While some debt will always be necessary such as a home loan, usually a car loan, and a reasonable amount of student loans, it’s important to only take on a modest amount of debt and have a plan for repayment. Just because a lender wants to loan you money is not a good reason to take it. Many college students took out excess student loans to pay for all kinds of stuff. Unnecessary stuff. With private loans in excess of 10% interest, that $5 latte easily turns into a $10 latte after a few years!
One client this week advised that she had incurred over 200k for a two year AA degree over a long period of time. She’s had a difficult life, and had to retake many courses and change degrees/schools etc. That’s perhaps one of the worst places to find yourself. She cannot afford to return to school, and has almost no education to show for that debt.
If you do have to incur debt, be sure to find out the cost of carrying that debt. Not just the interest rate, but any other associated fees or costs. Know the length of your payment plans. Many folks with student loans come to me after religiously paying their student loans for 10 years, only to find out that they are on a 20 or even 30 year term. When they expect the loan to be fully repaid on year 11, they are really just starting repayment, only now realizing that a mere $20 of a $400 plus payment has gone toward principal. Nearly ever one of these folks wished they’d paid a little more each month when they had the extra cash to do so.
The average household pays over $10,000 per year in interest. A typical indebted household could pay hundreds of thousands of dollars in interest over the life of their loans.
If you find yourself over your head in debt, consider filing a Chapter 7 or 13 bankruptcy. Some of our clients don’t want to file bankruptcy because it would hurt their credit. They don’t realize that an 800 credit score is meaningless if you are already maxed out on debt. While repaying your debt is an admirable goal, it’s not always possible or even advisable. Starting fresh is exactly what bankruptcy is all about. Sometimes it’s better than spending the remainder of your life in debt, never getting ahead, and never saving for retirement. At least talk to a bankruptcy attorney about all of your options.