Are you thinking about and planning your retirement? Here is some helpful advice from David McAlvany, President of McAlvany Wealth Advisors and author of The Intentional Legacy.
“Through no fault of their own, the rules have changed. You used to be able to count on 4% of your savings to supplement your retirement income. Today, it’s no longer possible. This is for two reasons.
One, interest rates have been set so low by the world’s central banks that you can’t count on the magical 5% coming in from your bank’s certificates of deposit.
Two, in the equity markets, things are so overvalued that you now have a growing list of professional investors. This includes John Bogle of Vanguard funds, who says you can expect only 2% per year over the next decade because things are so overpriced today.
You have to lower your expectations and anticipate to draw 2% instead of 4% – which means you’ll have to save twice as much, or spend half of what you were expecting.
Clearly this isn’t good news. The practical side is that if you had your heart set on a particular retirement date, you may need to rethink that. All too often, people retire earlier than they should and don’t have enough resources to do it. And the truth is, we can work longer – we are no longer in the Industrial Age so at 65 our bodies aren’t worn out anymore.
In a nutshell, we need to work longer and save more. Not necessarily good news, but if you don’t take that advice, you’ll run out of retirement savings before your clock runs out.”
Originally posted on the Christian Post on October 14.
Dear Chuck,
I read a story recently in the Washington Post about a frugal librarian who drove an old car, carried his lunch, and spent next to nothing on himself, making it possible for him to save $4 million that he donated to the school he loved, the University of New Hampshire, upon his death. But now there is a bit of controversy about how the money is being spent. Do you think it’s a mistake to save up money for others without proper instruction? It seems like the school is wasting this man’s legacy of financial stewardship.
A book lover’s question
Dear Book Lover,
I also found the story of Robert Morin inspiring. As a library cataloger for the school he loved and his alma mater, he worked almost 50 years, surrounded by books, enjoying the students and spending very little on himself. After his death, he bequeathed his entire estate to his employer, and it was assumed by many connected to the school that the library would have been the recipient of his large gift. But when $1 million went to a new scoreboard it caused a lot of controversy.
Alumna Claire Cortese wrote: “I am honestly ashamed of and embarrassed by my alma mater’s decision to waste Morin’s generous gift on a frivolous toy. The money could be spent on a cause that would truly, positively impact the lives of the university’s students. It could have changed lives. I doubt any student will look back in ten years and say ‘man, that video scoreboard – that really impacted my experience at UNH in a meaningful and beneficial way.’”
It is worth considering whether a scoreboard is the best legacy for a man of such frugality. The trustees of UNH will have to make that decision. But what strikes me as truly impressive, and frankly a lesson for us all is how a simple man, living carefully and debt free, could build up such an inheritance. Sometimes in our complex and expensive society, people can become discouraged and feel like it just isn’t possible to build up resources while living an ordinary life.
Morin is a great example of how little by little, anyone can build up wealth. Just like the Bible says. Proverbs 13:11 notes, “Whoever gathers money little by little makes it grow.”
I have found over the years that while people always want to hear about some amazing stock tip, lottery story or unicorn business tale, the truth is that money is best multiplied by a few simple guidelines, and slowly over time.
Step one: Spend less than you make … always.
Step two: Give a tithe to the Lord to honor and acknowledge Him because your ability to earn money comes from His blessing.
Step three: Set aside money for emergencies … using only for emergencies.
Step four: Once the emergency account is funded, continue to save regularly… with every check.
Step five: Diversify investments into opportunities that you understand.
I know this isn’t flashy. But it works.
You can begin this simple process by building a functional budget, so that you can track expenses and make sure that you have a plan to meet your obligations and save for your future.
But when it comes to preparing an inheritance, it can be wise to distribute it slowly and to present some guidelines, making a plan for the resources. Proverbs 20:21 advises, “An inheritance claimed too soon will not be blessed at the end.” The Bible has many instructions about how property is to be handed down, and it is clear from the scripture that God cares about the careful handling of resources, going from one generation to the next.
Proverbs 13:22 notes: “A good man leaves an inheritance to his grandchildren, but the sinner’s wealth is stored up for the righteous.”
