If you are in a military commissioning program and nearing graduation, you’ve probably been offered a “starter loan” by a financial institution. Many students question whether they should take the loan. Generally, nothing is wrong with accepting it. But consider these five points if you plan to take the loan.
1. Consider your other debts. Review your situation with your other debts — school loans, car loans, credit cards, etcetera. How will adding another monthly payment to your budget affect your future life and financial situation? Will it keep you from finding appropriate living arrangements or purchasing necessary items to start your new life? Be careful not to sacrifice your near-term future by adding to your financial burdens.
2. Don’t buy short-lived material goods. Consider what you will think about your use of the starter loan money five years from now. Did you buy meaningless material goods that wore out, went out of style, or have been upgraded three times over? Did you buy a car that no longer has the same excitement after the new car smell wore off and you’ve maintained it over the years? What’s that car worth now? Make sure you can look back five years from now and say, “I’m proud of how I used that loan money.” You don’t want to look back and regret the decision. Experience can be a cruel teacher — get your brain ahead of your emotions.
3. Pay off other, higher-interest loans. You’re already in debt, so you might as well pay less for it. The bottom line is debt costs money and you want to pay as little as possible for it. By consolidating your loans, you simplify your life a bit. The bottom-bottom line is you don’t want to be in debt, period. Debt is a water torture that drips on your forehead every month. Every month you seethe at how much less money you have for yourself. If you can’t pay for an item outright, debt should only be used for an item you need right now for an important reason.
4. Start permanent emergency savings. Put $5,000, $10,000, or $15,000 away in a savings account; you decide the amount. You might think this is boring, and it is — until you need it. This money is to ensure you stay debt-free. This money has to be liquid, and it won’t earn you a high return. If a huge bill comes around — your car breaks down, the refrigerator goes out, or water pipes burst — you’ll be ready with your emergency account and won’t have to go into debt. Now you’ll feel good about yourself for having a smart game plan in effect. Strive to keep the emergency account balance maintained at your set value.
5. Furnish your living space with must-have items. Every living space needs some items to make the space livable. A sofa, some chairs, a dining room table, pots and pans, utensils, and maybe even a decent-flat screen TV are good examples. Shop for the best prices, and don’t go overboard. Think “must-have” items.