 2015 (those lucky dogs graduated with an average loan debt of $35K). Experts say that if these kids' starting salaries are more than their total debt, they should be able to pay them off in 10 years. That's a big ‘if.'
My family has been going through the college application thing for the last 6 months. Our daughter is a high school senior and in the late summer she will be heading off to college in New York City to start the next chapter of her life. By my husband's calculations, when she graduates in 2020, she will be about $24,000 in the hole. Yay us! Let me tell you how we did that.
First, my story of financing our child's education begins with two things you don't have: My Grandma and My Husband. So already you know that you cannot follow my blueprint exactly. First, My Grandma. She was the quintessential Frugal New England Farm Wife (although she had a college degree in nutrition). When My Grandpa died, she discovered she had a lot of money. A LOT. So she began doling it out to her kids and her grandkids, and when the grandkids had kids, they all got money for college. So My Grandma gave us a very nice chunk of seed money when our daughter was born 18 years ago.<
Have you received your credit card bill for December yet? If so, you're not the only one. As this Federal Reserve Board chart shows, Americans accumulate about $30 billion in credit card debt in the last quarter every year - and then attempt to pay it off in the first quarter of the New Year.
The problem is they rarely succeed at paying off the entire balance. By the end of the first quarter every year, roughly $6 billion of revolving consumer credit is still unpaid. Even worse, it usually continues to grow the rest of the year too.
I remember my first mortgage. Getting it seemed like a bureaucratic hurdle on the way toward buying a home, and I couldn't wait to get the paperwork done and out of the way. By the time we bought our second house, I was 10 years older and wiser. I played a much more active role in choosing a mortgage and negotiating terms that time, and saved us a fair amount of money as a result.
Assuming most people are about as naive as I was when they obtain their first mortgage, I want to offer some tips on how to be less passive so you can actively take control of your mortgage situation. My first time, I didn't think of it as a process that starts before you even apply for a mortgage, continues on as you choose a home loan, and even carries through once you are in your house and making payments on your loan -- but it's very helpful if you do.
Dieting is not a popular topic around the holiday season; but perhaps with caloric temptations everywhere you turn, this is the best time to be thinking about it. Similarly, the holidays are a time of year when people tend to let themselves go financially, so a reminder about financial discipline might also be timely. After all, working toward financial goals is like dieting.
I recently wrote about things that help me worry less about money, and one reader commented that what she finds comforting is being able to measure progress. That's a very good point, and it started me down the road to thinking about how working toward financial goals is a lot like dieting.
I have all too much experience with dieting -- my weight has tended to yo-yo quite a bit over the years -- and I also spend much of my time thinking about strategies for meeting financial goals. In thinking about the two topics together, I came up with seven ways that working toward financial goals is like dieting:
- Goals should be incremental rather than all-or-nothing. It's not so bad stepping on the scale when you first start a diet, because you can be comforted by the lofty goal of how much weight you intend to lose. The hard part comes about a week later when, after days of sacrificing and exercising, you find that you have only made one pound's worth of progress toward your 30-pound weight-loss goal. It's a little discouraging -- much like your first year of saving for retirement, when you find that after a year of sacrificing part of your paycheck, your 401(k) balance is only $3,000 toward your goal of saving a million dollars.
This is where incremental goals become important. If you know that losing a pound in that first week of dieting, or saving $3,000 in that first year of 401(k) contributions, is what you need to be on track to eventually make your long-term target, then you can take satisfaction from having met your goal for that first time period. From there, you set your sights on the next short-term goal.
- Be realistic about being better tomorrow. We tend to have this touching faith in how virtuous we will be sometime in the indeterminate future -- people expect they'll eat less when summer comes or save more when they're in their 40s. But to make dieting or saving work, you can't lean too heavily on that future you. Chances are, that you will be no more up for the task than the current you, so make sure you do your share of sacrificing now.
- Build in room to be bad occasionally, within limits. Few of us -- certainly not me -- are built for living a spartan existence full time. Build the occasional indulgence into your diet or your savings plan. If you can limit such things by planning for them, you can give yourself a much-needed break now and then without completely blowing the good work you've been doing.
- Don't let one setback become an excuse for giving up. And then there are the indulgences that aren't planned. If that happens, the main thing is to bounce back strong. There is a tendency once you overeat or overspend to feel that now you've blown it and your original plan has become futile. Don't give up just because of an occasional screw-up. Make a new plan to get back on track.
- Hold yourself accountable. This is very important, because you can always find an excuse for bad behavior if you want one. Don't accept excuses. If you overeat or overspend, it is because you failed to live up to your responsibility to yourself, and you need to do better next time.
- Announcing your intentions can create additional accountability. Sometimes, telling people that you intend to lose 30 pounds puts the pressure on yourself to follow through -- and it might even make others more sensitive about not putting temptation in your way. It's a little tougher to be so open about your financial goals, but simply mentioning to a few close friends that you are trying to save more money can have a positive effect on your behavior and theirs.
- Think of it as a lifestyle change, not a temporary project. I struggle with this nutritionally, but I am getting better. Permanently changing your habits can actually be easier than gearing up for occasional periods of good behavior because, with dieting and saving, it is easier to stay on track than it is to get back in shape once you've let things go.
Nutrition is a very complex subject, and so is finance. However, while there are many nuances to be mastered, to a large extent a successful diet and a successful financial plan both come down to common sense and willpower. Best of luck to all of us for mustering both common sense and willpower as we head into 2016!<
It might be the incessant nagging of an unpaid bill or a stomach-churning plunge in the stock market, but suddenly you don't know how to stop worrying about money. Join the club.
Even having a decent nest egg of savings and a solid financial plan is no cure for money worries because the more you know about personal finance, the more you understand how fragile any plan and any investment program can be. Still, I worry about money less than I used to, thanks to a collection of habits and attitudes that have helped cushion me from obsessing about money. That means I've come a long way, because there was a time when money was a constant worry.
A Sobering Graduation
Like most people, I am a product of my experiences; and when it comes to personal finances, the most important formative experience was graduating college during the early 1980s, a dismal period for the job market. In fact, my senior year -- the time when one is supposed to be making career plans and lining up a job -- was marked by the highest unemployment rates of the post-World War II era. So, I spent the first several months after my college graduation caulking windows and scraping paint, stocking shelves in a supermarket, and working as a busboy in a greasy spoon. All minimum wage jobs, and even then the work wasn't always steady.