I applaud Morin’s kind gift to his school, and his desire to see students educated in the place that he loved. I’ll leave it to those involved at the school to debate how best to spend that money. But I commend his example to us all – to live frugally, steward what we have and save up to care for the next generation.
Borrowing is not prohibited scripturally, but neither is it encouraged. It is always presented as a negative with many warnings about its danger and misuse. Here are fundamental Biblical principles related to borrowing.
Avoid borrowing unless absolutely necessary: Borrowing should not be a way of life but the exception. Only if there is no other way to make provision for your need, should you borrow money. It is best to pay cash for all consumer purchases, cars, and routine expenses and to even pay for your home with cash if possible.
Luke 12:57-59 says:
“As you are going with your adversary to the magistrate, try hard to be reconciled on the way, or your adversary may drag you off to the judge, and the judge turn you over to the officer, and the officer throw you into prison. I tell you, you will not get out until you have paid the last penny.”
Avoid signing surety as a loan: Surety is making yourself personally liable for a debt if there is a failure to pay. In other words, it is a loan that has no collateral and is backed only by your personal promise. Proverbs 6: 1- 3 says:
“My son, if you have put up security for your neighbor, if you have shaken hands in pledge for a stranger, you have been trapped by what you said, ensnared by the words of your mouth.
So do this, my son, to free yourself, since you have fallen into your neighbor’s hands: Allow no sleep to your eyes, no slumber to your eyelids. Free yourself, like a gazelle from the hand of the hunter, like a bird from the snare of the fowler.”
Avoid long term debt: In Deuteronomy 15:1 the Lord instructed the Israelites to lend and borrow for only 7 years.
Repay what you owe: Psalm 37:21 says that the wicked borrow and do not repay. If you borrow it, pay it back.
Originally posted on the Christian Post on September 30.
Dear Chuck,
My elderly parents are considering a reverse mortgage because they are struggling on a fixed income. Is that a good idea? Could it do more harm than good?
Worried for Mom and Dad
Dear Worried,
I share your concerns about reverse mortgages, called “the ugly stepchildren of the home-lending industry” by CNBC, and they may be right. I tend to agree with their analysis that “most financial advisors see the products as a last resort for cash-strapped seniors—and a bad one at that. They are expensive, restrictive and usually don’t provide enough income to help borrowers meet their financial needs for very long.”
But still, it’s useful to consider what they are and how they work, as each person’s financial situation is a bit different.
According to CNBC: “A reverse mortgage enables homeowners of at least 62 years of age to get a lump-sum payment, a stream of payments or a line of credit they can tap based on the amount of equity they have in the property. The amount someone can borrow depends on the value of the home (up to a maximum of $625,500), his or her age and prevailing interest rates. The higher the property value, the older the borrower and the lower the interest rate, the more people can borrow.”
The trouble is that once the equity in your house is gone, a valuable resource is depleted. It is always better to find other solutions to your financial needs, if possible.
To find out where you may be able to reduce expenses and free up cash, start with building a functional budget. Crown has many resources and free tools to assist you.
After you have looked at all that is available to you, consider whether selling your home to go smaller might be a better way to free up cash without any obligations to a lender. And remember, if you take out a reverse mortgage, that doesn’t exempt you from your other responsibilities as a homeowner. You still must keep up the house, the property taxes and the homeowner’s insurance, and any failure to keep that current can lead to foreclosure. This is a big risk if you are already financially strapped.
The Consumer Financial Protection Bureau also notes: “Most reverse mortgages require you to pay insurance premiums. The insurance is there in case your loan balance grows to be more than your home is worth. With insurance, you won’t have to pay the difference. But, if you only stay in your home for a short period of time, chances are you are paying for insurance you don’t need. If you only plan to stay in your home for a short period of time, the loan balance is less likely to grow to more than your home value.”
Reverse mortgages often mean that your heirs don’t get the house or any resources at your death. While the borrower doesn’t have to make payments on the loan, at the time of their death the loan is to be paid by the sale of the house, which means that your heirs or a surviving spouse (if they are not part of the loan) have to pay back the reverse mortgage or get out of the house.
