If you are burdened with a substantial amount of student loans, you are well aware of how challenging it can be to juggle repayments while striving to achieve other financial goals. The good news is that these two endeavors can progress simultaneously, but it requires a feasible plan.
Below are some financial tips that can help you pay off your student loans while also achieving other financial goals.
The first step is to understand your student loan situation so you can develop a repayment plan. Here are some key points you should be aware of:
Start by categorizing all your loans by type. Federal student loans typically offer income-driven repayment plans and may also provide forgiveness options. As of 2024 to 2025, the average interest rate for undergraduate federal loans was 6.53%, while graduate or professional federal loans carried an interest rate of 8.08%.
Private loans usually have higher interest rates (averaging between 4% and 16%) and stricter repayment terms. Therefore, you may need to prioritize repaying these private loans first.
Federal student loan rates are relatively lower, while private loan rates vary significantly. By categorizing them by type and listing out each loan’s balance, monthly payment, and interest rate, you can have a clear understanding of how much you owe and how long it will take to repay them.
Find out if you qualify for loan forgiveness programs or if you can opt for more flexible repayment options. Using income-driven repayment plans can alleviate your monthly repayment burden and free up some cash to pursue other goals.
Get a comprehensive overview of your total loan amount, interest rates, and repayment terms. This information is crucial for devising an effective repayment strategy.
The question arises: What is your financial priority? Do you want to buy a house within three years? Is your goal to eliminate all debts? Here are some suggestions to help you set and achieve financial priorities.
Establishing an emergency savings fund should be your first goal on your financial journey. Strive to save enough to cover three to six months’ worth of living expenses to handle unexpected financial emergencies. This fund can help you avoid taking on more debt during times of crisis. If you dip into this emergency fund, remember to replenish it as soon as possible.
Before repaying student loans, prioritize paying off high-interest debts such as credit cards. Clearing these debts first can reduce the total amount of interest you’ll ultimately pay. Alternatively, you can start by paying off the smallest debt amount to build confidence and momentum.
Take some time to identify your goals and timeline, ensuring they are realistic and achievable. Breaking down long-term goals into smaller milestones can help you steadily progress towards your objectives.
Establishing a financial hierarchy tailored to your situation can help you allocate resources more reasonably. Basic necessities like housing and food should take top priority, whereas non-essential expenses like travel should be considered last.
So, while you are repaying student loans, how can you make progress towards other financial goals? Here are some practical methods:
The snowball and avalanche methods are two common debt repayment strategies. The “snowball method” involves starting with the smallest debt amount, allowing you to quickly achieve milestones and boost confidence. Once one debt is paid off, continue using that monthly payment towards the next smaller debt amount.
The “avalanche method” prioritizes paying off the debt with the highest interest rate. While this method may not show immediate results, in the long run, it can help reduce interest expenses, ultimately saving you money.
If you have federal student loans, you may qualify for income-driven repayment plans. These plans can lower your monthly repayment amount, freeing up funds to pursue other goals. However, before choosing to extend the repayment term, be sure to carefully review the terms and conditions.
The Debt-to-Income Ratio (DTI) indicates how much of your monthly total income goes towards housing and debt repayment. Maintaining a healthy DTI ratio is crucial for significant future expenditures like buying a house.
Setting up automatic transfers for regular savings deposits or automatic loan payments can help ensure you never miss a payment. Automatic transfers can assist you in making timely repayments, reducing the risk of missed payments.
You can also have a portion of your salary directly deposited into a separate account. Keeping this account separate from your regular account makes the money less accessible and easier to save.
You have more advantages as a young individual than you realize. The key is to start saving for retirement as early as possible. Here are some strategies you could try:
If your company offers a 401(k) matching program, be sure to contribute enough to receive the full employer match. For instance, if the company provides a 3% match, you should contribute at least 3% as well. Otherwise, you’ll be missing out on extra retirement funds.
For achieving financial freedom, a retirement account is an essential tool. Both Individual Retirement Accounts (IRAs) and 401(k)s offer tax advantages that can help with long-term savings and reduce annual tax burdens. Compare different account types to choose the plan that best suits your goals.
The earlier you start investing, the more time your money has to grow. Even if the initial investment is small, over 30 to 40 years, you can accumulate a significant retirement fund. On the contrary, starting too late may make it challenging to prepare adequately.
Even if your finances are tight, find ways to continue contributing to your retirement account, even if it’s just a little. Don’t put off saving for retirement with a mindset of “we’ll deal with it later.” Start saving now, and gradually increase your contributions once debts are cleared or income rises.
Student loans may impact your plans to purchase a house. However, having student loans does not automatically mean you cannot buy a house. It may require a different approach. Here are some factors to consider:
Lenders assess your eligibility for a mortgage based on your Debt-to-Income Ratio (DTI). If your monthly loan payments are high, your DTI will increase, potentially reducing the price range of homes you can afford.
Research programs that assist first-time homebuyers, such as down payment assistance. These programs can reduce the amount you need to pay out of pocket, alleviating the pressure of buying a house.
Use “Rent vs. Buy” calculators to evaluate your financial position and the housing market to determine if it’s the right time to buy. Sometimes, continuing to rent until you’ve built an emergency fund and paid off some debt may be a better option.
To buy a house, you may need to get creative. Planning your budget wisely with smart financial strategies or partnering with trusted individuals to co-purchase a home can make purchasing a house more feasible.
Effective budget planning can help you pay off debts faster while also saving some money. Here are some budgeting methods to consider:
Zero-based budgeting requires every dollar to be allocated: for spending, saving, or debt repayment. After budgeting each month, your account balance should be zero. The key focus of this method is planning ahead to avoid overspending.
Many believe that individuals with low incomes or significant debt cannot improve their financial situation, but that’s not the case. The 50/30/20 budgeting method is a useful tool. It allocates 50% of income for necessities, 30% for wants, and 20% for debt repayment and savings. Once you have sufficient emergency savings, you can adjust this 20% allocation further to prioritize debt repayment.
You can download budget management apps to track expenses and set goals. These apps present your spending habits clearly through charts. Some apps can even directly link to your bank accounts. The more you understand your spending habits, the easier it is to achieve goals and reduce the pressure of student loan repayments.
Most people have some “hidden money” in their daily expenses that they overlook. Check your expenditures to identify areas where you can cut back. For example, if you eat out three times a week, exceeding your budget, consider dining out only once a week to save several hundred dollars per month.
Increasing your income can accelerate your debt repayment and achieve financial freedom faster. Here are some ways to boost your monthly income:
Having a side hustle can help you save money and pay off debts. Some gig jobs may even qualify for tax deductions, further speeding up your repayment. Blogging, freelancing, or tutoring are excellent options to consider.
Seeking a promotion or further education can enhance your earning potential. It’s a long-term strategy that can improve your quality of life and contribute to your long-term financial well-being.
If you have a specific skill set, why not turn it into income? Consider teaching, tutoring, or taking on side gigs to leverage your abilities.
If you receive unexpected income, such as a tax refund or a bonus, use it wisely. Utilize this money for debt repayment or savings rather than splurging on immediate travel rewards.
Balancing student loan repayment with other financial goals requires diligent planning and strict adherence. However, it’s entirely achievable, especially now that you have the knowledge and methods needed for success.
Don’t delay any longer. Start drafting a plan today and take action. Consistent efforts, no matter how small, will ultimately lead to significant financial accomplishments.