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Wondering what to do with student debt? Here are a few pointers

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Most people who transition from training to practice experience a sudden surge in income. With that, frequently comes the desire to make up for years of living a student lifestyle, coupled with an objective to ‘get rid of mountains of debt’ that has accrued over the years.

Accelerated payoff – does it make sense?

The first thing you want to do is to look at the balances on your loan statements, and figure out if it’s feasible to pay off the loans within a ten-year period. If the answer is yes, you should figure out if doing so will leave over some money to establish important financial milestones, such as developing emergency reserves, and starting a retirement savings program. If your balances are so high that a ten-year repayment window leaves you broke, you will want to consider a 25-year extended payoff, or even income-base repayment.

Refinance versus consolidation

Many people get confused regarding the difference between refinancing and consolidation. Consolidation doesn’t necessarily save you any money (well, it may save you some service fees,) it just means you make one payment rather than having to pay multiple lenders every month. Refinancing is actually replacing those loans with a lower cost loan.

The great news is that private firms now specialize in refinancing loans for high-income professionals. Our advice, if loan terms are acceptable, is to take the lower rate, establish a cash reserve, and utilize the remainder to accelerate the debt or begin an investment program.

Which brings us to investing – when should you begin?

This one is easy. Start as soon as possible, today, if you can! You don’t want to pay off your loans for two decades, be debt free, and then have zero in savings or retirement plans. You’d be missing out on the power of compounding interest, and missing out on powerful market cycles that could hugely impact your financial future in a positive way.

Debt is not as bad as you think.

The bottom line is, that debt is what allows you to generate the income you always dreamed of, doing the job for which you have prepared for years. A good rule of thumb is to dedicate approximately 20 percent of your income to some sort of ‘net worth building program’ – a combination of paying off debt, setting up emergency reserves, and starting a savings plan.

Whatever you do, don’t go it alone. Always work with a qualified financial professional who can show you the way. Good luck!

~Shawn M. Johnson, ChFC, CLU, CLTC, vice president, sales, Treloar & Heisel

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Securities, investment advisory services and financial planning services offered through duly qualified Registered Representatives of MML Investors Services, LLC, member FINRA / SIPC. Supervisory Office:Six PPG Place, Suite 600, Pittsburgh, PA, 15222, Phone: 412-562-1600. Treloar & Heisel, Inc. is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. 
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Treloar & Heisel

Treloar & Heisel is a premier financial services provider to dental and medical professionals across the country. We assist thousands of clients from residency to practice and through retirement with a comprehensive suite of financial services, custom-tailored advice, and a strong national network focused on delivering a higher level of service. Visit us at Treloaronline.com

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1 Comment

  1. Great tips thank you for sharing them!

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