If you don’t want to leave your home to others or are facing extreme health issues near the end of your life, perhaps a reverse mortgage gives you some financial flexibility. But as a tool for maintaining your retirement years, it is not a good idea. The interest rates are not always favorable, and you can outlive the value in your home.
For many retired people, changing your lifestyle is key to making resources last, especially without new money coming in, and that can require prayerfully considering what you really need versus what you want. Philippians 4:11-13 advises, “I don’t say this out of need, for I have learned to be content in whatever circumstances I am. I know both how to have a little, and I know how to have a lot. In any and all circumstances I have learned the secret of being content—whether well fed or hungry, whether in abundance or in need. I am able to do all things through Him who strengthens me.”
Originally posted on the Christian Post on September 23.
To learn Biblical answers to your financial questions, you can #AskChuck @AskCrown your questions by clicking here. Questions used may be lightly edited for length or clarity.
Dear Chuck,
I’m trying to fit in to a new workplace, and I’m on the outside of a lot of the conversations and office gossip. I want to join in, but sometimes the talk gets so hurtful or goes a direction I just don’t want to follow. Does the Bible have anything to say about how to talk to people in my office?
Tongue Tied
Dear Tongue Tied,
Let me commend you for identifying an issue that can destroy careers and reputations: our speech. Misuse of language harms many people, and the Bible contains many warnings against careless language. Especially when getting to know new people, there are some Biblical principles to keep in mind.
Words Can Do Serious Damage
Consider the warnings in James 3:3-8:
“Likewise, the tongue is a small part of the body, but it makes great boasts. Consider when a great forest is set on fire by a small spark. The tongue also is a fire, a world of evil among the parts of the body. It corrupts the whole body, sets the whole course of one’s life on fire, and is itself set on fire by hell … It is a restless evil, full of deadly poison.”
I’m sure you’ve experienced the poisonous impact of careless and cruel speech. I know I have! Here are a few guidelines I recommend for keeping our conversations productive.
Don’t Gossip or Join Those That Do
Know that secret gossip often becomes public knowledge – use words carefully.
In Luke 12, Jesus observes that “there is nothing concealed that will not be disclosed, or hidden that will not be made known. What you have said in the dark will be heard in the daylight, and what you have whispered in the ear in the inner rooms will be proclaimed from the roofs.” A good rule of thumb is to say nothing behind someone’s back that you would not say to his or her face – because it’s likely your words will get out.
Especially in today’s social media world, much of your conversation is available online and almost anything you send on a work computer or through a corporate cell phone leaves a trail. Be careful not to send a message you’d regret seeing in a job review.
Avoid Association With Those Quick To Criticize and Express Anger
In Proverbs 10:12 we read, “Hatred stirs up conflicts, but love covers all offenses.” Troublemakers, whether bored or vicious, like to see conflicts in a work place. In fact, those who talk and verbalize their anger and criticisms should be avoided. Proverbs 10:19 observes, “When there are many words, sin is unavoidable, but the one who controls his lips is wise.”
Look for people who exhibit an ability to forgive and forget and who don’t feel the need to repeat the failings of others. Pay attention to those who choose their words carefully. When they do speak, they probably have more to say worth hearing, and they will be better at keeping your confidences.
Never Boast or Brag
In an office, your work is your best testimony. Your coworkers will be drawn to you as they see you are an effective member of the team, willing and able to help them succeed as well. Ephesians 6:7 advises, “Work with enthusiasm, as though you were working for the Lord rather than for people.” And remember that bragging, even when you are talented, really is a turn off. Proverbs 27:1-2 notes, “Do not boast about tomorrow, for you do not know what a day may bring. Let someone else praise you, and not your own mouth; an outsider, and not your own lips.”
With that in mind, be quick to offer concrete compliments of other people’s efforts, by being observant of their good qualities and accomplishments. Give the kind of real feedback and compliments you would like to receive – not flattery – but sincere observations.
Measure Your Words
The Bible advises again and again to take your time, making promises carefully and considering the right direction to take. And if you make a mistake, fix it! Read Proverbs 6:1-5 where we are advised to be cautious in our words and in our business deals.
