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, Nitro reports that $37, 172 is the average student loan amount, and the average payment toward that debt is $393 per month. 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 see which of these expenses should take precedence in repayment and how you can fit your financial goals into the picture.
Budget! Budgeting is the tried and true method to get an overall picture of where you stand with your finances and is extremely beneficial in creating an effective repayment strategy. Expenses such as rent, food, bills, and other debt should be listed in order for you to see where your money needs to be prioritized and where you can cut costs. Here are some worksheets to get you started.
Start with your student loan debt. It’s 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 –plus, you’ll be able to factor one payment into your budget much easier than multiple payments.
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 salary. In addition, there are deferment qualifications if you have a hard time finding a job or are strapped for money.
Organize credit cards by their balances. Start with 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, but one that might motivate you is the “snowball” method. This method means you pay off your debt in order of balance from lowest to highest. Seeing your progress is a great psychological motivator and helps you establish good habits.
Prioritize your financial goals. If you’ve just graduated college, you’re likely not thinking about saving for a down payment for a home or car, or about your retirement. Taking a moment to write down your financial goals can help you with paying off your debt in order to get to those goals. If your goal revolves around a big life decision, 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 to debt, but building an emergency savings definitely necessary. Make sure to set aside some money for any unexpected expenses (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, breakdown 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.