College or university students find themselves in a position where they are expected to establish the foundation for their adult lives. This comes with many costs and financial responsibilities. Students are expected to pay for their college tuition, food, housing, transportation and more. The list can seem endless. The problem is that many students cannot afford to finance all of this while they are studying and perhaps also working. So, most of them inevitably end up blindly taking out a student loan, a car loan or a mortgage. Briefly, these students may feel euphoric about being able to own an apartment, attend college classes and drive a car. However, when students find themselves in this situation at a young age, many of them fail to understand just how much they will have to work in the future to pay off their debts. There are some things that should be taken into consideration before taking out a loan of a significant amount.
1. You will likely repay significantly more than your original loan amount.
Many students who take on any kind of debt will be forced to live paycheck to paycheck for their young adult and middle-aged years, struggling to pay off their debt while paying for their day-to-day necessities. Debt will consume their lives and keep them trapped in a borrower’s cage. It is very difficult to pay off debt because of interest, which makes you pay a lot more than the original loan amount. You can use this calculator to determine how much interest you will pay on your loan.
2. It may be challenging to start a family.
It may be harder to start a family when partners have significant debt. After marriage, the individual debts accumulated by both partners will be shared. Debt payments can take up a sizable portion of the family’s budget, causing financial stress and delaying family plans like having children.
3. You may have less flexibility to pursue your dreams.
When you are in debt, you have a lot less flexibility to pursue potentially risky endeavors, like starting a business, because you have to worry about monthly payments. You will not be able to do whatever you want because you will be obligated to work to make your loan payments.
4. You may be stuck with your loan forever.
Discharging student loans through bankruptcy is nearly impossible compared to other types of debt.
Here are some solutions for how to avoid or minimize debt:
1. Pay off your debt quickly.
It is best not to take on any debt at all, but if you do, try to repay it as quickly as possible to minimize the amount you pay in interest. In this way, the total amount you will repay will be smaller. Make sure that the loan you take out has no prepayment penalty.
2. Do not attend an expensive college or university you cannot afford.
If you cannot afford to attend a prestigious and expensive university, go to community college instead or find a job that does not require costly education. For example, a six-month software engineering boot camp may be sufficient to obtain a high-paying software engineering job. You can attend a two-year nursing program to become a nurse. Many people claim a pricey degree can be an investment for the future. However, the downsides of having student debt can outweigh the benefits and can hinder you in many ways.
3. Spend your money wisely.
Be wise about your spending. As a student, prioritize long-term goals and do not spend money on unnecessary things. For instance, do not purchase a new car with a car loan if you can buy a less expensive used car.
It may be easy to do what everyone else is doing and rack up debt, but you should think carefully about the long-term implications and potential impact on your life of doing so.