If you have begun a destructive pattern at work, put a stop to it. You can choose not to comment when the gossip gets started. If you have been trapped by your own words, make every effort to end that practice and “free yourself,” as the Bible advises. Go, apologize and make it right with the people you have offended.
Be Discerning – Never Lie, Use Flattery or Manipulate
Sometimes people come to you with gossip about a coworker or criticism of a boss, hoping to trip you up by drawing you into saying something that could hurt them and you. People often have agendas that have nothing to do with the conversation at hand.
It’s important to consider what the goals are of the person you’re engaging with, and a good place to learn skills in dodging the tricks of an adversary is the book of Nehemiah.
In Nehemiah, the prophet was working to rebuild the wall around Jerusalem because the people of Israel were vulnerable to attack. Naturally, Israel’s enemies hated the project and wanted it stopped. They called for unnecessary meetings and useless conversations, later threatening to tell the King that the Israelites were planning a rebellion.
But Nehemiah stayed focused on his mission, refused the meaningless meetings, and debunked the lies about takeover. He did not fall into the trap of gossiping about the King or losing sight of the work at hand.
Remember Proverbs 26:28 that says, “A lying tongue hates those it hurts, and a flattering mouth works ruin.”
We are called to be a representative of Jesus Christ in the work place, and those who know you are a Christian will observe your work ethic, your treatment of others, your ability to be kind or cruel … your testimony in deeds, not words. Make sure that when you finally get the chance to speak that your words match up with the way you treat others. Or, for a different take on the Golden Rule: Speak about others the way you want others to speak about you.
Originally posted on the Christian Post on September 16.
Dear Chuck,
With great jobs so scarce, I get nervous going into an interview. I’m not sure how to prepare or what to say to stand out from the crowd. What do you recommend?
Desperately Seeking Employment
Dear Desperately,
Take a deep breath. You can do this! There is hope, so fight off that sense of desperation.
It’s true that jobs are scarce and that it can be stressful to face an interviewer. With so much on the line, you are likely feeling the pressure of the process; but you’re not in this alone. Proverbs 19:21 observes, “Many are the plans of the mind of a man, but it is the purpose of the Lord that will stand.” Yet interviewing is a skill, and all skills require practice to improve. Let me give you a few steps to help.
Step One: Get yourself in the right frame of mind. Begin this process by understanding that God is with you, and that if you get a NO in an interview, that God may just be protecting you from a bad situation or preparing you for something better.
Ask the Lord for the job that will best glorify Him and meet your needs at this point in your career. It’s important to remember that for the most part, each job is a stepping-stone to the next level, and that God is directing your steps. Proverbs 16:9 says, “In their hearts humans plan their course, but the Lord establishes their steps.”
By resting in the knowledge that you are depending upon the Sovereign God of the Universe, it will relieve the pressure of thinking you have to fight for a job on your own. Pray and rest in that knowledge ahead of time, and get a good night’s sleep before the interview, too!
Step Two: Do your homework. Know whom you are going to talk to about a job – both corporately and individually. An employer is looking for someone who can make his or her life easier and assist the company in achieving its goals. Take time to learn about the company and its leadership ahead of time, including talking to people who work there if you can. See what you can find out about the person conducting your interview as well. Ephesians 6:13 remind us to put on the full armor of God “having prepared everything, to take your stand.” Get ready to stand before the interviewer, armed with knowledge of the company and whom you are hoping to impress is an important way to reduce your stress and show you are a serious candidate.
Step Three: Know yourself. Understand your gifts and talents so that you can identify how you are a good fit for the team, how your knowledge and skills will help the company. Be able to give specifics, not just a guess. II Timothy 2:15 says, “Be diligent to present yourself approved to God, a worker who doesn’t need to be ashamed.”
You have skills to offer, things you’ve studied, strengths and a willingness to learn. It’s a mistake to ask the interviewer to explain how you might fit in, so be prepared to shine when the opportunity arises to share your pitch for why you want the job.
Step Four: Reverse the questions and be prepared to do your own interview by asking meaningful, well-researched questions. An interview is an exchange of information, the first that you may be having with your future employer. It’s important to be able to talk directly with a prospective employer about everything from salary to benefits to expectations for a project, in a calm and professional way.
