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Surprise: Student Loan Debt Diminishes Your Net Worth

One of the most important lessons in wealth building is to ensure your debt levels are as low as possible.

Unfortunately, some forms are debt are growing faster than income and there aren’t any signs of it slowing down.

The largest form of debt in the United States is student loan debt, a form of educational debt that now outshines credit card debt by billions of dollars.

And it’s worse than you think.

There are 44 million student loan borrowers in America who owe more than $1.4 trillion in student loan debt. Now what’s the average amount each student has to pay back in loans? It’s $37,172.

The Federal Reserve estimated that the average monthly student loan payment for borrowers aged 20 to 30 was $393 in 2016. That equals $4,716 a year.

Just imagine if $4000 was invested in the markets or used to take advantage of new opportunities instead of paying off student loan debt. You would be able to use your hard earned money and make it work for you instead of you working hard to to avoid a lifelong commitment to student loan payments.

When you calculate your net worth, you’ll notice that student loan debt decreases it.

For example: Let’s say you make $50,000 a year. After taxes, you probably bring home $40,000. You delay investing because you have to pay off your student loans. So that means you don’t build any assets during the time you are paying your student loan bill. But you do accumulate more debt because you need food, clothing, shelter, and transportation in order to continue working at your job. This leads to an unequal accumulation of assets and liabilities. When liabilities exceed your assets, you have a negative net worth.

Unfortunately, student loan debt doesn’t just decrease your net worth, it decreases your family’s net worth too. Over 50% of borrowers ages 18- 24 receive assistance from others with their education debt payments.

Here is the result of this analysis: student loan debt delays wealth building. The more you pay, the less money you save. The less money you have on hand, the slower your cash will grow. Slow cash requires higher levels of work and productivity to stay afloat. Now you’re forced to increase your skills through another form of education in order to dig yourself out of a financial hole.

The sooner you can get student loan debt off your balance sheet, the better your life will be.

If you are ready to learn how to pass on more assets to your family members, complete the contact form below.


About Charlene Rhinehart, CPA

Charlene Rhinehart is a Certified Public Accountant, Founder of Wealthy Women Daily, and Editor-in-Chief of the Dividend InvestHer and The Wealthy Woman Investor. Charlene is currently the Chair of the Illinois CPA Society Taxation Individual Committee. With over a decade of experience in the financial services industry, Charlene is one of the few leaders who design insights specifically for the woman investor. Charlene’s work has been featured in a variety of publications including the Huffington Post, Black Enterprise, and the American Institute of Certified Public Accountants. In 2019, Charlene released her book “Dividends Are a Queen’s Best Friend”, on Amazon.

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