Today we are lucky to have David from Millennial Personal Finance to submit a Guest post to my site!
David is an engineer and he writes about personal finance, paying off your college debt and frugal living! He is a singe parent to a beautiful girl named Leila so there are great articles on kids as well. David also enjoys skiing and he is working hard towards achieving financial freedom, you can check him out over here!
Without further ado, let’s enjoy the post from David!
If you have student loan debt, you are probably worried about what to expect in the future. Many students enter into a student loan contract and they never fully understand what they are getting themselves into. This can be a dangerous situation and lead up to financial peril later on in life when you attempt to lease a car, home, or apply for a loan.
Below, we will discuss what financial literacy is, why it is important, and then cover some of the basics about student loans to help you better understand them and know what to expect.
Financial Literacy and You
Financial literacy is the understanding about your finances and being able to make informed and thoughtful decisions about it. Not everyone has the financial literacy that they should have and this often leads to poor money management and poor choices when it comes to their finances. The people who lack literacy will often find themselves with a negative bank account or unable to pay a financial obligation, which will then wreak havoc on their credit and the cycle keeps going.
Financial literacy is learned and it is very important to have because it can help you in the long run as you plan your future. Let’s explore why financial literacy is important and why it matters.
Increase your confidence.
Financial literacy will increase your confidence when it comes to the financial decisions you need to make. You will be able to make the right decisions without spending days or weeks making them. You will instantly know that the credit card offer you received with a 25% interest rate is not a good idea.
Spot a scam that is targeted at you.
Credit card fraud is a serious matter and the more financial literate you become, the more likely it is that you will recognize one when it occurs and you will be able to avoid it.
Manage your debt more effectively.
Debt may not seem like much when you first start to take it on, but when you find yourself in a hole of debt, you will wish that you were not in that situation. Once you understand financial literacy, you will know how to better manage your debt and take control of it before it takes control of you.
Create a retirement account.
Once you have a good grasp on finances and your financial future, you will know that you cannot rely solely on social security to take care of you once you retire. In fact, social security, if still around at the time of your retirement age, will only supplement your needed expenses and not much else. You will need to have backup funds such as a retirement account in place to ensure you can live the way you want and avoid to care for you and your family.
Basics of Student Loans
Student loans are the magic word for many, actually most, students as they enter into college. While you may be excited to receive money to go to school, you do have to pay this money back and it helps to be educated about finances and your personal financial situation BEFORE you decide to take out the maximum loan amount every semester.
The cost of college can range from a couple thousand dollars a year up well into hundreds of thousands of dollars for an entire degree. The cost of the college you attend will depend on where you are located and what specific institution you choose to go to. Many students will choose a community college first to help cut back on expenses.
Students who wish to receive student loans will need to fill out the FAFSA. You will be considered for both subsidized and unsubsidized federal student loans. Once you have received a loan offer, you should ONLY borrow the amount of money you actually need. This is where financial literacy kicks in. Yes, the maximum amount looks nice, but by the time you pay it off, you will have paid double or triple the amount you borrowed.
Some of the additional basics you need to keep in mind are:
- Remember you have a grace period
- Know your repayment options
- Know your options if you cannot afford your payments
- Keep your paperwork organized
- Consider interest payments while in school
Don’t Become a Statistic in Today’s Financial World
If you do not want to be a statistic in today’s financial world, you need to take the steps to ensure you set yourself up for a good financial future. When it comes to debt and student loans, you should avoid borrowing a bunch of money with the hopes to pay it back because you may have good intentions. Even parents are being impacted by student debt. You never know if you can follow through. Be smart about your borrowing and make sure that you learn as much as you can about financial literacy in the meantime.