“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.
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1 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 2.98% APR (with Auto Pay) to 5.79% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.64% 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 July 31, 2020, and are subject to change based on market conditions and borrower eligibility.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. 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. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
As used throughout these Terms & Conditions, the term “Lender” refers to KeyBank National Association and its affiliates, agents, guaranty insurers, investors, assigns, and successors in interest.
Assumptions: Repayment examples above assume a loan amount of $10,000 with repayment beginning immediately following disbursement. Repayment examples do not include the 0.25% AutoPay Discount.
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Variable Rates: The current index for variable rate loans is derived from the one-month London Interbank Offered Rate (“LIBOR”) and changes in the LIBOR index may cause your monthly payment to increase. Borrowers who take out a term of 5, 7, or 10 years will have a maximum interest rate of 9%, those who take out a 15 or 20-year variable loan will have a maximum interest rate of 10%.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of September 9, 2020. Information and rates are subject to change without notice.
3 Important Disclosures for SoFi.
4 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. If approved, your actual rate will be within a range of rates and will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Refinancing or consolidating private and federal student loans may not be the right decision for everyone. Federal loans carry special benefits not available for loans made through Splash Financial, for example, public service loan forgiveness and economic hardship programs, fee waivers and rebates on the principal, which may not be accessible to you after you refinance. The rates displayed may include a 0.25% autopay discount.
The information you provide to us is an inquiry to determine whether we or our lenders can make a loan offer that meets your needs. If we or any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. We do not guarantee that you will receive any loan offers or that your loan application will be approved. Offers are subject to credit approval and are available only to U.S. citizens or permanent residents who meet applicable underwriting requirements. Not all borrowers will receive the lowest rates, which are available to the most qualified borrowers. Participating lenders, rates and terms are subject to change at any time without notice.
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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 September 10, 2020.
5 Important Disclosures for CommonBond.
Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. 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 0.16% effective Sep 1, 2020 and may increase after consummation.