The Silver Tax Lining To Paying Back Student Loans
For adults, death and taxes are the two things they cannot seem to escape. For recent college graduates, the issues are taxes and student loan repayments. Death does not seem so serious compared to those huge student loan balances!
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.
As if student loan repayment bills were not enough, there is a second rude introduction to the adult life. Yes, I am talking about taxes. How can they take so much?! Well, it can be a brutal awakening, but at least the government is going to give you a break.
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.
Much like a home mortgage loan interest deduction, the government lets you deduct up to $2,500 in interest paid on your student loan each year. This is a healthy deduction for most college graduates.
This large deduction can have an interesting impact on financial plans. Many graduates decide to only make the minimum payments on their loans. This is okay if you save up the extra money and invest it, but not if you blow it on toys.
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.
After you have an emergency fund built, and you have paid off those credit cards, you can then start to invest. While you cannot escape loans and taxes, you can thank your dear Uncle Sam for the hefty student loan interest deduction by claiming it each year on your taxes.
