In college, Kay Brown did everything right to prepare herself for the future. When she wasn't hitting the books, Kay was holding down three jobs: a paid internship, a work-study position and a babysitting gig to earn extra cash. Somehow, in the midst of all that, she still managed to partake in various extra-curricular activities and maintain a social life.
Now graduated, Kay is living in a small, but quaint apartment with two roommates and excelling at her entry-level job at one of the top advertising agencies in Chicago. On the outside, it seems like Kay has it all; she has her degree, a job and is living on her own.
What is less obvious is Kay's struggle to pay down $89,000 worth of student debt on her starting salary of $35,000.
"Between rent, loans and keeping up with everyday expenses, saving for the future is not a realistic priority right now," Kay said.
Unfortunately, Kay's is not a unique story. As tuition prices continue to rise at both public and private universities, more than 60 percent of all students take out loans, and the average college graduate has more than $24,000 in debt upon graduation. In fact, 10 percent of borrowers, including Kay, have more than $50,000 in outstanding payments.
Mountains of student debt combined with a challenging job market leave many graduates focused on immediate financial priorities rather than long-term financial solutions. Without freedom from debt in sight, traditional paths previous generations found after college -- saving money, getting married, and having kids -- seem like far-off dreams to many graduates. In fact, nearly one in four young people have delayed marriage because of debt, a 2012 report from the Pew Research Center found.
Getting on track financially may feel like it will be an overwhelming task, but it's actually quite doable, especially with some guidance. Financial planners, loan advisors as well as parents and friends who have gone through similar experiences can be good resources as you work towards financial independence. Even some companies are lending a hand. Recently, MassMutual wrapped up its Down with Debt initiative, which asked Millennials to share their plan to reduce what they owe in 140 characters. The entrant with the best idea will be rewarded with up to $20,000 towards his or her student debt.
In addition to the great suggestions contributed by fellow Millennials on our Facebook page (facebook.com/massmutual), here are some steps I would recommend to 20-somethings looking to get their financial life on track:
- Make a budget. Set up a budget to help determine what is a necessity and what is discretionary.
- Delay luxury. Try not to overspend on unnecessary goods. First priority should be to pay down loans to get rid of student and other debt.
- Consolidate Loans. Most federal student loans can be consolidated into one big loan with one fixed interest rate for the life of the loan. For more information visit www.loanconsolidation.ed.gov.
- Review student loan payment options. Consider setting up automatic deductions from your paycheck to enable on-time payments and avoid late fees. For federal student loan borrowers struggling to afford their payments, the Department of Education's Income Based Repayment (IBR) program offers borrowers with limited income some student loan payment relief.
- Deferment and Forbearance. If you are having economic hardship (difficulty finding work as an example) you can qualify to postpone or temporarily postpone payment of your federal student loans for a period of time. Consult your lender for more information.
- Use cash. Avoid credit card debt and use cash as much as possible. If you can't pay off your credit card balance in full every month, revisit steps one and two.
- Keep an eye to the future. Find out if your employer offers a match of 401(k) contributions and contribute at least up to the match.
I know it's a tough process, but with the right help, a stick-to-it attitude and some time, you can be on the road to financial freedom sooner than you think.