If your student loans feel like an 800-pound gorilla on your back, you’re not alone. Over 44 million Americans feel the crushing weight of a staggering $1.5 trillion in student debt. Whether you have a little or a lot of student loan debt, the constant push and pull between repaying debt and living your life can feel overwhelming and, at times, defeating. How can you juggle the debt from the past, expenses in the present, and saving for the future?
First, you need to understand what types of loans you have (i.e., private or federal), what the interest rates are, and what repayment plan can help you with your overall cash flow. If you have multiple loans with varying interest rates, consider consolidating (federal loans) or refinancing (private loans) your loans to obtain an overall lower interest rate. There are other repayment plan options than the standard repayment plan (i.e., level monthly payments over a 10 year term). If your salary is low and cash flow is tight, consider one of the four income-driven repayment plans. We’ll delve more into these repayment plans in a future blog post; in the meantime you can read about them here.
Now that you know what your monthly loan payments are (or will be), you can stack these payments up against your other expenses by embracing the budget. A budget doesn’t have to box you in, but it can give you guidance on the best use of your hard-earned dollars. Try the 50-20-30 budget. Here’s the breakdown:
- 50% of your after-tax income is spent on needs. Even if you didn’t major in psychology, I’m sure you’re familiar with Maslow’s definition of basic needs. 50% of your budget is allocated for your basic needs: food, water, warmth, safety, and security (aka: groceries, utilities, housing, transportation, and insurance).
- 20% of your after-tax income is spent on savings and debt repayment. This includes your emergency fund, 401k contributions up to your employer match, and debt repayment – at least the minimum monthly payment for student loans. You can split this up – 10% to saving (emergency fund and 401k) and 10% to debt repayment. The point is you can save and repay debt at the same time.
- 30% of your after-tax income is spent on your wants. I get it, you have a life, you want to spend time with your friends and have experiences. You can have it all, but at a smaller percentage of your overall budget.
Avoid the heartburn: If your debt is keeping you up at night, switch the percentages to focus 30% on saving and debt repayment and 20% on wants. This budget gives you guardrails, not handcuffs.
Track, track, track. You know how calories don’t count if you eat standing up, yet that pesky scale says otherwise? Spending can be the same – if you don’t track it, it can feel like it never happened…until your bank account says “No soup for you!” Try writing down every time money goes out of your pocket for at least 3 months. There’s an app for that – consider using Mint (https://www.mint.com/) and Pocket Guard (https://pocketguard.com/) to track your spending in real time.
Bonus Round: Get crafty, get scrappy, get resourceful.
- Ask the Boss: There are at least 17 companies that assist their employees with paying back their student loans. It never hurts ask if your employer has a student loan assistance program. FYI, a company may give money towards your loans as taxable income or pay your loan servicer directly. Make sure you understand how your employer treats this benefit. If you need help understanding the fine-print, give me a call.
- Extra, Extra: Use bonuses, raises, or overtime pay as extra payments towards your principal loan balance. Consider asking for cash for birthday and holiday gifts and use this cash to make extra payments towards principal. If you have multiple loans, be sure to target the loans with the highest rate of interest. Word to the wise: You may need to submit a written request instructing your loan servicer to apply the additional payment(s) to reduce the principal balance of the loan, otherwise these extra payments automatically carry forward to next month’s payment.
- Volunteer: there are a number of programs, such as AmeriCorps, Peace Corps, and the military that will assist with student loan repayment when you volunteer for their organization.
- Forgive and Forget: There are several student loan forgiveness programs out there for people who work in public service, education, health care, and other areas. Why not have your debt forgiven when you’re serving your community?
These are a few tips to get you going, but if you still feel like your drowning in student debt, give me a call (Anne Simpson @ 770.992.4444 ext. 4). Let me help you get that gorilla off your back.