student loan debt Archives - Our Debt Free Family

Mom Pays Son’s Debt: Should You Consider Paying Your Child’s Debt?

May 8, 2019 | Leave a Comment

Most of us have heard a story about a mother, father, or family members stepping forward and paying someone’s debt. When it comes down to it, reading things like “mom pays son’s debt” is pretty disheartening. Why not give your child the tools to better their finances on their own, something that will undoubtedly help them for years to come.

“Mom Pays Son’s Debt”

Some would argue that if you have the ability to do so, why wouldn’t you pay off your child’s debt and help them start their life off on the right foot? While that is a valid argument, there is a good chance they’ll land themselves back in debt without the proper financial education.

This is increasingly a problem for millennials. In fact, 1 in 4 parents of millennial children pays their child’s bills (even though they work full time). Half of the millennial children are still on their parent’s cell phone plan. One-third relies on their parents to pay their car insurance, car payment, utilities, and even rent. Additionally, they are making payments on their children’s student loans, taking the bulk of the $1.4 trillion student loan debt.

And those are the kids that are working full time. When you take into account those who are working part-time or are without work, parents are footing a lot of the bill for their grown children.

Should You Consider Doing This?

Many parents risk absolute financial ruin if they help their children in this way. You’ll put off your own retirement, your own financial goals, and even go into debt yourself helping your child.

When it comes to whether your not you should consider settling up your child’s debt for them, the answer isn’t yes or no. Of course, you wouldn’t ever tell a parent to not help their children. However, rules need to exist. If your child needs financial assistance from you, they should be able to explain why.

Then, you should take steps to better educate your child about financial planning. Have open discussions about saving, debt freedom, buying a home, and other important topics. Making a comfortable environment for your child to talk about their financial concerns can help you help them and inspire them to take better care of their money in the future.

Readers, are there any instances where you would pay off your child’s debt?

Is the Secret to Growing the Economy Canceling Student Loan Debt?

February 19, 2018 | 1 Comment

The United States economy has seen better days, that’s no doubt. The stock market recently saw one of its worst trading days in recent history. Many economists have been debating what could help mend the current climate. Could the secret be forgiving student loan debt?

A recent report says yes. The easiest way to ease the pressure being felt by more than 44 million Americans is to forgive all student debt. (And I’m not just saying that because I’ve got about $24K in student loans…)

A group of economists at the Levy Economics Institute of Bard College found there could be some great benefits if the federal government were to forgive student debt. The report details how young people struggling to pay off a massive amount of debt from college will help the economy as a whole.

While it may sound like a fantasy, it is possible, and it could have a significant and positive economic impact. The report found that canceling all student debt could potentially lead to an increase in U.S. GDP (gross domestic product). How big of an increase, you ask? Economists predict the increase could land anywhere between $861 billion and $1,083 billion over the next 10 years.

In addition to increasing the GDP, economists predict that canceling student debt would also lead to an increase in new jobs (an estimated 1.18 to 1.55 million).

Why is Canceling Student Loan Debt Such a Big Deal?

Why would forgiving student loan debt have that kind of impact on the United States economy? Well, the answer is pretty simple. There are more than 44 million Americans with some type of student loan debt hanging over their heads. Giving 44 million Americans a clean slate, where student debt is concerned, could help the economy greatly. The collective student loan debt in the U.S. is $1.3 trillion, which is higher than credit card debt and auto loan debt held in the U.S.

Who Would Pay the Student Loan Debt?

If the federal government decided to go about canceling student loan debt, it wouldn’t be that difficult. The problem, economists seem to believe, is that government officials consider paying the student loan debt as a zero-sum game. However, canceling student loan debt will free up tons of money to be put back into the economy.

Lawmakers have been able to provide massive tax cuts, and canceling student loan debt would be about the same. In fact, they’d be spending nearly the same amount of money to do so. Economists also found that canceling the debt could also help alleviate poverty.