Recently, I read an excellent article in Forbes titled “10 Job Interview Questions You Should Ask,” identifying some great conversation starters for an interview – allowing you to take a breath during the questioning and to consider the environment and culture of the organization that you would be entering.
The questions included: What skills and experiences would make an ideal candidate? (Allowing you to see how your skills measure up); What constitutes success at this position and this firm or nonprofit? (Allowing you to learn more about how your work will be judged); Do you have any hesitations about my qualifications? (Giving you a chance to tackle any perceived weaknesses in your resume); or Who previously held this position? (Allowing you to learn if you’re walking into a war zone depending on how that person left.)
I would add to that list of questions a few others like: Tell me more about the corporate culture of your company? What is the average length of time your employees work for the company? What do long-term employees say is their favorite reason for working here? What do they hope will be improved at this company? Is there a training program to help me be successful in this position? These questions will give you great insight about the job opportunity and send a message that you are looking for a good fit, not just a paycheck.
We hire lots of folks at Crown and often do team interviews to try to make the very best decision we can when we have multiple candidates for the same position. In those settings, if all qualifications are equal, we are looking for people who align with our values, who are able to connect on a personal level with members of our team and demonstrate a desire to contribute more than just the minimum requirements to the job. Smile, laugh, be yourself. Show your heart. God will open the right doors.
Keep us posted on your job search! We are praying for the right job to open up soon!
We live in a culture where debt is assumed to be essential for everything. The Bible tells us that the borrower is a slave to the lender so we should be vigilant in our efforts to avoid becoming financial slaves. Here are the things I would not use debt to purchase:
Financing something that immediately depreciates in value is a bad idea because of the risk of owing more than it is worth. Lenders now offer packages up to 6 or 7 years for a car… not a house… a car. It is far better to save the cash and buy one that gets you to where you need to go without paying a penny of interest.
A College Education.Nothing against going to college, but the average student now graduates with $37,000 in student loan debt. That is crazy. Find ways to go without borrowing money.
It is tempting to splurge here and pay for a dream vacation using your credit cards. You will have far less stress by getting creative and paying cash for a vacation you can afford.
Borrowing against your home equity is something I would not do because of the undue risk you are taking. Even borrowing to update the house should be avoided.
Clothes, electronics, or furniture. It is far better not to have store accounts, or buy these things using a credit card. Cash is the way to go.
Now this one has not happened to anyone in our family, but since I have a son in college, I was glad to learn about it so we can have our guard up.
According to John Wasik who writes a blog for Forbes on financial scams, “This latest scam has crooks calling families or students to warn them about paying a ‘federal student tax.’”
Now, to be clear…there is no such thing and nobody owes a student tax.
But here is how they try to frighten unsuspecting students: “The caller identifies themselves as an IRS agent and demands either money or information. It’s personal data like Social Security numbers — let your student know not to give it to them — that they will use to steal their identity and create a financial nightmare.”
Here’s what the IRS has to say about this scam:
“People should be on the lookout for IRS impersonators calling students and demanding that they wire money immediately to pay a fake `federal student tax.’ If the person does not comply, the scammer becomes aggressive and threatens arrest”
“Although variations of the IRS impersonation scam continue year-round, they tend to peak when scammers find prime opportunities to strike”, said IRS Commissioner John Koskinen. “As students and parents enter the new school year, they should remain alert to bogus calls, including those demanding fake tax payments from students.”
The IRS will never demand a payment of any kind over the phone. One of my personal practices is to ask the caller for lots of identification and let them know that I will have to contact them once I have verified their identity. Anyone demanding money payments over the phone is a sure giveaway that you are talking to a scammer. If they give call back information, report them to the IRS and the police.
Originally posted at Christian Post September 9, 2016.
Dear Chuck,
What are the rules when a bank repossesses your car? Do you still have to pay them what you owe and can they garnish your wages for payment? I have a friend who has just turned her life over to Christ and over the years she has made many, many bad decisions, and her financial situation is overwhelming.
