10 Tips to Help You Pay Off Your Student Loans and Save for Retirement

Cathy Pareto
You need to make some important decisions early on in your career to help you maximize your earnings, reduce your debt, and begin saving for tomorrow.

You need to make some important decisions early on in your career to help you maximize your earnings, reduce your debt, and begin saving for tomorrow.

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The 2021 ABA YLD Law School Student Loan Debt Survey Report examines the issues at the heart of the student loan crisis and offers recommendations. Read the report.

One of the most expensive degrees you can earn is a law degree. For many recent graduates, the burden of this debt may leave them feeling like they should just focus on repaying the loan amount as fast as possible and at all costs. While this may seem like a good strategy, you may end up hurting your long-term financial goals including your retirement. So how do you tackle both paying off your debt and saving for retirement? By making the right choices early on in your career and by having a clear financial plan.

Make the Right Career and Lifestyle Choices Early

It should come as no surprise that the higher the amount of debt you have, the more money you will need to make to repay it. This means that you will have to make some very important decisions early on in your career to help you maximize your earnings, reduce your debt, and begin saving for tomorrow.

Relocate

This is the time in your life when you will have the most flexibility when it comes to where you live. Take advantage of it by finding a job in a state or city where salaries are higher.

Negotiate Job Offers and Raises

Do your research on salary trends for the position and location you want, and always try to negotiate the original offer. When it comes to raises, always be willing to take on extra work and make it known that you want to get to the next level. Keep a record of all your contributions that go above and beyond your responsibilities so you can negotiate a raise.

Work for a Larger Law Firm and Live Below Your Means

Larger law firms tend to offer higher salaries and better benefits, and some may even offer help with some student debt repayment. Working for a larger firm will not only help you start to build a great network of colleagues and experience but the right firm on your resume today could also help you land your next dream job tomorrow, perhaps at a smaller firm. But remember, making a decent salary doesn’t mean you should blow it on rent in the trendiest apartment building, and you should not rack up credit card debt to live a lifestyle you can’t afford. You have your whole life ahead of you along with a very long earning potential.

Have a Career Plan

Create a plan for yourself that includes not just goals but steps to get there. If your goal is to make partner within a certain number of years, then you need to be laser-focused on the steps you need to take to get there. Start by knowing the promotion process at your firm and setting achievable milestones.

It can be tempting to bump up your lifestyle when you get a raise or a bonus—resist the urge.

Long-Term Financial Planning

It is not good enough to know where you want to be in the future, you must plan to get there. Think of yourself as a business that needs a business plan. Your financial plan can be divided into two equal parts—reducing your debt and increasing your net worth. 

Create a Budget

Before you get started on reducing your debts, you need to get a good handle on your expenses. You can use online applications such as Mint or invest in a more comprehensive tool like Quicken to help you do this. These tools allow you to download data directly from your bank and categorize it into meaningful blocks and then create reports to show you where your money is going. Once you have categorized your spending, you can create a budget and look for areas that may need improvement.

Student Loan Repayment

When paying down your student loans, start by getting organized. Put together all your student loan information in one place, including the amount you owe, the interest rate, the payment amount, and the terms.

You should explore refinancing your loans if they have high interest rates (rates ranging from 6 to 9 percent). Bear in mind that certain factors, such as your credit score, may impact your ability to refinance your loans. If your interest rate is low, consider consolidating your loans so you only have one payment to make. This may save you money that you can use to put away into retirement and into paying down your loan.

If refinancing is not an option, then consider making extra payments to the loan with the highest interest rate. This will accelerate the time it takes to pay it off and will save you some money on the interest that you owe. Once you are done paying down one loan, use half the money you had been paying for the first loan and send it to the second-highest interest rate loan and the other half into a retirement account.

And while it can be tempting to bump up your lifestyle when you get a raise or a bonus, try to resist the urge. Remember your long-term goals. There will be cool vacations and nice apartments or homes in your future. Split your raise or bonus amount into your two buckets: debts and retirement.

Nothing will make life more difficult than having bad credit.

Reduce Credit Card Debt 

Credit card debt is one of the most expensive types of debt you can have if you are not able to pay off the balance each month. The reason for this is that credit cards charge interest on top of interest also known as compound interest. To make matters worse, making minimum credit card payments will probably mean that you will only be making interest payments so it will take you a long time to pay off the principal amount.

If you have multiple credit cards with revolving balances, plan to pay off the highest interest rate credit card first and then use the money you had been sending to that first card to pay off the second-highest interest rate credit card, and so on.

Protect Your Credit 

Nothing will make life more difficult than having bad credit. Not only will this impact your ability to borrow money in the future at a reasonable rate, but it also can limit your job opportunities as many pre-employment background checks include checking your credit report. So, protect your credit report and score and make sure you monitor it on a regular basis to ensure that there are no mistakes. If your credit score is not so great, work on it by making payments on time, limiting new credit inquiries, and reducing your debt amount.

Take the Free Money 

Most large organizations offer what is known as an employer match, which basically means that your employer will match your 401(k) contribution dollar for dollar up to a certain amount. At a minimum, you should try to contribute up to the match. If you can afford more, you should save more into your 401(k) plan if it offers reasonable investment choices.

The Power of Compounding

The earlier you start saving for retirement, the more time your money can grow with compound interest and help you achieve your goals. Don’t give up this time. No one ever regrets starting to save for retirement early.

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Cathy Pareto

Cathy Pareto, MBA, CFP is the founder of Cathy Pareto and Associates, a wealth management firm in South Florida.