If you have student loan debt, it can feel like you’re being pulled in multiple directions. You have to keep up with your loan payments while also worrying about building an emergency fund, saving for retirement, and buying a home.
Considering that the average borrower has $35,620 in student loan debt, it’s no wonder that you may be overwhelmed.
When you’re struggling with education debt, figuring out how to pay off student loans fast while managing other goals can be challenging. According to the Federal Reserve, student loan balances can cause borrowers to delay major life milestones including buying a home and having kids.
Here’s what to do if you’re juggling multiple demands on your bank account.
How to pay off student loans fast while balancing other goals
“Should I pay off student loans or invest?”
“Should I pay off student loans or buy a house?”
“Should I pay off student loans or save for retirement?”
If you’ve asked yourself these questions and are looking for advice, you should know there isn’t one clear cut answer for everyone. The right solution is dependent on your unique situation, including your current debt, goals, and comfort with risk.
To figure out the best way to manage your student loans and other goals, follow these five steps.
1. Create a budget
The first thing you need to do is create a budget to figure out exactly how much money you have coming in and how much you spend each month. Developing a budget will show you how much cash you have left over each month after paying for your essential expenses to put toward your other financial goals.
If you’re barely breaking even after covering necessary expenses like your minimum debt payments and rent, you may have to cut your costs or pick up a side hustle to give yourself more money to put toward your goals.
2. List your goals
Next, list all your financial goals. Include both short-term and long-term objectives, such as getting an apartment without a roommate next year, buying your own home within ten years, or retiring when you turn 65.
Be as specific as possible about what you want to accomplish, when you want to accomplish it, and how much money you’ll need to achieve your goal.
3. Get your finances in order
Before you can focus on your goals, there are a few things you should do to get your finances in order.
- Make the minimum payments on all your debt: If you have student loans, credit cards, or a car loan, make sure you pay the minimum monthly payments on time each month to keep your credit score strong and to avoid costly late fees.
- Take advantage of employer retirement contributions: If your employer offers matching contributions to a retirement account like a 401(k), contribute enough to get the full match. Otherwise, you’ll lose out on free money.
- Save some money in an emergency fund: Depending on your comfort level, you should set aside some money into an emergency fund. It’s a good idea to save at least $1,000 in a savings account to give you a cushion in case an unexpected expense pops up, though some people will feel more comfortable saving three to six months of living expenses.
Read More: 5 Ways to Establish Better Credit
4. Prioritize your goals
Once you know what your goals are, review your list and prioritize them according to how important they are to you.
For example, if the idea of having debt hanging over your head is stressful to you, or if your loans have high interest rates, paying off your student loans as quickly as possible may be your biggest priority.
But if your loans aren’t a significant burden, buying a home or retiring early may take precedence over debt repayment.
Depending on your priorities, you can allocate your extra money from your budget to your goals. To accomplish your objectives, you may have to make some tradeoffs and sacrifices. For example:
- If you want to buy a home: To save more money for a down payment on a house, you may want to learn how to lower your student loan payments. You can do so through student loan refinancing or, if you have federal student loans, by applying for an income-driven repayment plan. With a lower monthly payment, you’ll have more money for your house fund.
- If your goal is to pay off your student loans ASAP: To accelerate your debt repayment, consider getting a roommate, picking up a part-time job, or delaying homeownership so you can dedicate all your extra money toward your student loans. And, you may want to refinance your student loans to get a lower interest rate to save money over the life of your repayment term. With refinancing, you can also choose a shorter term to save even more time and money. Use Purefy’s Compare Rates tool to get quotes from top refinancing lenders all in one place with no impact to your credit score.
- If you want to retire early: If your goal is early retirement, you’ll need to scale back your expenses and invest the maximum each year into your 401(k) and IRA accounts. To contribute the maximum, you may have to opt for a more modest home or live with a roommate to reduce your living expenses and free up cash.
5. Track your progress and net worth
Set a recurring date for yourself where you’ll review how you’re doing and how much progress you’ve made toward your goals. It’s a good idea to check in at least once a month to keep yourself on track. Review your priorities to make sure they are still the right goals. It may help to create a visual graph that you update regularly. Having a visual reminder can keep you motivated and focused on your goals.
Managing your student loan debt
When you’re dealing with a significant amount of student loan debt, saving money for other financial goals can feel impossible. If you’re not careful, you can neglect other financial needs, like saving for retirement, or you may stretch yourself too thin.
By creating a budget, thinking about your goals, and prioritizing how to use your money, you can come up with a balanced approach to your finances.
If you want to learn how to pay off student loans fast, check out these eight reasons to refinance your student loans.