Frustrated Friend
Dear Frustrated,
I share your concerns for your friend. Unfortunately, she has placed herself in a lose-lose situation. She is vulnerable to lose the car and have to continue paying off the debt! Here are the laws she needs to know:
The Federal Trade Commission has some of the best information for understanding the rights of the loan holder as well as your own. The creditor – the one you are making payments to – has rights over the car, can sell your debt to someone who may deal with you harshly, and can often repossess the car (depending on what state you are in) after only one missed payment. The laws for repossession vary state by state, and you can find out about your specific location through the state attorney general’s office.
According to the FTC:
“Once you are in default, the laws of most states permit the creditor to repossess your car at any time, without notice, and to come onto your property to do so. But when seizing the vehicle, your creditor may not commit a ‘breach of the peace.’ In some states, that means using physical force, threats of force, or even removing your car from a closed garage without your permission. Should there be a breach of the peace in seizing your car, your creditor may be required to pay a penalty or to compensate you if any harm is done to you or your property.”
BUT THIS IS IMPORTANT: Just because they take the car does not mean you are debt free. A “deficiency judgment” could be assessed against you, defined as “the difference between what you owe on the contract (plus repossession and sale expenses) and what your creditor gets from the resale of your vehicle.” In some states, they have to tell you what happened to your car or when they are offering the car for sale again … but the car belongs to them and the debt belongs to you.
So if you bought a car for $10,000 and paid $5,000 before you ran into financial difficulty, the creditor can seize the car, charge you the cost of their time and a sales fee, and then still come after you if what they sell the car for is less than the $5,000 you still owe.
But redemption is not just a spiritual concept; it applies to car loans too.
The FTC notes that you may be able to “redeem” your car if the circumstances are right, by “paying the full amount you owe (usually, that includes your past due payments and the entire remaining debt), in addition to the expenses connected with the repossession, like storage, preparation for sale, and attorney fees. Or you could try to buy back the vehicle by bidding on it at the repossession sale. Some states have consumer protection laws that allow you to ‘reinstate’ your loan. This means you can reclaim your car by paying the amount you are behind on your loan, together with your creditor’s repossession expenses. Of course, if you reclaim your car, your future payments must be made on time, and you must meet the terms of your reinstated contract to avoid another repossession.”
What I hope is clear from all of this information is that it will cost you time, money, credit and legal troubles to default on a car loan, making it best to get rid of a costly car BEFORE the troubles hit. At Crown, we have an overview of different types of loans and how to make good choices as well as a free car loan calculator so you can see how soon you can get free of car debt. Sadly, having a car repossessed is something that is avoidable, if you’re paying attention to life’s details. Proverbs 22:3 says, “The prudent sees the evil and hides himself, but the naïve go on, and are punished for it.” So let’s talk about the best way to avoid the most severe punishments.
When struggling to cover a car payment, the best first step is to work with the loan company that has a vested interest in getting their money without the hassle of repossessing your car. And if you cannot make your payments and a reduced schedule will not help you, it is best if YOU sell the car, resolve the debt, and pick up a cheap option until your circumstances change.
Things have really gotten out of hand, once legal remedies are put in place to take your car.
For those struggling with finances, begin by building a functional budget, so that you understand how money flows in and out. But to untangle some of these complicated debt situations, Crown also works with trusted partners, like those at Christian Credit Counselors, who can help you navigate the nuances of different contracts, like a car loan.
Your friend is not the first person to run into problems with a debt, but there are a lot of people – you included – standing by to help her get back on her feet and able to make good financial choices.
Dear Chuck,
It’s back to school time for many families, but my children are finishing college and newly graduated, so I’m less concerned now that they have a diploma– and more worried about the debt they accumulated – the nasty student loan kind of debt.. Do you have any advice for my family and me?
Parents of Indebted Graduate
Dear Parents,
This is a subject that hits close to home since my wife and I have four boys.
It is difficult, given the explosive cost of a college education these days, to graduate without any loans. Over the last 35 years, the cost of a public college education has nearly quadrupled, far exceeding inflation, as many parents know.
With a lot of intensive effort, my wife and I have been able to help our two oldest sons complete their college education without loans and our third son just started college this fall with a plan to never have any student-related debt.
