Money Smarts Blog
5 ways to repay student loans and still have a life
Feb 22, 2017 |
If you’re paying back student loans, you’re probably not living in the lap of luxury. (If you are let me just stop right now and say that’s totally why you can’t pay back your loans. The lap of luxury is expensive.)
We’ve all seen those articles about grads who have paid off exorbitant student debt in really short time frames. But a lot of those stories feature people who were much more willing to sacrifice fun and comfort for a few years than most of us.
No matter how much you owe, sky-high monthly payments and an entry level salary can leave you feeling like you single-handedly keep the instant ramen industry in business. So how do you reduce your sodium intake and still pay your student loans?
When it comes to whittling down your debt and still having a life, it’s all about moderation, baby.
1. Make a budget.
If you haven’t noticed, this is pretty much always our step one. But it’s really the only way to get your finances in check.
If you haven’t set up a budget because you think it means you need to keep a meticulous spreadsheet or use a checkbook register, I kindly invite you to get with the times. It’s 2017 and there’s an app for that, for just about any budget method you can think of.
Do some research and find out what method will work best for you. We’re big fans of the 50/30/20 method because it’s both easy to set up, and extremely flexible. But you do you.
2. Downsize if you need to.
Honestly, this advice is good for everyone. Not just those of us struggling with student debt.
The last thing you want is to be house poor, which basically means you have a really cool/nice/expensive place but it costs so much you can’t afford to have any fun – or you rack up credit card debt to get out of the house.
If this sounds like you, you should consider moving to a smaller place, a more affordable neighborhood or even just adding a roommate.
If you’re wondering how much is too much to pay for housing, most experts recommend you keep your rent/mortgage payment at or below 30% of your monthly income.
3. Don’t forget about your health.
Sure, foregoing health insurance and eating frozen pizza and TV dinners might be saving you a decent chunk of money right now, but it’s a pretty short-sighted plan.
Eat a decent home cooked meal (vegetables included) a couple days a week and that alone could make you feel better about your life, and help you avoid a doctor visit in the future.
If you think student loans are draining your fun money now, you might want to think about what your finances would look like if you had a medical emergency and no insurance. Paying for health insurance when you’re healthy feels like a waste, but you’ll be happy you made the right decision if you ever need to make a claim.
4. Pay more than the minimum – but not too much more.
If you only pay the minimum payment every month, you want to reconsider your strategy.
Once you establish a budget and have lived on it successfully for a few months, there’s a really good chance you’re going to find some extra money – even after you’ve had some fun.
We’re not saying you should funnel every extra penny into your student loans, that’s exactly how you end up in your parents’ basement with no life. We ARE saying you should pay at least a little extra every month.
Adding even as little as $10 more every month reduces your principal, and the interest you pay on it the next month, faster than if you only pay the minimum. Start with $10 over minimum, and slowly increase your payments as you gain momentum.
5. Consider refinancing.
If you have multiple loans with different due dates, interest rates and repayment terms refinancing with one loan to consolidate should make managing your payments easier.
Depending on your loan terms, refinancing even one loan at a better interest rate can save you quite a bit of money down the road, too.
But before you go gung ho and start signing documents, make sure you’re actually going to save money, not just switch lenders. There’s kind of a lot to consider – this infographic makes it a little easier to figure out what to pay attention to.
At the end of the day, repaying your loans without sacrificing fun and a social life comes down to your personal goals and desires. You can totally sacrifice the fun stuff to pay your loans off quickly, but if you want to do a little of both the key is moderation. Pay extra, but not too much. Cut back spending in some places, but not everywhere. It’s how you manage your finances that decides whether student loans hold you back or not.