With over $1.2 trillion (yep, with a “T”) currently outstanding in student debt, many young workers with student debt are anxious about the balance between paying off student debt and covering everyday living expenses.1
Here are three tips for figuring out how to find the right balance for yourself.
1. Figure out your budget
Based on your current expenses, determine how much you can realistically pay toward your student debt.
“Sometimes what we think we can afford, and what we can actually manage are two different matters once you sit down and do the math,” explains Beth Blanco, Certified Financial Counselor with Everyday Money, Foresters Financial’s live financial coaching service.
“It’s important that your budget is in balance before considering accelerating your student debt.”
This includes continuing to set aside money each month for any unexpected expenses or emergencies. Putting all of your funds toward debt without a financial cushion could spell disaster.
2. Consider putting off lifestyle changes
Looking to buy a new car, move out or buy a home? Consider putting it off for six months to a year and instead double down on your student debt.
Often, especially once you’ve graduated and landing that first “real” job, the temptation is to spend all your unallocated income on moving out of mom and dad’s place, replacing that beaten up car or even buying a home.
But any progress you can make toward your student debt at the beginning of the loan can save you lots of money in interest payments.
3. Weigh your options
Before you start throwing all of your money at your student debt, consider your options. The funds you are planning to use to repay your student debt may actually be more useful if used to pay off your credit card debt instead.
“With interest rates on credit cards in double digits and interest rates on student loans usually just in single digits, it might be a better choice to pay the credit cards off first,” Blanco explains.
Student debt interest may also be tax deductible whereas credit card debt generally is not. Plus if you can manage to pay off your non-student debt, you’ll then have more money to put toward an even faster student debt payoff plan.
Certainly, there is no “one-size-fits-all” approach to paying off student debt, but you can rest assured that any progress in reducing your overall debt picture will be worthwhile.
You may also want to look into special programs that may automatically pay off your student loans if you work for a non-profit, are a teacher, or have other unique circumstances. Finally, if you are struggling with your current payments contact your lender to discuss potential repayment options.
- Federal Reserve Bank of New York, Center for Microeconomic Data Household Debt and Credit Report (https://www.newyorkfed.org/microeconomics/hhdc.html)
414510 CAN/US (01/17)