Student loan payments can be overwhelming, use these tips for effective ways to reach your financial goals while paying off student loans.
After graduating from college, some students find themselves responsible for student loan payments within six months. To put the average student loan debt into perspective, U.S News reports that $29,927 is the average 2020 student loan amount — representing a 20% increase from 2010. This is a huge amount of money, especially for a young adult that has recently graduated, and most likely has other expenses, such as rent, credit card debt, and a car payment.
Continue reading to find out how to manage your finances and decide which of these expenses should take precedence in repayment to help you reach your financial goals.
Budgeting is the tried and true method to get an overall picture of where you stand with your finances, and is extremely beneficial to creating an effective repayment strategy. Expenses such as rent, food, bills, and other debt should be listed for you to see where your money needs to be prioritized and where you can cut costs.
Start With Your Student Loan Debt
Most graduates are not earning huge salaries right out of college. If you have government loans, work with them to create a repayment schedule that works with your income. In addition, there are deferment qualifications if you have a hard time finding a job or are strapped for money.
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
Start by listing the credit card that has the lowest balance and proceed to the card with the highest balance while notating the interest rate. This is the first step to creating a plan for paying them off.
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 and long-term goals to help motivate you in paying off your debt. If your goals revolve around big life decisions, such as a down payment, first look at your debt-to-income ratio. This will be your first indicator if you can afford student loan payments, credit card payments, AND contribute to any additional financial goals you have.
Saving Is Still A Priority
Many will come under the assumption that all money needs to go towards debt, but building an emergency savings is definitely necessary. Make sure to pay yourself first, as if you would a bill, to set aside money for any unexpected expenses to avoid going into to debt further. It’s recommended to have three to six months’ worth of expenses saved but a good place to start is a goal of $1,000.
- A bare-bones budget can be a helpful tool in cutting any unnecessary expenses and therefore freeing up more cash for your debt 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, break down the costs ahead of time of what payments will look like with your current budget. Maybe right now you aren’t able to swing your financial goals, but keep them as motivation to pay down debt so you can free up that money in the future.
- 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 be financially free.