“There isn’t enough money to pay bills, save, pay off debt, and have fun.”
That’s what Candice Marie, founder of money blog Young Yet Wise, said about the challenges of making ends meet in an expensive city (in her case, the Boston area).
If you, like Marie, are living and working in a city with a high cost of living while trying to get out of debt, her statement is practically the song of your people.
13 ways you can pay off student loan debt in a high-cost city
Finding ways to pay off student loan debt can be tricky when you’re barely keeping up with the high prices of the city where you live.
“There’s only so much you can cut from your budget each month,” Marie said. And when living expenses are high, you’ll reach that hard basement limit on your budget pretty quickly.
But many people who live in a high-cost city manage to pay extra on their debt on top of covering steep expenses. We talked to seven real people doing exactly that and found out how they’re knocking out their student loans. Here are their best tips.
1. Pay high-interest debt first
By paying extra on your debt, you can get ahead of interest charges and save money.
“Pay off high-interest-rate loans first,” said health and fitness writer Karen Morse, and you’ll save the most.
Morse moved to expensive Palo Alto, California, after earning her master’s degree in public health.
“You probably have multiple loans coming out of college or graduate school that are taken out each semester,” Morse pointed out. “If you have a little extra cash to spare each month, consider paying more on that loan (apply it to the principal amount).”
2. Take advantage of income-driven repayment
If your student loan balance or expenses are high compared to your income, standard student loan payments can stretch your budget too thin. That was the case for Samantha Mallon, a mechanical engineer who lives in a high-cost suburb of Denver.
“Living in an area that is a much higher cost than what I was used to growing up has really affected me,” Mallon said. “For my federal loans, I had to switch them into the repayment plan based off my salary.”
Getting on an income-driven repayment plan lowered Mallon’s monthly payments and kept them affordable.
3. Round up student loan payments
“I was always taught by my father, a financial advisor, to round up my required monthly payments to contribute more toward principal,” said Allyson Pereira, an attorney living in a suburb of Providence, Rhode Island.
For example, if you have monthly student loan payments of $360, pay $400 instead. It might not seem like much, but it adds up. You can use our student loan prepayment calculator to estimate your savings.
Pereira sometimes would go the extra mile too.
“If possible, I would add another $100 or so to chip away at the principal even further,” Pereira added.
4. Pay off debt in chunks
Paying extra on student debt each month is a smart strategy. But taking big chunks out of a balance (sometimes called “debt-chunking”) can be even more satisfying.
“Look at the payoff amount of each loan,” Morse said. “If you have a loan that can be paid off in a lump sum, consider doing that when your yearly bonus check arrives instead of splurging on a vacation or luxury item. You will thank yourself in a few years!”
5. Maintain an emergency fund
“Having a large savings is more important than chipping away at debt,” said Rich Fetterly, a lab tech who’s worked to repay $20,000 of his $80,000 student debt.
Building up an emergency fund is a must-do if you live in an expensive city. “Not having a savings leaves you very vulnerable in emergency situations, such as medical accidents or loss of employment,” Fetterly explained.
To make sure he always had a savings safety net, Fetterly used the debt-chunking method.
“[I] saved up in the bank until I reached an amount that could pay off my smallest loan,” Fetterly said, while maintaining a comfortable emergency fund.
6. Create a social debt challenge
As she worked toward paying off debt, Marie found her motivation lagging.
“After a while, paying off debt alone was boring,” Marie said. “So I created a debt challenge and got other people involved.”
Marie enlisted 10 friends and set up a “debt competition to see who could pay off the most debt in 11 weeks.” Together, they paid off $39,500 over the course of the challenge.
“Creating my debt challenge really helped me stay motivated and focused,” Marie added. “I would see other people putting lots of money toward their debt, and so that would motivate me to put more money toward mine.”
7. Set (and follow) a budget
Ryan Alfson, who lives in Denver, is a CPA and co-founder of personal finance blog Just Another Dollar. While living there, Alfson and his girlfriend have paid off $27,000 of their combined $100,000 in debt.
They started with the basics. “First, we established a good written budget,” Alfson said. “In a high-cost city like Denver, there’s infinite ways to spend money if you don’t have a plan.” Simply setting and following a budget helped the couple cut food costs from $1,200 a month to just $650.
8. Cut back on nonessentials (within reason)
Setting up a budget can help you become more intentional about spending.
“It’s very easy to get caught up in the hustle and bustle of NYC and spend an incredible amount of money on brunch, dinner, and drinks,” said Kerrie Barry, an attorney who lives in New York City. She tries to avoid that mindset and instead cooks at home and plans fun “nights in.”
Mallon made a similar point. “Cutting back on the nonessential things in my life has really helped me to pay extra on my debts,” she said.
However, Alfson pointed out that it’s important to add some fun into your spending plan as well. “Our budget still allows us to go out to eat one night per week,” he said.
Alfson and his girlfriend also take advantage of the perks of city living. “There’s always plenty of free events going on around a big city, so take advantage of those instead of spending your money,” he added.
9. Increase your income
“Another way we take advantage of living in a big city is providing services that are in demand,” Alfson said. “Find a side hustle you love and use the earnings to pay down your debt.”
Alfson earns a few hundred dollars each month by pet sitting through Rover — and it’s fun. “The dog time alone is worth it!” he said.
“There are many ways to make extra money in your downtime,” Alfson added.
For instance, Fetterly said he often works overtime, which gives his budget a boost. Pereira has searched through her (and her mom’s) belongings to find treasures worth selling on eBay for extra cash.
10. Rent only what you can afford
“In order to live in Philadelphia, I first had to figure out if the job I was taking could support my living expenses and debt,” Fetterly said.
He knew he’d have to contend with higher costs — on top of $1,000 a month in debt payments. So he started with his projected take-home pay, carefully crunched the numbers, and identified his rent budget: $900 or less. And he stuck to it.
