A lot has been said lately about college loans-the high cost of tuition combined with even higher interest rates often leads many fresh college graduates into financial distress and they scramble to get higher paying jobs that they may not be interested in just to pay off their loans. Unlike a majority of other forms of debt, college loans are not usually discharged through bankruptcy, whether it is Chapter 7 or 13 bankruptcy.
Arizona college graduates might be coming up with ways to manage their money and they may think that paying off their college debt with one lump sum payment is the best way to go, if they have the ability to do so. However, if they pay off the debt with their savings, leaving nothing behind-given the uncertain nature of employment or medical conditions, if the graduate comes into an emergency, they may not have any money left. In this situation, the person may end up turning toward their credit card and racking up credit card debt, which may have higher interest rates and cause even more financial distress. In this situation, the debtor may be better off paying some of the student loan off, but not all until they have built up their savings.
Where someone has an employer sponsored 401k plan and some form of debt, the Arizona resident may be better off paying their debt off rather than contributing to his 401k, even though his employer will match his contribution. Once money is deposited in a 401k, it is essentially locked away-it cannot be accessed in event of an emergency. Credit card burden on the other hand will keep accumulating and cause Arizona residents stress.
Arizona residents should also keep in mind that when their financial problems become overwhelming, they have the option to file for personal bankruptcy. Filing for bankruptcy can erase most debts and certain taxes and give the filer the opportunity to restart their financial life.
Source: Wealth Daily, "The best way to approach student loan debt," Geoffrey Pike, Jan. 27, 2014