Two things are certain when it comes to the life of a college student. Loans and taxes. Seventy percent of students today wind up with more than $20,000 in student loans that they must repay. Being hit with that large monthly bill may seem a bit unfair at first until you recall spending all of that money.
While most new graduates vaguely recall cashing in that loan check every semester, reality sets in rather quickly when you receive that first loan repayment bill. You may panic a bit when considering repayment, but knowing how to manage those loans will help to ease the pain ever so slightly.
If you have recovered from fainting over the amount of your student loan repayments, more adult bad news is on the way. Taxes did not mean much when you were working part time, but they do now. Oddly, your student loans can help you with the tax burden.
There are all kinds of strategies for paying back student loans. Unless you win the lotto, none of them will work in one year. This can be depressing at first, but an adult beverage may help as well the news that you get a tax break because of them.
Did you know that student loan interest is tax deductible? Uncle Sam allows every new student up to $2,500 worth of tax deductions when it comes to those student loans. The $2,500 is the maximum deduction and relates to the interest you pay that year on your loans.
This health deduction can lead many graduates to implement an odd financial plan. They decide to make the minimum payments on their loans, so they can claim the deduction for years and years. This works okay so long as you show some discipline with the money saved.
In fact, there are a number of things you should do with that extra money. Buying a plasma television is not one of them. The initial step, instead, is to create an emergency fund that has enough money to cover you for sixteen weeks.
Put that money away for a rainy day. Now cut up your credit cards. Save one for emergencies, but store it away. Now put together all your credit card statements. Pick the smallest balance and start paying them off one by one.
Once you have taken care of these two things, start pooling and investing your money. Your goal is to build up a big enough investment that you can pay off the loans in one fell swoop. Until then, claim that deduction!
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