The burden of student loan debt is one of the hottest topics in the optometric community. Catherine Dimon, CFP, of Morgan Stanley shared her advice for debt management for young optometrists at Vision Expo East.
New York City-The burden of student loan debt is one of the hottest topics in the optometric community. Catherine Dimon, CFP, of Morgan Stanley shared her advice for debt management for young optometrists at Vision Expo East.
According to the American Optometric Association, it’s not unusual for optometry students graduate with more than $200,000 in debt. That means today’s young ODs are probably going to be paying off their loans for a long, long time.
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The first step to debt management is knowing where you stand financially.
“It sounds very basic, but we do this with everyone-you have to get organized,” says Dimon. “And the more educated you are, the more empowered you are.”
Here’s what you need to do:
• Pull your credit report
• Make a list of all of your loans
• Amounts due
• Monthly or minimum payment obligations
• Interest rates
• Get on a budget
• Balance your income against your expenses to know if you need to keep a firm grip on your spending habits
Dimon recommends creating a financial dashboard using an Excel document. On the document, create a balance sheet, create a budget, review cash flow, and prioritize your goals. This process will help you make better financial decisions by understanding how much is coming in and how much is going out.
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“Most people think they have a pretty good idea about what they’re spending, but when you put pen to paper, it’s a completely different story,” says Dimon.
In addition to working on paying off your debts, Dimon says you should prioritize building three to six months worth of savings that could help you get by in case of emergency, such as unemployment or a health problem.
One option for managing your student loan debt is refinancing, which means taking out a new loan (usually with lower interest) to replace the existing loans. Refinancing may mean consolidating some or all of your loans.
“With a federal loan, everybody has the same loan-loan officers not looking at you,” says Dimon. “The idea with refinancing is that loan officers are going to look at you as an individual-your income, your credit score, your ability to pay back-and they’re going to potentially give you a better loan.”
The new refinanced loan’s terms may have a new interest rate and length of time based on your credit score and other requirements. If you qualify for a lower interest rate, you can lower your monthly payment. But you will need to know:
• What the maximum amount you can pay each month?
• What will you do with the extra monthly amount saved?
Dimon says you should keep in mind that the new loan length may be longer, which means you will pay more interest over time and be in debt longer.
“You don’t want to still be paying off your loan when your kids are going to college,” she says.
Dimon says you should ask three questions about refinancing a loan.
1. Why am I refinancing?
• Lower interest rate
• Simplified repayment process
• Customer experience
2. What are the strengths of each lender?
• Well-known company vs. start up
• Focus on customer service
• Temporary repayment reprieve and job search assistance
3. What interest rate can I get?
• Rates vary depending on the length of the repayment; and ultimately interest rate is tied to the borrower's financial health and credit
Bottom line, Dimon says refinancing is a business decision, and you have to look at it that way.
“Decide what makes sense for you now,” she says. “There’s no right or wrong answer in finance that works for everyone.”
While you’re working on paying off loans, it’s equally as important to save for the future. The sooner you start saving for retirement, the better off you’ll be.
“You can take out a loan for your school or your house, but you can’t take out a loan for retirement,” Dimon says. “It’s great if you’ve paid off your mortgage or your school loans, but if you did that instead of saving for a retirement, that’s not good.”
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When it comes to saving for retirement, you should choose your investments based on when you’ll need the money. If you’ll need that money soon, you’ll want to invest in something conservative so that you can be sure it will still be there when you need it. If you have some time until you retire, you can invest in something a little less conservative that might have more risk but also more reward.
Dimon shared her seven golden rules for saving and investing:
1. Save first, spend second.
2. Save at least 10 percent of your income every year.
3. Diversify your investments.
4. Start early and think long term.
5. Use credit wisely.
6. Take advantage of any offered retirement plans.
7. Beware of taxes and fees.