Between now and the end of the year, we'll continue to take your questions on things you can do to help meet your 2015 financial goals. Catherine Sato, Bank of Hawaii's Kailua Banking Center Manager, to help answer a viewer's question regarding debt.
Lilian says this, "I just graduated from college and have a good job, but I'm up to my head in debt. Should I try to pay off my student loans faster, or save my extra earnings for a rainy day?" Catherine, any words of advice?
Repaying debt is very important. Missing payments can affect your credit, which can impact future financing on things like a house or car. Therefore, you need to be disciplined in paying off debt. But you CAN pay down loans AND save for a rainy day. Set your financial goals. Then, make plans to reach those goals and take action until your goals become a reality. Of course, that's easier said than do, it will take commitment.
In terms of financial plans, where can Lilian start?
You'll want to create and stick to a budget. You need to analyze your spending. Track your daily expenses for at least a month to get an idea of where you can cut costs. For example, you'd be amazed at how much money you spend on food.
How important is it to have a rainy day fund?
A rainy day fund is critical. Chances are, at some point, you're going to have an emergency. Do you own a car? If so, that will cost money. Do you have family on the mainland or on neighbor islands? You need money saved up in case you need to fly there.
Rainy day funds are definitely important. Now what about paying down student loans?
For your student loans, you can round up your payments. If you owe $252 each month, set up the automatic payment for $260. You can feel the satisfaction of paying down your loans without really feeling the difference. And while you're setting up automatic payments for student loans, you can set up automatic transfers from your checking to your savings for that rainy day fund.
So paying down debt AND saving is possible.