Game of Loans: Managing Debt for Young CPAs

• 68 percent report debt has negatively impacted their life²
• 46 percent get anxious at the thought of paying off their debt²
• 88 percent cite financial decisions as a source of tension in their relationships²

Young CPAs aren’t immune to shouldering massive amounts of debt.

WHAT CAN YOUNG CPAs DO?

• Budget: “The number one tool you can use to manage debt is a budget,” Thomas said. “It’s easy to get at your fixed expenses, like your cell phone, car insurance, student loan and rent. Let’s say you’re taking home $5,000 a month and your fixed expenses total $3,500—where are you spending that $1,500 of disposable income?”

There are some great apps available, like Mint, that can help young people put a budget together. The key is to track where you’re spending your disposable income for six months in order to see trends. You buy coffee at Starbucks, $150 on concert tickets, $100 on jeans… Once you start tracking your spending, you’ll know where to cut back on in order to pay down your debt. A simple change in your spending habits can help free up money that enables you to pay down your debts.

• Refinance: It makes sense to refinance your student loan if you can lower your interest rate. But be careful. You might lower your payment from $300 to $200 a month—but if it means going from a 10 year loan to a 15 or 20 year loan, you may only be creating a longer debt problem.

• Consolidate: If you have a student loan, auto loan and credit card balance, consolidating all of your debt at a favorable interest rate can be a smart technique to reduce your debt. Like refinancing, though, be careful.

• Pay off High Interest Rates First: A good tip is to look at the interest rates on your loans and credit cards. Paying down your debts with the highest interest rates first can save you money in the long run.

• Avoid Late Fees: Paying your bills on time is a good habit to get into. Paying late only means wasting money on fees. Paying on time can also help your credit score, which will help qualify for the best interest rates.

• Set Savings Goals: If you want to go on a trip to Europe, instead of putting $5,000 on your credit card, plan ahead. Save the $5,000, then go on the trip. You’ll save money on interest charges.

• Use Your Bonus Wisely: If your firm gives you a bonus, instead of using it as a down payment on a new car (and taking out a car loan for the balance), use some of that money to pay down your debt.

• Create a Cash Fund: If you don’t have one already, create an emergency fund for unexpected bills. “If you have a $2,500 health plan deductible and are involved in a skiing accident that results in a $10,000 medical bill, if you don’t have the money set aside in savings, that $2,500 is going on your credit card. That’s a disastrous cycle to get into,” said Thomas.

• Develop Financial Discipline: “As a CPA, you might be financially savvy, but debts can cause anxiety and a sense of not knowing where to start to tackle the challenge,” said Thomas. “Being financially disciplined by understanding your finances, having a budget, having financial objectives—that’s how you create a stress-free financial life.”

 

¹”A Look at the Shocking Student Loan Debt Statistics for 2018,” Student Loan Hero, May 1, 2018.

²”New Survey Finds Relationship Tension and Anxiety are Hidden Costs of Debt,” AICPA, November 30, 2017.

³David Carrig, ”Majority of parents saving for kid’s college have socked away less than $10,000,” USA Today, February 28, 2018.

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Mark Thomas, CLU, ChFC, Senior Vice President at Aon Affinity.