“If you have student loan debt, don’t buy or rent a house [or apartment] you can’t afford,” Morse advised. “Live within your means.”
11. Get a roommate
There are definitely trade-offs to having roommates. But the payoffs can be huge too.
Barry said living with two roommates is a huge part of her strategy to repay her $250,000 student debt (so far she’s knocked out $15,000).
“I pay about $1,150 in rent, and that is with two roommates,” Barry said. “If I lived alone, I would pay close to $1,800 per month.” That means she saves $650 or more a month by living in a shared space. It also cuts back on utility costs, Barry added.
12. Move backward
If it’s an option for you, consider “moving backward” like Marie.
“I moved back home to help me save money and put more toward my debt,” Marie explained. “I still pay rent but not as much as I would if I were on my own.”
It can feel like a setback, Marie acknowledged. “After graduating, it can be tempting to want to live above your means, get your own place, buy new furniture because, hey, you deserve it,” Marie said.
However, according to Marie, if “you have a chance to go back home, you’ll end up moving forward faster,” as you’ll free up more money to pay off debt.
13. Compare buying vs. renting
Depending on the housing market where you live, buying could be cheaper than renting.
“When a couple of friends of mine bought a house and I heard what they were paying for their mortgage, I was shocked,” said Pereira. It was significantly less than her monthly rent of $1,380 for a one-bedroom apartment.
So Pereira decided to save for 14 months, got a down payment together, and bought a home. She now pays a $854 mortgage — saving her $526 a month compared to renting.
Not everyone will save with this strategy, but you could. Of course, it depends on the housing market in your city, so do your research and carefully compare renting versus buying before you decide.
Lastly, although it might not be possible or right for everyone, you might want to consider whether living in an expensive city is worth the cost. Do some cost comparisons and find out if moving to a cheaper city could help you pay off debt more quickly.
Interested in refinancing student loans?Here are the top 5 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
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1 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of March 4, 2020 and is subject to change.
2 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Splash Financial loans are available through arrangements with lending partners. Your loan application will be submitted to the lending partner and be evaluated at their sole discretion. For loans where a credit union is the lender, or a purchaser of the loan, in order to refinance your loans, you will need to become a credit union member.
The Splash Student Loan Refinance Program is not offered or endorsed by any college or university. Neither Splash Financial nor the lending partner are affiliated with or endorse any college or university listed on this website.
You should review the benefits of your federal student loan; it may offer specific benefits that a private refinance/consolidation loan may not offer. If you work in the public sector, are in the military or taking advantage of a federal department of relief program, such as income based repayment or public service forgiveness, you may not want to refinance, as these benefits do not transfer to private refinance/consolidation loans.
Splash Financial and our lending partners reserve the right to modify or discontinue products and benefits at any time without notice. To qualify, a borrower must be a U.S. citizen and meet our lending partner’s underwriting requirements. Lowest rates are reserved for the highest qualified borrowers. This information is current as of May 1, 2020.
Fixed APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Fixed Rate options range from 2.88% (without autopay) to 7.27% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Rates are subject to change without notice. Fixed rate options without an autopay discount consist of a range from 2.88% per year to 6.21% per year for a 5-year term, 3.40% per year to 6.25% per year for a 7-year term, 3.45% to 5.08% for a 8-year term, 3.89% per year to 6.65% per year for a 10-year term, 4.18% per year to 5.11% per year for a 12-year term, 4.20% per year to 7.05% per year for a 15-year term, or 4.51% per year to 7.27% per year for a 20-year term, with no origination fees. The fixed interest rate will apply until the loan is paid in full (whether before or after default, and whether before or after the scheduled maturity date of the loan).
Variable APR: Annual Percentage Rate [APR] is the cost of credit calculating the interest rate, loan amount, repayment term and the timing of payments. Variable rate options range from 1.99% (with autopay) to 7.10% (without autopay) and will vary based on application terms, level of degree and presence of a co-signer. Our lowest rate option is shown with a 0.25% autopay discount. Our highest rate option does not include an autopay discount. The variable rates are based on the Variable rate index, is based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of April 27, 2020, the one-month LIBOR rate is 0.43763%. The interest rate on a variable rate loan is comprised of an index and margin added together. The margin is a fixed amount (disclosed at the time of your loan application) added each month to the index to determine the next month’s variable rate. Variable rate options without an autopay discount consist of a range from 2.01% per year to 6.30% per year for a 5-year term, 4.00% per year to 6.35% per year for a 7-year term, 2.09% per year to 3.92% per year for a 8-year term, 4.25% per year to 6.40% per year for a 10-year term, 2.67% per year to 4.56% per year for a 12-year term, 3.44% per year to 6.65% per year for a 15-year term, 4.75% per year to 6.93% per year for a 20-year term, or 5.14% per year to 7.10% for a 25-year term, with no origination fees. APR is subject to increase after consummation. Variable interest rates will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. The maximum variable rate may be between 9.00% and 16.00%, depending on loan term. The floor rate may be between 0.54% and 4.21%, depending on loan term. These rates are subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
3 Important Disclosures for SoFi.
4 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.21% APR (with Auto Pay) to 6.67% APR (with Auto Pay). Variable rate loan rates range from 3.21% APR (with Auto Pay) to 6.67% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of May 22, 2020, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 5/022/2020. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at [email protected], or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.8100000000000002% effective April 10, 2020.
|1.99% – 6.65%1||Undergrad & Graduate|
|1.99% – 7.10%2||Undergrad & Graduate|
|3.21% – 6.67%3||Undergrad & Graduate|
|3.21% – 6.67%4||Undergrad & Graduate|
|3.22% – 6.25%5||Undergrad & Graduate|