Getting your financial house in order

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(I had to travel to India after a death in the family and was unable to blog this week. So I asked my friend, Michael Hudak, to share his thoughts with all of the young lawyers out there. He’s an assistant state’s attorney in Baltimore city, as well as the secretary of the Young Lawyers Section of the Maryland State Bar Association. Michael also is a former chairman of the Young Lawyers Division of the Bar Association of Baltimore City.)

I can barely afford to pay my student loans, let alone cover my rent. Vacation? Think again. How many of us fall into this category?

“But wait,” you might be thinking. “I thought if I went to law school I was set for life.” Wrong!

So what can we do? Educate ourselves, for one. But, more importantly, get advice from people who understand the importance of managing money (including debt).

In other words, you may be a great attorney but that doesn’t necessarily translate into being financially savvy. I’m going to cover one short financial principle about, well, principal. (Divya told me if I write too much I’ll never be invited back. She runs a tight ship.)

1) What are your interest rates?

Are you in control or are you being controlled? Your debts are likely to consist of student loans, car payments, credit card debts and possibly a mortgage. How much are you paying a month in interest alone? What is your interest rate?

For example: If I have a car loan of $25,000 with a 4 percent APR (Annual Percentage Rate) I will be paying $1,000 in interest a year. Credit cards tend to have very high interest rates, usually anywhere from 10-to-2o percent APR. So, let’s say I have $7,000 of credit card debt at 15 percent APR. This means I will be paying $1,050 per year in interest alone. Although that $7,000 is substantially less than the $25,000, I would be paying practically the same amount of interest per year.

Student loan debt tends to have much lower interest rates, especially any loans backed by the federal government (probably in the 3-to-6 percent APR range). Private student loans tend to follow benchmark interest rate levels and are anywhere from 4 percent to 10 percent APR, although these can fluctuate based on your credit score.

2) So…what should I do?

Use the skills you have developed or learned in the legal field (at least most of us):

First, prioritize your emergencies. Make a list of all of your debts and what their current interest rates are. You then will be able to determine which debts have those very high interest rates.. These are the debts that need to be addressed first. The goal should be to try to get the principal, the underlying amount owed, paid off as soon as possible so that you aren’t making those high-interest-rate payments too long.

Next, remember there is always room for negotiation. I tend to call the bank for every credit card I possess annually and request a reduction in the interest rate. Most banks will comply with this request unless I already have their best rate. Did you recently make a late payment by accident? Call the bank and ask that the $50 fee they charged you be waived due to you being a loyal customer to their bank and make sure they didn’t raise the interest rate as well.

Finally, go with the best offer. Every bank offers different credit cards with different interest rates. Banks do the same with private student loans, car loans, mortgages, etc. Choose the better rate and terms. Be willing to shop around and take out a loan with a smaller interest rate to repay a loan with a higher interest rate. You have to run the numbers to see if it makes sense but you have to be willing to make a change and, most importantly be willing to make the call or email.

Saving hundreds of dollars a year due thanks to lower monthly payments can translate into you being able to post those Instagram pictures of you on vacation in the Caribbean instead of the same pictures of you tanning in the backyard yet again.