How to Prevent Student Loan Debt From Delaying Your Dreams

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What are your dreams in life? Buying a home, starting a family or traveling the world may be among them. However, you may be one of those people who delays their dreams due to having student loan debt.

It’s important to have a plan to pay off your student loan debt. However, that doesn’t mean you need to give up on everything you want in life until that loan balance is down to zero. Here’s how you might prevent student loans delaying your dreams…

…if you want to buy a home
…if want to travel the world
…if you want to start a family
Also, here’s student loan help is here if you need it

If you want to buy a home

Buying a home when you have student loan debt may seem like an impossible task. But your student loan debt doesn’t say everything about your overall financial profile, and it shouldn’t prevent you from becoming a homeowner. Here are some tips for buying a house when you are still carrying student loan debt.

1. Stay on top of your credit

Having a good credit score is key when it comes to getting a mortgage. The most important aspect of a good credit score is paying all your bills and debts on time, including your student loans. Make sure you never miss a student loan payment or, even worse, default on your loans, as this will have a very negative effect on your credit score.

You should also ensure your credit utilization rate isn’t too high. This means you shouldn’t have too much debt compared to your total available credit. Additionally, you should keep your old credit card accounts open rather than closing them, as it’s also important to have as lengthy a credit history as possible.

You should also be aware of what’s on your credit reports, so you can understand the areas where you might be weak, and correct any errors that may exist. You can get a free annual report from all three major credit bureaus (Equifax, Experian and TransUnion) by going to annualcreditreport.com.

2. Manage your DTI

Another key aspect of getting a mortgage is having a favorable debt-to-income ratio (DTI). If you have a healthy income and student loans are your only debt, mortgage lenders may consider you to be strong in this area.

Keep in mind that mortgage lenders will typically consider both your front-end and back-end DTI. Your front-end DTI calculates how much of your gross income goes toward housing costs. Many lenders prefer that number to be no more than 28%. Your back-end DTI adds debt into the equation. Many lenders might prefer a back-end DTI of 36% or less.

You can estimate your DTI using our calculator.

3. Save for a down payment

If you want to buy a home, having a good amount for a down payment may help you secure a mortgage. You can start a “down payment account” by periodically funnelling money into a high-yield savings account. As the amount grows, you may find yourself closer to your dream of homeownership.

There are many options when it comes to buying a home, some of which allow for less than a 20% down payment. However, you will usually be on the most solid financial footing if you can save 20%.

You can shop mortgages and compare rates on our marketplace.

4. Buy a starter home

Sure, that four bedroom house on the lake would be amazing, but it’s important to buy a home you can realistically afford. For most people who are young and dealing with student loan debt, this can mean buying a “starter home.” A starter home is typically smaller, in need of some updating and less expensive than your eventual dream home. Of course, the cost will vary depending on where you live.

The goal of a starter home is to get accustomed to homeownership, and the highs and lows associated with it. It’s important to factor repair costs in when thinking about which home you can afford.

5. Take advantage of first-time homeowner programs

There are many programs for first-time homeowners that offer loans and grants that can assist with your down payment and closing costs. The programs available to you will vary by state, so you should discuss all options with your mortgage lender.

6. Consider roommates

If you’re worried about managing a mortgage and your student loan payments, you can plan to take in a roommate — or even two or three. Having roommates can be a great way to save on costs when you own a home.

A roommate/tenant can help you pay a large chunk of your mortgage and utilities each month. Or you can put your roommate’s rent toward an extra student loan payment. Either way, having a roommate can help you manage your mortgage and student loan payment concurrently.

If you want to travel the world

Traveling may be considered a luxury, but you don’t have to give up all the fun stuff in life just because you have student loans. There are ways you can add travel into your lifestyle even as you continue to make those loan payments.

1. Use credit card points

One way you can pay for your trip is to use credit card points earned through your spending. You can earn sign-up bonuses with most credit cards. Once approved, meet the minimum spending requirement within the specific timeframe outlined by the credit card issuer, and earn the stated sign-up bonus. You can also earn points on most of your everyday expenses.

You can do some research to find the best cards for you, but this route should only be utilized if you are credit card debt-free and have a lot of discipline when it comes to spending.

2. Consider low cost-of-living destinations

While traveling is often a pricey proposition, there are destinations where your dollar will go much farther than others. You also might consider traveling to places in the off-season, when hotel and other deals might be far more prevalent than in the high tourist season. An Airbnb stay may also end up being cheaper than a hotel. Of course, there are always hostels as well, which generally don’t offer luxury but do offer much lower prices than the average hotel.

3. Work remotely

Given advances in technology, it’s easy to work remotely nowadays. Working remotely can include starting your own online business, teaching classes online and freelance writing.

When you work remotely, you can live in different places month to month while you house-sit, couch surf or find various other ways to get lodging on the cheap.

If you want to start a family

Having student loan debt doesn’t mean you have to wait years before you start a family. However, taking this step does call for some preparation.

1. Create an emergency fund

One of the top recommendations to anyone who wants to be a parent is to start an emergency fund.

Once you decide you want to become a parent, you can prepare by starting to put any extra money you have into a high-yield savings account tagged for family planning (while also continuing to make your student loan payments). Having several months of living expenses sitting in a risk-free account can help ensure you’ll never fall behind with debt payments or expenses if you run into tough times.

2. Buy used

Children can definitely be expensive. However, parents often overspend. Kids don’t need brand new clothes or every toy on the market.

Buying used is often a good idea, because growing babies hardly wear their clothes more than a few times each.

When it comes to safety items, such as car seats, it may be best to buy them new. But just about everything else you buy can be used. You can save a lot of money this way and use the cash for student loan payments instead.

3. Cut back on other spending

You can travel while paying back your student loans. But perhaps you can’t travel and plan for a family at the same time while paying back your student loans. You may also decide you want to start a family before diving into homeownership. Have a serious talk with your partner about the spending you think you should cut out, or delay, as you plan to have kids.

Student loan help is here if debt is delaying your dreams

No, you don’t have to give up and let debt delay your dreams just because you have student loans. That said, there may be times when you need more help than others. It’s good to know that, if you do find yourself in a situation in which you are truly struggling to make your student loan payments, they allow for flexibility that many other loan products do not.

For example, you may be able to take advantage of deferment or forbearance if you are currently unable to make payments. This means, in times of financial hardship, you can temporarily stop making student loan payments. There are also student loan forgiveness and income-driven repayment programs you can look into.

Check out our deferment, income-based repayment and public service loan forgiveness calculators to further explore these options.

Rebecca Stropoli contributed to this report.