As you probably know, poverty tends to be a cycle. Generally, people who grow up in poverty tend to live in poverty as adults. However, many people attempt to break the cycle of poverty by going to college. Canceling student loan debt could help ease racial disparities in debt and education. Canceling student debt would help keep borrowing/loans from continuing to support the racial wealth gap between the number of people in the U.S. looking for career opportunities and better employment through higher education.

Final Thoughts

It is your typical millennial response to be like, “Oh yeah. Cancel all the student debt.” However, it could make a significant impact on the economy. Taking into consideration my own student loan debt, I know it would free up $275 a month (more than $3,000 a year). Of course, some of that would go into savings, but a lot of it would also go back into the economy. (In fact, there are things I know I could buy with that money).

So, what do you think about canceling student loan debt? Would it help you? Do you think it’ll help the economy? Let me know in the comments!

Which Debt is Worse: Student Loans or Credit Cards?

July 10, 2017 | 1 Comment

If you’ve ever been in debt you know that not all debt is created equal. While all debts owed should be paid off, there is a way that you should prioritize your debts so that you’re able to pay them off in the most sufficient manner. So, which debt is worse? Student loans or credit cards? How do you pay off your debt in a way that makes sense?

Which Debt is Worse?

When it comes down to which debt is worse (student loans or credit cards) there is no black-and-white answer. No matter what you should be sure to remain current on all of your payments. The only time the question “which debt is worse” comes into play is when you are looking to pay it off. If this is the case you will want to jump on paying off your credit card debt before your student loans (while continuing to remain current on your student loan payment installments).

Credit card debt is generally high interest. It will also have the bigger impact on your credit score and finances in the long run. To truly understand why you should tackle credit card debt before student loan debt you need to understand how your debt works.

Understanding Your Debt

Before you decide which debts you should pay when you should fully understand your debt. Sticking to the “student loans vs. credit cards” topic of discussion, you can break down each debt into parts. When you look at your student loans, for instance, most loan companies provide a breakdown of payment towards interest and payment towards the loan itself.

For student loans you’ll be paying between 3 and 5 percent interest (closer to 7 percent if you are paying off graduate loans). If you have multiple student loans then you have to contend with multiple interest rates which is why many institutions will consolidate student loans in most situations. Interest rates on credit cards, however, are much steeper. The average credit card interest rate sits around 20 percent (four times as much or more than student loans). Because of this, you’ll want to pay off your credit card faster than the student loan debt.

How to Prioritize Paying Off Your Debt

There’s not really anything such as “good debt” but not all debt was created equal, which means each type of debt should be prioritized. Here’s how you should tackle your debt:

Pay off any debts prohibiting you from living your life. If there is a debt significantly impacting your life, pay it off. For instance, if there is a debt you owe to a rental agency that is making it impossible for you to rent a home you’ll want to pay that off quickly. If an old checking account and hurting your banking, try a bank account without chexsystems until you’re back on your feet.
Next, pay off debts with high interest rates. Target the debt that is accruing the highest amount of interest. If you pay this off quicker you’ll pass less over time. Pay off credit cards and other high interest debts before tackling others.
Make payments on the interest if you can. Many loan companies offer the option to pay additional money on the interest. You can do this with mortgages as well. Be sure that you know that your payment is going towards the interest though (and not to the loan itself).
Pay off the debts that are costing you the most. Once again, all debt is bad but some debt costs you more than others. If you want to get rid of your car payment, for instance, put in some extra work to get it paid off and have that extra cash in your pocket every month.
Tackle other debts. Once you’ve taken care of the bigger, more expensive debts in your life, tackle everything else. You can begin paying off the other items aggressively or simply pay them on a regular schedule to help improve your credit.

No matter what your approach may be to paying off debt, understanding your debt and interest rates is an important part of becoming debt free. Have you ever had to tackle a significant amount of debt? What did you do?

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Photo: The Balance