Student loans can be a stressful financial burden to a recent grad, but paying them back doesn’t mean the rest of your monetary goals have to be put on hold.
In fact, you can save money for big purchases, begin a retirement fund and live an independent lifestyle all while covering your student loan debt. Here’s how:
Review Your Loan
You’ll know when you have to start repaying your student loan—the bank, lender or holder of your loan will contact you prior to the end of your grace period. As soon as you hear from them, take some time to review your loan summary.
Dealing with Student Loan Debt
Your account should tell you the principal (the money you actually borrowed), as well as your interest. In most cases, you’ll even know how much your monthly bill will be before you have to start paying back the balance. Knowing exactly what you owe and how much you have to set aside in your budget for monthly payments will allow you to plan for your financial future.
Adjust if Necessary
You will have to pay your student loan bill every single month—that’s non-negotiable. However, you can adjust the amount if you must. You can decrease your payments and increase the duration of your payback period, but you should avoid this if possible. The longer you take to repay the bank, the more you pay in interest.
If you don’t have many financial responsibilities, you might want to pay back more than you have to, especially if additional payments go toward the principal.
Make Student Loan Debt a Priority
When you plan your monthly budget, your student loan needs to be a top priority, like your rent. It’s something you have to pay every month, so you need to ensure you have the money for it. If you haven’t moved out of your parents’ house, calculate an apartment rent sum you can afford in addition your loan.
For example, if you make $2,000 a month and pay $300 in student loans, you have $1,700 to use for the rest of your budget. In most cases, you should spend no more than 30 percent of your budget (which is about $510 using the example).
Include Savings in Your Budget
Your top budget priorities should include your student loan debt, rent, utilities, car payments (if you have a car) and savings. If you can’t afford to save money, something else has to go, and it can’t be your loan.
That might mean finding rent that’s more affordable or holding off on buying a car. The money you save in your 20s is the most important for your future because the interest compounds. This is especially true of retirement savings.
Outside of savings, loans and rent, all other payments are secondary. Planning really is your biggest ally when it comes to financial security. By knowing what you have to work with and how much money you owe, you can come out each month in the black.