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Student debt: It doesn’t have to eat every dollar you have

Like many recent college graduates, you may have student loan debt—and probably the anxiety that goes along with it. As a financial advisor, I can tell you I’ve heard this firsthand from many millennial clients. And as a 30-year-old myself, I can also relate to what can feel like the chaos of budgeting, mortgages and credit as you’re just getting started in your life. But here’s a suggestion that might help you feel a little better.


When it comes to student loans, you may be able to take your time.

Most student loans are designed to be paid off over longer periods of time—typically years. It’s very similar to how your parents likely took out a mortgage to pay for their house; they had some of the money as a down payment, but financed the rest over a period of years.

So for student loans, my suggestion to clients is often to put time on your side, paying back your obligation according to the term of your loan agreement. This may seem like the opposite of previous advice you’ve received, or even what your own gut is telling you. You may be thinking “I have to pay this debt off now. … I can’t move forward in life with this looming balance. … It’ll affect my credit and I won’t be able to get a mortgage or buy a car.” But time, when used wisely, can truly be an asset for you.

Here are some real-life examples you should consider:

  • An emergency fund – Life happens, and having money set aside for those unexpected times can always come in handy. 
  • Protection – Putting money aside to protect yourself from the inability to work (Disability Insurance) or contributing to a permanent Life Insurance policy to accumulate cash value is another option in redirecting those student loan dollars. 
  • Investing – You can always prepare for your future by looking to increase your dollar.  Investing those additional dollars is a way to do just that.


Debt consolidation may help, too. 

You may also be able to improve your situation by taking advantage of the continuing low interest rate environment. Consolidating a number of higher interest rate student loans into one loan can be a great strategy because it may lower the interest rate on your total balance. Consolidation can also simplify your life by reducing the total number of payments you’re making.

Here’s an example from my own personal financial life that I’d like to share. It has to do with consolidating credit card debt, but the concept is the same as with student loan debt.

Recently, I consolidated a series of different card balances into one card with a 0% interest rate for the next 18 months, immediately lowering my interest rate overall. What’s more, it also gave me the added opportunity to reassess my own personal debt situation. I was now able to look at my new total balance and figure out what I needed to pay each month to pay it off in full after 18 months. 

Consolidation also opened up some interesting things for me to think about. Should I simply make those monthly payments as scheduled? Should I put every dollar I have each month toward paying the balance down faster? Or after making my base monthly payment, should I use any extra cash on hand to invest in a mutual fund for the opportunity to earn a return? Whatever I decide to do, the lesson is this: that same kind of thinking can be used to help tackle student loan debt. 

Build an emergency fund—it’s just as important as paying down debt. 

Managing student loan debt can be tackled in the ways I’ve described. But what’s more important is to start focusing on all facets of your financial foundation today. And the best place to start is by saving money to build an emergency fund. 

What’s an emergency fund? Exactly what it sounds like—funds in case of an emergency, like losing your job or having a prolonged illness where your normal cash flow is interrupted. And the rule of thumb is to have at least 3-9 months of funds on hand in case a significant emergency does arise.

Even if it doesn’t, having an emergency fund can help serve as a backstop for those “unexpected expenses” that often crop up as young adults—car repairs, wedding and baby shower gifts, bachelor/bachelorette parties or maybe even the bar tab for your friend’s birthday blowout. 

Want to build an emergency fund? Start with a realistic monthly budget. 

Of course, you may be asking, “Where is the money coming from to build this emergency fund?” It may sound pretty simple, but having a monthly budget that keeps track of all your income and spending can help. 

Start by calculating your monthly income. Then add up fixed expenses like rent, car payment, insurance, etc. Then tally your variable expenses like food, going out to eat, having fun with friends, etc. It can be a pretty eye-opening exercise. 

After you’ve done this, I suggest thinking about your budget with an 80-10-10 strategy: spend 80 percent on things you need and want, save 10 percent for the short-term (how that emergency fund will start to grow) and save 10 percent for the longer term (for your retirement or other big financial goals).

Starting good financial habits now can set you up for financial independence later.

Without loans, we might not be able to have the education, home or car to live the life we want. Yet loans, credit cards and other debt are not the only answer to getting want we want. I advise clients to use credit as a way to absorb any shortfall in case your cash flow isn’t enough to cover the cost of immediate needs—but you must have a strategy to pay that debt off. Remember, credit is not a method to expand your budget or lifestyle. If your budget can’t handle it, you probably shouldn’t buy it. 

As for student loans, they’re just one aspect of financial life that needs attention. That’s why financial professionals like me have been trained to help you look at your situation and figure out what’s best for you. Just like it was back in college, there’s no such thing as a silly question. We’re here to help. 

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