Don’t let student loan payments overwhelm your budget. Reach your financial goals with these tips.
Many college students find themselves responsible for making student loan payments within six months of graduating. U.S. News reports the average student loan debt was $30,000 in 2021 – representing a 20% increase from 2010. This can be a significant amount, especially for a recent graduate.
Keep reading to find out how to manage your finances and decide which of these expenses should take precedence in repayment.
Reach Your Financial Goals
Budgeting is the tried-and-true method to getting an overall picture of your finances and is critical to building an effective repayment strategy. When building your budget, it’s important to create a detailed list of income and expenses in order to identify priorities and ways to cut costs.
Start With Your Student Loan Debt
Most graduates earn entry-level salaries right out of college. If you have government loans, choose a repayment plan that works best with your income. In addition, you can apply for forbearance or deferment if you’re unable to make payments and meet the qualifications.
It may also be a good idea to consider consolidating your student loans. This’ll make it easier to see your total balance and might even give you a lower interest rate or payment – plus, you’ll be able to factor one payment into your budget much easier than multiple payments.
Organize Credit Cards By Their Balances
Create a plan for paying off your credit cards – start by listing them from the lowest to highest balance while notating their interest rates.
Next, chose a repayment strategy. There are a few tried-and-true methods for paying down debt, the two most common are the snowball and debt avalanche methods. If seeing small consistent victories is what you need, then the snowball strategy is for you. However, if saving hundreds in interest is your goal then the debt avalanche method may suit you better.
Prioritize Your Financial Goals
If you’ve just graduated college, you’re likely not thinking about saving for a car, a down payment for a house, or your retirement. Take a moment to write down both short-term and long-term goals to help motivate you. Consider what it might take to accomplish the goals. Feeling overwhelmed or a bit lost? Schedule a free consultation with a financial coach to figure out what your next steps should be.
Saving Is Still A Priority
It’s sometimes assumed that all money needs to go towards debt, but building an emergency savings is definitely necessary. Make sure to pay yourself first, as you would a bill, to set aside money for any unexpected expenses and avoid additional debt. The recommendation is to have three to six months’ worth of expenses saved but you can start small and work your way up.
- A bare-bones budget can be a helpful tool in cutting any unnecessary expenses and therefore freeing up more cash for debt repayment or financial goals.
- Don’t neglect one form of debt in order to pay another. Becoming delinquent in credit card debt in order to focus on student loan payments will not help you pay off debt faster – it’ll only set you further back. Utilize that budget you created and see where you can cut discretionary spending to expedite your debt repayment process.
- If your financial goal is to buy a car or save for a down payment for a house, use our calculators to see what the payment could look like with your current budget. If you can’t afford it now, you could take steps to prepare, such as reducing debt and increasing your income.
- In some cases, students qualify for loan forgiveness. Explore these options even if you think you’re not eligible. The less you have to pay, the faster you can reach those financial goals and enjoy greater financial freedom.