Managing debt can be a struggle at any age and it can have a major impact on your life. It’s unfortunately pretty common now for young adults to graduate and start their careers with a lot of debt. Limited resources, burgeoning expenses entering the real world, and receiving the low end income range of entry level jobs are a reality.
It is possible to advance your career and successfully become financially independent by paying off all your student debt in your 20s. But that’s easier said than done. And a lot of young adults don’t pay enough attention to their spending and paying down debt even though they actually have the least amount of responsibilities in their 20s.
With More Money Comes More Responsibility
As people mature and develop well-established careers in their 30s and 40s, their financial commitments also tend to grow exponentially. People in this age bracket have to start planning for their long term personal financial goals and special situations like relocating, paying for a wedding, buying a house, saving for their child’s education, investing in retirement accounts, etc. As a result of these added responsibilities and commitments, their outstanding debt typically increases even further.
The data collected by Census Bureau reveals that middle age adults (35-44) are the ones among all age groups to have the highest level of household debt. And their median debt size is almost 25% more than the second group in this category. So even though your 30s and 40s might be your busiest decades, they’re also the most critical to keeping your expenses in check and managing your debt.
Tips On Managing Debt In Your 30s and 40s
Managing debt is an unavoidable challenge as an adult. And it can be quite intimidating to face a large amount of debt. But feeling sorry for yourself and getting stuck in a trap of hopelessness isn’t going to help. Arm yourself with planning, preparation, and knowledge to get in control of your finances and tackle your debt head on.
Maximize Your Tax Deductions
If you own a home, be sure to deduct your mortgage interest on your tax returns if you qualify. The government will go after every penny that it can, so it’s up to you to use whatever tax shields you can to reduce what you owe.
If you’re attending graduate school or other types of education, you may also be eligible for a tax break on the interest expense of your student loans. Check if your loan qualifies, and if it does you can decide which debt to pay off quickly and which to pay off slower to align it with your tax planning.
Consolidate Your Credit Card Debt
This is the time of your life when you ought to bid good-bye to credit card financing entirely. The high double digit interest rates, huge cost of carrying balances, and dreadful fees make the overall cost of using credit card debt too high compared to most other forms of borrowing. One major problem with credit cards is the difficulty to align their repayment with any form of investment because the returns on most investments are not as high as the effective rate of credit card debt.
With a longer credit history in your 30s and 40s, plus a sizable income, you can opt for better and more cost effective forms of debt than credit cards. Look into consolidating your credit card debt with Lending Club and cutting back on your use of plastic and unnecessary spending. To learn more about how it works, read through this thorough Lending Club review. I love their platform and have been a lender for many years.
Anticipate And Plan For Emergencies And Special Situations
As mature adults, you have to meet the financial obligation of your household and also ensure financial security for your dependents. And a large part of that responsibility is being prepared for emergencies and unexpected special situations that arise. One way to plan is to set a timeline for such expenses and reduce your debt periodically so that you could take on more debt to finance such expenses if worse came to worse and your savings were not sufficient to cover them.
Also, setting up an emergency fund to cover at least six to nine months of living expenses is a must in this age, preferably 12 months. Job security isn’t what it used to be, and the more you have saved up, the less disruptive an unexpected change like that will be for you and your family. Having a safety net of funds will provide security, reduce stress, and help hold you over, especially if you’re unable to get a loan in your time of need.
Career change is also common in your 30s and 40s, which may also take longer that you’d like, or could require relocating and a higher cost of living. There should be some tempting opportunities to switch jobs at this stage in your career due to the amount of experience and knowledge you possess. You can utilize the help of job portals to switch to a job that provides you with the right position and package. Just be sure that before you quit your job you have sufficient funds to cover your living expenses, and try to find a new job while you’re still working.
Automate Your Debt Reduction And Max Out Your 401k
An important requirement for effective debt management in your 30s and 40s is to increase your savings for your retirement. At this stage of life you have to be the most disciplined in your retirement planning. Get rid of high interest debt which reduces your disposable income and hence your ability to save.
Max out your 401k and take full advantage of employer match if your company offers it. Every time you get a pay increase, make sure you are also increasing your retirement contributions. Make it a goal to max out your 401k each year as soon as possible.
And make sure to consistently tackle your debt reduction every month. Automate payments and set targets every quarter for shrinking your principle owed. Utilize your income now to keep your debt in check and build your retirement accounts. Your future self will thank you.
Further Recommendation – Get control of your finances all in one place. Sign up for a free account with Personal Capital and take control of your money. Learn more about their services in this Personal Capital review.
Refinance Your Student Loan With SoFi
SoFi is a fantastic social lending company that provides rates as low as 2.6% variable with auto pay and 3.4% fixed with auto pay. The reason why they can offer lower rates than the rest is because they analyze you based on merit, quality of employment, and education besides just a credit score and financials. There are zero origination and prepayment fees. Offer terms are from 5, 10, 15, 20 years in both fixed and variable. Both private and public student loans can be refinanced.
Besides low rates, one of their best features is their unemployment benefits. If you lose your job while repaying your loans, you don’t have to pay your loan for up to 12 months while you look for a new job! Interest will still accrue, but having this cash flow break is a huge benefit. They also provide job assistance guidance as well. Over 500,000 users have refinanced with SoFi for an average $15,767 in lifetime savings.
You can apply to refinance or apply for a new student loan here.
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Updated for 2018 and beyond