More than 27 million Americans will begin repaying their federal student loans on October 1 for the first time since March 2020, when payments were suspended.
With the likelihood of widespread federal student loan forgiveness diminishing, borrowers are reevaluating their budgets to accommodate upcoming loan payments, frequently at the expense of their savings.
Balancing Savings and Student Loan Payments: Expert Tips
Although the highest-yielding savings accounts presently offer annual percentage yields above 5.00%, a record high, preserving money can be difficult.
Inflation remains above the Federal Reserve’s target, and the resumption of student loan payments can impede savings efforts.
A recent survey conducted by CNET revealed that 21% of borrowers intend to suspend or postpone their savings to make student loan payments.
It is essential to have an emergency savings fund to withstand unexpected expenses and job loss. However, it is necessary to balance preserving and repaying student loans.
Experts recommend several strategies to assist consumers in developing a savings plan while managing student loan payments.
Read more: Beware Of Soaring Student Loan Forgiveness Scams Offering Total Debt Elimination
Smart Student Loan Repayment Strategies for Financial Stability
- Evaluate Your Budget and Establish Objectives
As the period of repayment approaches, reexamine your budget and reorder your priorities to accommodate student loan payments and savings.
Identify expenses that can be reduced or eliminated to make room for student loan payments without compromising savings objectives.
Utilize budgeting tools such as spreadsheets, Quicken, or Mint.com to classify your monthly expenses as necessary or optional.
This exercise will reveal the flexibility in your budget and help you exercise restraint in your spending habits.
- Give Savings Bill Priority
Treat your savings contributions as non-negotiable expenses, like rent, utilities, and loan payments, if your budget allows.
Ensure that your contribution to savings precedes discretionary expenses such as dining out and purchasing.
However, if you cannot save, you should prioritize paying off your student loans.
Once you have made progress on loan repayment, you should transfer your attention to saving for future objectives.
- Investigate Income-Based Repayment Plans
Consider income-driven repayment (IDR) plans like the new Saving on a Valuable Education Plan (SAVE) if your student loan payments seem unmanageable.
Depending on your income and family size, IDR offers lesser monthly payments.
A new income-based plan, SAVE, is anticipated to reduce federal student loan payments to zero for over one million borrowers.
Using an IDR plan can free up cash flow, allowing you to pursue your financial objectives without the burden of student loans.
Deal with Credit Card Debt
Numerous students hold credit card debt, which can complicate budgeting when student loan obligations recommence.
Consider using a balance transfer card with an introductory 0% APR to alleviate the burden of credit card interest charges temporarily.
This can liberate funds for payments on student loans or reserves.
Good to excellent credit scores are typically required for balance transfer cards, but they can provide respite from high-interest credit card debt.
Pay off your debt before the end of the introductory period to avoid interest charges.
- Focus on Sustainable Repayment of Student Loans
Student loan debt is a substantial financial obligation but can also be viewed as an investment in one’s future.
Prioritize student loan payments to ensure financial stability without jeopardizing your future finances.
Consider the long-term return on investment when selecting a course of study and compare the financial aid, institutional prestige, network, and employment opportunities associated with various colleges.
As the debate over student loans persists, borrowers are encouraged to investigate their options, manage their finances responsibly, and prioritize both student loan repayment and savings to ensure a financially stable future.
Read more: IRS-Approved Strategies: How Your Employer Can Help You Achieve Tax-Free Student Loan Forgiveness