Not too long ago Bankrate.com released the results of a survey indicating that a large number of adults are delaying “traditional” life and financial milestones because of their student debt.
According to the survey, 56 percent of millennials with current or past student loans have delayed life events because of student debt, while 43 percent of older adults have done the same. This is a pretty significant portion of adults who push back their timelines for marriage, home buying and starting a family.
What’s more is that student debt isn’t the only type of debt that can force your timelines back. Credit card debt, and even big mortgages can have a huge impact on your life.
How Debt Can Interfere with Your Life Plans
One of the biggest reasons debt is problematic is due to the fact that it sucks away your financial resources. We’d like to think that money isn’t hugely necessary to our happiness and the way we live life. The reality is that debt takes control of your money and keeps them out of your hands. When you are paying your obligations, you can’t focus on your other goals. When you are making large student loan payments, or making credit card payments, that’s money going into someone else’s pocket, rather than building up your down payment account, or going toward making you feel financially secure enough to start a family.
You’re also missing out on potential gains down the road when you are in debt. Rather than investing in your future, earning interest on your money, you are paying interest to someone else. Not only do you miss out on putting that money in savings, but you also miss out on the compound interest you could have been earning. You’ll have less money to work with, whether you are looking for the financial security of an emergency fund or whether you are hoping to retire in 20 years instead of 30 or 40 years.
Managing Debt vs. Paying It Down
There are two main ways to get to the point where debt isn’t forcing you to delay your life goals: manage the debt or pay it down. What you decide to do depends on the type of debt you have, as well as your comfort level with the payments and interest.
In my case, I’m not fussed about my student debt. This is because my interest rate is 1.9 percent, due to a consolidation I made in 2005, before student loan rates started rising prior to and following the financial crisis of 2008. Because of my low rate and low payments, my student debt isn’t hindering me at all. In fact, thanks to the tax deduction on the interest, and everything else, I’m taking the money I would have used to pay off my loans early and investing it for better returns.
But that’s not an option for some of the millennials who graduated more recently. Plans like income-based repayment can help manage debt, but it doesn’t pay it down any faster. For those with higher interest rates (especially if we’re talking about credit card debt), paying down the debt as quickly as possible might make sense. They would also do themselves a huge favor by transfering at least part of that debt to a 0% APR credit card. It’s about saving money and finding the peace of mind to move forward.
What about you? Is debt holding you back? What are you doing about it?