Student debt is more widespread than ever before: as of 2017, 44.2 million have student loans to pay back, and the average monthly payment is $351. For many, the repayment is a much larger burden than they expected when they first took out the loans, especially factoring in stagnant wage growth.
The result is that many Americans have put off other parts of their life—delayed getting married and starting families, opted to rent apartments instead of buy homes and put off other major purchases—to deal with their crippling student debt.
If you have student debt, it is inevitable that the payments will shape your life in some way, and of course it is smart to consider your debt when you make personal finance decisions. At the same time, the debt should not exclude you from participating in the world or meeting your other financial goals.
How you balance your loan repayment with the rest of your life should depend on how much debt and what type of loan you have, as well as your income. What is the current balance of all of your loans and other liabilities? Are you a teacher, government employee or other public servant who might qualify for loan forgiveness? Do you have high-interest private loans, or relatively low-interest federal loans? How does your monthly minimum payment compare with your income and fit in with the rest of your budget? Are you eligible for refinancing your loans with a lender like SoFi? (For more on these questions, see this article.)
Once you have a clear understanding of your debt balance, repayment options and budget, you’re ready to build a financial plan that allows you to meet other goals, like paying off credit card debt, saving for retirement or financing other big purchases.
Balancing student debt with consumer debt
If you have credit card debt, the interest rate on those balances is likely significantly higher than the interest rates on your student loans.
It is important not to miss minimum payments on your student loans, but any discretionary income you have to throw at your debt should go to credit cards, rather than your student loans. Focusing on debt payoff in order of highest interest rate to lowest will save you money in the long run.
Balancing student debt with retirement savings
Try to avoid missing out on early years of retirement savings to pay off your student debt.
If your employer offers a 401(k) or 403(b), you should opt to contribute to those accounts before earmarking any funds for additional student debt payments. Compound interest will make those retirement contributions—even small ones—worth more in the long run.
Balancing student debt with saving for a bigger purchase
Trying to balance student debt with getting rid of other debts, saving for retirement and paying your bills is hard enough—saving for big-ticket items like a house, a move, travel or another degree often seem unattainable. Depending on the urgency of this goal, it may receive the least attention.
Once you have set a plan to pay off any credit card debt and contribute to a retirement account, look at the rest of your budget to see what discretionary income you may have to split between making extra payments toward your student debt and setting aside money for these other goals. Keep the goals realistic, and track your progress each month—seeing your debt decrease and your savings increase will be motivating.
The big red balance on your student loan statement can be overwhelming and disheartening. While it’s important to know the details of your financial situation, try not to get caught up in the big number. Instead, set a monthly plan, stick to it and live your life in between.
If there’s an upside to student debt, it’s that years of strategic financial planning are giving you a crash course in personal finance that will benefit you for years to come.
Kristen Euretig, CFP®, owns Brooklyn Plans, LLC, a financial planning firm dedicated to helping today’s women.
These articles are for informational purposes only and do not constitute tax or financial advice. Individuals should contact their financial professional for assistance.