More than any generation before them, millennials have grown up in a world built on credit and borrowing. For many of them, debt has become a way of life. And for many, especially those who financed an education with credit, they may already find themselves carrying a significant amount of long-term debt and are having difficulty dealing with it. Understanding how to handle this debt will be an important, if not essential, part of how they fare in the coming years. So here are some general rules to follow for millennials hoping to better manage their debt.
KNOW WHAT YOU OWE: This seems obvious, but far too many millennials take a head-in-the sand approach to the whole idea of debt—especially big debt. Bad idea. Like it or not this debt will be a part of your life until it is paid off. And in the case of student loans, if they are not paid off, they will be with you until you die. Student loans cannot be discharged by bankruptcy anymore. If you don’t pay them yourself, unpaid federally insured loan payments will be deducted from any federal benefits you might receive in the future.
So take your head out of the sand, if this is you, and tally up what you owe, to whom, at what percent interest and on what payment terms. Completely and honestly, and keep that info handy. For federally insured loans, you can check with The National Student Loan Data System, which tracks federal loans (or call 1-800-4-FED-AID). For private student loans, you can generally find out from checking your credit report, a good practice in any case.
SET A BUDGET: Once you have figured out everything you owe, create a realistic budget of all your monthly expenses including loan payments, and stick to it. This may be painful and may require cutting back on your daily Starbucks allotments ($150 per month easily) and that weekly Thai feast you’ve grown accustomed to (another $100 or more), but being saddled with debt forever is even more painful.
LOOK INTO REFINANCING: Now that you are earning a real income, you may qualify for better terms than when you were a starving student. If you have loans with adjustable rates, moving to a fixed rate could help a lot. Also, if you can consolidate several loans into one loan, you will minimize your hassle factor and the risk of missing payments that comes with it. But research all options carefully and do the math. Many federal loans have more liberal deferment and repayment options that would disappear if they get rolled into a new, privately financed consolidation loan. It may make sense to treat the private and government loans separately. It all depends on knowing precisely what you owe and to whom you owe it. (See step one above.)
GET HELP: Some employers offer student loan repayment as a perk of employment. Check with your human resources department. Also, you may qualify for any of a number of deferment and/or forgiveness programs, especially if you are working in a public service job, or have returned to graduate school. Just keep in mind that deferment only defers your payments and you may still be accumulating interest on any deferred loans that will still need to be paid. If you are really hard up, many federal loans have plans that are based on your ability to pay. These will require you to share your financial info with the feds and will only stretch out the payments, not reduce the total, but they can lighten your monthly burden.
Assistant Vice President, Torrington Branch Manager
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