For millions of Americans, student debt is a lot more than just another monthly payment to worry about. It’s a major financial factor that can affect everything from everyday purchasing decisions to long-term financial planning strategies. Balancing debt repayment with the rest of your responsibilities can feel overwhelming, as a result.
The good news is that adopting the right approaches can take the sting out of debt management and help you cultivate the personal finance future you deserve. In this comprehensive guide to managing student loans, we’ll touch on everything you need to know to come out on top.
Budgeting for Student Debt
Smart budgeting skills are truly the key to astute financial planning, and this is just as much the case when it comes to student loans as anything else. A budget helps you stay on top of what’s coming in, balance what’s going out, and show you where there’s still room left for progress.
Create a comprehensive budget
If you already have a budget, now is the time to revamp it. And if you’re new to budgeting? There’s no time like the present to get started. Start by taking stock of the following:
- Your post-tax monthly income
- Essential fixed expenses, like rent or car payments
- Variable expenses, like utilities, groceries, or gas
Categorize your spending across the board. Use tools like spreadsheets or budgeting apps to streamline the process and help you identify ways you can cut costs if needed.
Set priorities
Once you truly know what you’re really making versus what you’re spending, it’s time to set some priorities. Treat your student loan repayments the way you would rent, food costs, or gas costs – as non-negotiable, top-priority expenses.
Differentiate between essential spending and discretionary spending. Look for ways to save or cut back on costs, like takeout or subscription fees, to boost savings and pay down debt more quickly.
Emergency fund
Everyone should have an emergency fund set aside to handle unexpected expenses, even if they’re also focused on debt management. (Ideally, you should have 3-6 months of living expenses set aside.)
Keep in mind that every contribution to your emergency fund counts, as well. Even $20 a week adds up over time. Check out this guide from our financial experts to learn more: Why You Need an Emergency Fund: Financial Safety Nets for Young Professionals.
Strategies for Managing Student Loan Debt
As with any other type of debt, paying off a student loan will naturally look a bit different for everyone. Understanding your options and selecting a smart repayment plan that aligns with your goals and means is critical.
Explore repayment plans
Although the specifics will vary from one loan type to the next, you may have several different repayment options to choose from. Examples include:
- Standard repayment: This usually involves making fixed payments over ten years – ideal for people who can easily swing higher monthly installments
- Income-driven repayment (IDR): This option varies according to factors like family size and income – best for people with low or fluctuating income
- Graduated repayment: This option involves payment installments that start low and increase over time, along with earning potential – great for early career financial planning
Consider refinancing
If you’re looking to lower your interest rate, consolidate multiple loans into one payment, or both, refinancing is one option to look into. However, it’s important to understand that the refinancing process turns federal loans into private loans, which will impact associated benefits.
Refinancing might be a solid solution for you if you meet the following criteria:
- Your finances and income are stable
- You’ve made improvements to your credit score since you first borrowed
- You’re not dependent on federal protections to manage debt (e.g., loan forgiveness or income-driven repayment programs)
Balancing Student Debt With Other Financial Goals
While it’s definitely important to repay your student loans as soon as possible, it’s not the only financial goal you should focus on moving forward.
Plan for short- and long-term goals
As with any substantial debt, a student loan will naturally impact timelines for meeting other financial milestones in your life:
- High monthly payments can impact your debt-to-income ratio and timeline for buying a home
- You’ll need to consider your debt before starting a family or adding to an existing one
- The earlier you start saving for retirement, the better, but student loans will affect how you do this
The key to success here is to strike a balance between debt repayment and working toward other financial goals. The right plan for you should allow you to pay down debt while still paving the way for the rest of your future.
Not sure whether to prioritize loan repayment or saving for retirement? If your loan interest rate is on the low side, focus on retirement, especially if your employer offers a 401(k). If you’re struggling with high interest rates, focus on aggressively paying the loan down instead.
Consider seeking out professional financial advice to better weigh the unique pros and cons of your available options.
Embracing Financial Wellness Amid Debt
Although student loan repayment will certainly be a long-term part of your financial life, it doesn’t have to hold you back or stop you from pursuing other important milestones. A proactive approach that combines budgeting, balance, and smart decision-making is the key to success.
Need help understanding the complexities of student loans and managing the impact they can have on your long-term financial plan? Connect with a professional financial advisor from MyStages today to schedule a consultation.
