Most college graduates have some form of student loan debt. The most important part about having student loans is getting them paid off on time and perhaps early. Sometimes that’s easier said than done for many Americans.
It might seem like all of your hard-earned cash is going to your student loan payments, making it impossible to save money for other things you might need or want to do such as a down payment for a new home or putting money into an IRA or another retirement account. There are, however, several ways you can save money regardless of the status of your student loans.
By following these easy guidelines, you’ll be able to make your student loan payments on time and be farther along on the path to long-term financial health by starting the habit of setting and meeting savings goals. Learning to manage your student loan debt can also help you if you ever have high-interest debt such as credit card debt that you want to pay off efficiently.
Create a Budget—and Stick with It
Budgets are critical tools in your financial health, especially if you want to pay off debt from federal student loans or private student loans. Even if you haven’t found your post-graduation job yet, you should still be using a budget to plan and track your monthly spending. Instead of a paycheck, count your student loan disbursements as your income source.
To create a budget, list all of your positive cash flow sources, which is your monthly income. Then list your mandatory monthly expenses. These would include your housing, food or groceries, clothing, and health care, as well as your student loan payments, credit cards, and other debt.
Once you’ve deducted your expenses from your sources of income, you’ll know how much you have available to spend — or whether you need to cut back to make ends meet. If at all possible, you should try to account for an emergency fund in your budget also, even if it’s not huge.
Explore Ways to Restructure Your Student Debt
If you’ve created a budget and find that you don’t have enough cash each month to get by on, you may need to look at ways to restructure your education debt to stay on time with your payments and pay down your student loans.
With a deferment, you won’t be responsible for any interest that accrues on your Direct Subsidized Loans, Perkins Loans, or the subsidized portion of FFEL and Direct Consolidation Loans. For other loans, interest will continue to accrue and capitalize on your balance, and you’ll pay that once your deferment is over.
You could also apply for a general forbearance, which allows you to temporarily stop making even the minimum payments on your student loans if you’re experiencing financial difficulties, medical bills, changing jobs, or other situations your loan servicer finds acceptable. To apply for student loan forbearance, you should contact your servicer directly. These options typically aren’t available with private loans, however.
A mandatory forbearance is available if you are:
- in a medical or dental residency
- owe more per month than 20 percent of your total monthly gross income
- a member of the National Guard on active duty
- teaching in an area that would qualify you for loan forgiveness
Another option available to you is a student loan refinance of your existing loans. With a refinance, you’ll take out a new loan that will pay off your old ones, consolidating them. However, you’ll need good credit to be approved by another lender for that new loan.
While none of these options will make your student loans disappear, you might find that they’re easier to manage, and you can stop worrying about whether you’ll be able to afford the payments.
Recognize the Need for Saving
Setting aside some money each month for emergencies, unforeseen expenses, or for retirement savings is another critical part of financial health. Living month-to-month with no savings when you have debt payments due is like walking on a financial tightrope. Your finances might seem fine until you get sick and miss some work, your car breaks down and needs repairs, or another expensive emergency occurs.
Depending on what your budget looks like, being able to put a little money away each month might mean you need to take that money from somewhere else.
If you just can’t seem to save, one good exercise is to take a hard look at your bank statement for three months and write down every purchase that wasn’t for a bill, debt, or necessary expense like food and housing.
Most people are shocked to find out how many incidental expenses beyond the necessary living expenses they have, and how much it all adds up to each month. You might be surprised to see how much you spend on lattes in the long run, or how often you’re dining out, or how much gets withdrawn from your account for your streaming services.
It can feel like you’re limiting your fun to live on a budget. You are, but just remember that it’s temporary and you’ll have that more disposable income sooner if you can pay off your loans.
Take Active Measures to Improve Your Credit Score
To boost your financial health and meet your financial goals, you’ll need to stay on top of your credit score, and work to improve it. One of the easiest ways to increase your credit score is to use your credit responsibly. Paying off your credit card balance will go a long way toward that.
One trick to doing this is to buy a very small item on your card — and only that item — and then pay off the balance. Doing this every month builds your credit, and creditors like to see accounts being handled responsibly.
There are numerous long-term benefits of having good credit. A number of employers now use a consumer credit report as part of a standard pre-employment background check. Landlords and lenders use it when you apply for a lease or mortgage. Anytime you need or want to take out credit of any kind, the lender will probably do a credit check.
Most importantly for you as a student borrower is that with a solid credit history, you may be able to renegotiate your student loans into a lower interest rate or better term. After you’ve boosted your credit as high as possible, talk to your servicer and then talk to some other lenders about refinancing at a lower rate.
The Bottom Line
Student loan payments can be incredibly stressful and trying to balance your debt with what might not be the best level of income can be stressful. The tips above can help get you set up for success, get your loans paid off as quickly as possible, and get you on to the next phase of your life — being free of student loan debt.
Author: Dave Rathmanner
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