MP spoke to the professionals at Andrews Financial Credit Union professionals to learn more about setting financial goals, paying down credit card debt, reducing monthly expenses, repaying student loans, and more. Here’s what they had to say:
How do you set realistic financial goals?
One’s stage in life will probably guide the types of financial goals one wants to achieve. For example, if you’re in your late teens or early 20s, a common short-term goal is to save for a car or begin to chip away early at any student loans to reduce your debt upon graduation.
Someone who is starting a family may have longer-term goals of buying a home or starting to save for their child’s education. Whatever the case, the key to success is establishing a plan with concrete action steps to help you achieve your results.
Figure out the total amount you need to save and then break it down into monthly or weekly payments that you stash away in a high-yield savings account.
An important thing to remember is that finances are often fluid.
You may be saving for a large purchase and have an emergency expense that has to take precedence or an economic downturn that drastically changes your budget. It’s the process of setting goals in the first place that is vitally important.
This established healthy spending and savings habits that will serve you long-term.
What are five ways to pay down mounting credit card debt, and why?
1. Make a Budget and Live by It
You can’t begin chipping away at debt until you clearly understand your total monthly income and fixed expenses.
Creating a budget gives you a realistic picture of your financial limits and places where you can cut back and apply it towards your debt.
2. Start by Paying More Than the Minimum
Even if you can’t pay off your full balance, putting a little extra toward your monthly credit card can make a large difference.
Every dollar over the minimum payment goes toward your balance - the smaller your balance, the less interest you’ll have to pay over time.
3. Pay Off One Debt at a Time if You Carry Balances on More Than One Card
There are generally two ways to do this.
First, focus on the highest-interest card and pay that off or try the snowball method. The snowball method concentrates on the card with the smallest balance first.
Once you’ve paid that balance in full, you take the money you used to pay for that debt and use it on the next smallest balance. The benefit of the latter method is that you get a ‘small’ win right away, which can motivate you to keep paying!
4. Utilize Technology
Many financial institutions offer methods to manage and track spending habits digitally at no additional cost. This allows you to monitor your budget easily and avoid impulse purchases.
5. Commit to Paying Debt
Commit to using bonuses, raises, or other financial windfalls to pay down debt. This can help you reach your repayment goals much faster.
What are three ways to reduce your monthly expenses without sacrificing your quality of life?
Switch to a Credit Union or Banking Institution That Respects Your Financial Savings Goals
If you’re getting regularly dinged with extra costs such as an overdraft or monthly maintenance fees, it’s time to change. Switching financial institutions could save you as much as $20 a month or more and ease your budget. Credit unions generally offer no-fee, high-yield checking and savings accounts, and low-interest credit and loan options.
Consolidate Your Debts, Mainly Any Student Loans
Loan consolidation can net you a lower interest rate and monthly payments. If you have several student loans from different sources, it’s smart to look into this option and sign up for an automatic payment plan, which will often knock as much as 0.25% off your loan's interest.
You may be able to consolidate other debt as well, including personal loans. Talk to your local credit union about what may be available to you.
Sign Up for Customer Rewards at Places That You Already Shop
Many grocery stores and retailers now offer free discount programs to sign up for and will save you money with discounts later on. Take the extra minute or two to sign up, and your bank account will thank you down the road.
How can graduates prepare themselves to take on the burden of having to repay their student loans once again as student loan repayment requirements come out of suspension later this year?
If you can, keep making payments during this forbearance period. The idea behind the federal government’s temporary suspension of federal student loan payments is to give borrowers impacted by the Covid-19 pandemic time to recover.
However, it could be a great way to pay down your loan faster and save money in the long run if you can afford the payments. Right now, the interest rate on all federal loans is 0 percent, so any payments a borrower makes go directly toward their principal balance. Another option is to stock away the payments in a high-yield savings account, even if it’s a small portion.
Once normal payments resume, you can make a lump-sum payment or keep the cash for an emergency fund in the future so that you won’t fall behind on payments down the road.
What are five common mistakes people make when managing their finances, and how can these mistakes be avoided?
1. Hanging On to Too Many Subscription Services
Monthly subscription services, including video and music services and high-end gym memberships, can lure you into an endless cycle of monthly payments without gaining anything tangible in return.
When money is tight, or you want to save more, look where you can cut down on subscriptions. Even canceling one or two can add up to large yearly savings.
2. Using Credit Cards for Everyday Essentials
Unless you plan to pay your balance in full monthly, credit card purchases should be limited to larger-ticket items and emergency expenses. Swiping your card for things like gasoline and groceries means you’ll end up paying up to double-digit interest rates for items that will be long gone by the time you even get your bill.
3. Not Shopping Around for Credit Cards and Loans
On that note, many borrowers make the mistake of not finding the best possible interest rate for credit cards and loans. Start with your local credit union; they generally offer some of the lowest interest rates and can help you through the process.
4. Not Investing in Retirement
The best thing you can do with your paycheck is to pay yourself first. If you don’t start investing your income in an employer-sponsored retirement plan or tax-deferred retirement accounts, you may never be able to stop working.
Talk to a financial counselor about your retirement goals and understand the time it will take for your investments to grow so that you can live comfortably when the time arrives.
5. Paying Off Debt With Savings, Especially Your Retirement Accounts
It may seem sound to pay off a high-interest credit card or loan with money you have stocked away, but it’s not that simple. It’s hard to pay back and rebuild those accounts, and you could be hit with hefty fees.
In addition, when the debt gets paid off, the urgency to pay yourself back usually goes away, which means you’ll likely just get into another debt cycle.
It’s much smarter to pay off debt slowly by cutting back on your monthly budget.