How to Pay Off Your Student Loans While Also Saving for Retirement

One of the most expensive degrees you can earn is a law degree. According to a recent issue of US News & World Report, many law students finish their education with student loan debt amounts ranging from $38,000 to more than $180,000. 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. After all, no one likes the feeling of having debt. 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. Of course, you also will have to factor in the cost of living before deciding if the move is right for you along with other practical considerations. If you are not licensed to practice in the state that you are considering moving to, you will need to negotiate items such as having the firm or employer pay for and allow you to take some time to complete a bar review preparation course and to sit for the bar exam. You should also find out if your prospective employer will pay for you to keep your current legal licenses and accompanying CLE courses.

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. Larger law firms tend to offer higher salaries and better benefits, and some may even offer new recruits 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. If you are not able to land a job at a larger firm, do not despair. Think strategically. Visualize the position you want to have in the future and accept a position at a firm that will provide you with the experience you need to get it.

Live Below Your Means. Making a decent salary doesn’t mean you should blow it on rent in the trendiest, coolest apartment building. It also doesn’t mean you should rack up credit card debt to live a lifestyle you can’t afford. Remember, you have your whole life ahead of you along with a very long earning potential. If you buckle down today, you will thank yourself tomorrow.

Have a Career Plan. Your career is your business and as such you need to have a business plan to succeed. 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.

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.

Reduce Your Debts

Create a Budget. As a financial planner, I see a countless number of individuals who make high six-figure salaries, yet they still have a hard time saving. To make it worse, some don’t know where their money is going. For your financial health, it’s not how much you make, but rather how much you spend. Before you get started on reducing your debts, you need to get a good handle on your expenses. This requires that you organize your spending. 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. Surely, you will be able to save a little money somewhere.

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.

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. For example, if your revolving balance is $10,000 and your APR is 17 percent, this means you will have a daily interest rate of 0.0466 percent.