I will have a few tips about that in a minute, but first let me reassure you that there are strategies for ridding yourself of college debt quickly and even avoiding it altogether as we have been able to do.
Most students take on debt with the hope that a college education provides better employment opportunities and assume the loan can easily be repaid. I’m sad to report that the average student loan debt today is over $37,000! And many graduates start off their careers with limited job prospects, thus finding themselves with a great deal of financial stress. If debt is absolutely necessary for their education, then making a plan to deal with the debt should begin by investigating lenders before signing the loan papers.
Before you take on the debt, be sure to understand what your future payment will be, how you will pay and to whom, and when those payments will begin. Typically, a student has a six-month grace period in which to get a job and arrange finances so that once the loan payments kick in they are in a position to make those payments. Some graduates wait to be contacted before they begin paying, but that is a mistake. The repayment terms of the loan cannot be discharged or adjusted by a failure to understand that you should have sent in some money. You just graduated from college; you can’t claim ignorance as an excuse! It’s your responsibility to know how and when to begin making payments. Don’t assume they will call you.
Student debt has been designed to stick with you and can rarely be resolved in bankruptcy. In fact, Debt.org reports: “Defaulting on federal student loans will result in more severe penalties. The government can garnish up to 15 percent of your wages and Social Security benefits, as well as offset income tax refunds. The government may also deduct 25 percent of each payment for collection fees, making the loan cost significantly more.” As a newly graduated professional, probably without a mortgage or a family, prioritizing paying this debt back quickly is a good first move. Keeping living costs low, such as getting a roommate or even spending time in your parents’ basement, can be effective IF you are putting the money saved toward reducing the debt. I strongly recommend beginning your career with a focus on paying off the loan as quickly as possible. Think “low living costs plus increased repayment of debt equals quicker route to freedom”.
A good strategy for getting rid of student debt quickly is to arrange to make extra payments on the principle (the money you borrowed). Writing at Forbes, Andrew Josuweit described how that might work:
“Let’s say you owe the average debt load of $37,000 and your fixed interest rate sits at 7% APR. Using a student loan calculator, you see that you would need to fork over $429 for 120 consecutive months if you opted for the 10-year Standard Repayment Plan. And over this 10-year timeline, you would end up paying $51,480 on your loans when interest is factored in. Now imagine that you boosted your monthly payment by $100 to $529 per month. By doing this from the get-go, you’ll shorten your repayment timeline to 91 months, or 7.6 years! Plus, you’ll save a whopping $3,871 in interest payments alone.”
However, one note of caution – before you send in extra payments, be sure to talk with the lender so that your money is applied directly to the principle. If you don’t let your lender know where to apply that extra money, they will decide for you.
Debt is only part of a financial life. An important part of the process of creating a strong fiscal foundation and getting rid of debt is building a functional budget. So that from day one after college, you can see where your money is going, and know how much you can apply to your loans. Check out this free budget calculator to see how your expenses match up. At Crown, we also have a number of free debt calculators, so that you can understand how arranging to make extra payments on any debt can free you so much sooner than you might imagine. But be mindful that this can take time. In counseling people over the years, I’ve found that it can take 5 to 7 years for people to be completely free from all debt, once they set their minds on that goal.
For those whose children have not yet entered college, we’ve created a Guide to a Debt-Free Degree on ways to graduate with minimal debt. You can cut costs by taking classes in high school that count for college credit or by living at home for two years and attending community college before going to the school you want to graduate from, or by considering programs that will pay for your college, such as those offered by the military.
Our third son is enrolled in community college and with scholarships and grants; his first two years of tuition are almost completely covered. He is also working, which reduces costs and, contrary to popular opinion, actually improves his classroom performance.
There is no one-size-fits-all answer to paying for college, just like there is not one answer to the question of where you should go to school or what you should study.
I applaud your desire to see your graduates become free from this debt. So many people become trapped in work they do not enjoy because of financial responsibilities. People who might want to go to the mission field or teach underprivileged children don’t have that option because debt creates a burden they must address. The best reason to get rid of debt, or avoid it altogether is to be free to do any work God might ask of us. His word cautions us to avoid becoming a slave to the lender.
Originally posted at Christian Post September 2, 2016.
