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Figuring out how to save money and pay off debt at the same time isn’t easy, but it is possible. In fact, it’s important to put money aside into an emergency fund while keeping up with your student loan payments. Plus, you might need to save for other big goals, such as buying a car or having a wedding.
Rather than putting your savings goals on the back burner, you can use these tips to achieve them while paying off your student loan debt.
How to save money and pay off debt at the same time
Here are some simple strategies to help you balance saving for big goals while still prioritizing paying off student loan debt.
1. Leverage your savings potential
2. Make high-interest debts a priority
3. Categorize your goals by time frame
4. Pay more than the minimum
5. Use your peers for motivation
6. Increase your cash flow
7. Invest in a Roth IRA
First, find out what you can do to leverage your savings potential right now. For instance, does your job offer a 401(k) match or any other employer-sponsored programs, that can save you money?
If your employer offers a 401(k) match, it’s a good idea to invest enough money to get the full benefit. When your employer matches your contribution, you get a 100% return on investment right off the bat.
That’s a higher return than you could get on a traditional investment, and it far exceeds the amount you’d save on interest by putting that money toward your student loans. Even if you don’t save much beyond that percentage, try your best to max out your employer match.
Aside from making the most of employer benefits, look for other potential ways to save, such as getting a discount on your student loan interest rate by enrolling in autopay (typically, this comes with a rate cut of 0.25%).
Simply put, leveraging your savings opportunities is an easy way to maximize your savings right away. Any amount of employer-matching or discount savings you can participate in is more money in the bank over the long-term.
High-interest loans and credit cards can thwart your long-term goals, ultimately keeping you in debt for many years. It’s nearly impossible to get ahead financially when you’re paying 15 to 25% interest rates.
Make a plan to pay off your highest interest rate debts first. Then, see if you can refinance or consolidate any of your debts into low- or even zero-interest loans. Most credit card balance transfer offers, for example, come with an introductory 0% APR for anywhere from 12 to 18 months.
Before taking this route, find out if you’ll be liable for any balance transfer fees. You can also refinance student loans for lower interest rates with lenders such as Earnest, CommonBond and others.
If you have a qualifying credit score (or a cosigner), you could get better rates than you have now and save money as a result. Plus, you can choose new repayment terms on your student loans. Just be careful about refinancing federal loans, since doing so turns them private and makes them ineligible for federal plans and protections.
Once you’ve created a new debt payoff plan, stick to it. By lowering your interest rate, you might be able to pay off your debts even faster.
When you have competing financial goals, it can be tough to keep track of them. Make your progress easier to account for by categorizing your goals by how long it will take to reach them.
For instance, saving for a down payment on a new home will take a lot longer than trying to save up for a family vacation next year. Organize your goals based on their importance to you, as well as how long each one will take to achieve.
Not only is it useful to set realistic deadlines for your goals, but it can also help to automate your savings or loan payments whenever possible. For example, you might set up automatic transfers between your checking account and savings account on a weekly or monthly basis.
Since you’ve done the math on your savings goals, you’ll have a clear sense of how long it will take to achieve them. And you won’t have to worry about saving money all the time, since the automatic transfers will do the legwork for you.
While you’re saving up for big goals, don’t forget to make paying off your student loans a high priority, too. As much as possible, pay more than the minimum amount due. Even if it’s only $20 or $50, a little extra each month can really add up over time and help you reach your goals faster.
If you find that it’s difficult to pay more than the minimum, try making your payments more often, such as two times a month instead of once a month. Not only will this help you get out of debt faster, but you’ll also be able to save money on interest fees by shortening the repayment period.
That said, it’s usually better to prioritize high-interest debt, such as credit cards or personal loans, before throwing extra payments at your student loans, which tend to have lower interest rates than other debts.
If you’re the type of person who gets motivated by competitions and community involvement, don’t be afraid to lean on your friends for support. This will make the topic of how to save money and pay off debt a lot easier to tackle, and your friends and family can help keep you on track with regular check-ins.
Turn your small milestones into a game with a fun prize or reward system at the end. Work with your peers and compete with your friends to see how much progress you can make on your goals. It’s all too easy to get discouraged and feel hopeless if you try and reach your goals alone.
Without a doubt, one of the best strategies to use when working towards multiple financial goals is to earn more money. There’s only so much you can do when cutting back your living expenses until you just need to increase your cash flow.
Take on a few hours of overtime at work, or start a side business on the weekends. In this age of technology, there are endless ways you can earn extra money to put toward specific goals. You could even use one specific source of income to pay down debts while setting aside another income stream for big savings goals.
Another way to increase your cash flow is to talk to your tax professional about adjusting your tax withholding at your day job. You’ll have less money taken out of your paycheck, which means more money in your bank account.
That said, you might end up owing money instead of getting a refund once tax season rolls around, meaning you’ll have another savings goal to add to your list. If this becomes a strain on your finances, it might be better to leave your tax withholdings as they are.
Rebecca Stapler of Stapler Confessions and her husband started their careers with over $200,000 in student loan debt. This past month, they were finally able to reach a positive net worth. One of the main keys she attributes to this is investing in a Roth IRA.
In her experience, it’s a great way to hedge your bets for the future.
“As long as a Roth IRA makes financial sense at the time, max out those contributions and, if you need a down payment for a home, you can withdraw those contributions tax-free — as long as you wait five years,” Stapler said.
It’s true. If you’re purchasing your first home, you can withdraw up to $10,000 of the earnings in a Roth IRA without paying an early withdrawal penalty.
“That’s what we did, and the end result is that we earned more than $10,000 in our Roth IRA while we waited for the right time to buy a house,” Stapler said. “When we finally decided it was time to buy, we had a 10% down payment by withdrawing our contributions.”
While this approach makes sense for some, be careful about draining your retirement savings accounts. Since these investments grow over time, you could be costing yourself money over the long run. Even if homeownership is one of your goals, it’s also important to protect your future finances.
Saving money while paying off debt is challenging, but not impossible
Figuring out how to save money and pay off debt at the same time is challenging. But since you have multiple financial goals in your life, it’s important to find a balance between saving and chipping away at your student loans.
Take time to prioritize what goals are most important for your future – whether that’s paying off student loan debt or buying a new home — and use these tips as a guide to balance the financial decisions you make going forward.
For more saving strategies, head to this guide on how to balance student loan repayment with investing.
Rebecca Safier contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2020!
|Lender||Variable APR||Eligible Degrees|
|1.89% – 6.66%1||Undergrad & Graduate|
|1.89% – 5.90%2||Undergrad & Graduate|
|2.25% – 6.09%3||Undergrad & Graduate|
|1.99% – 5.34%4||Undergrad & Graduate|
|1.98% – 8.55%5||Undergrad & Graduate|
|2.39% – 6.01%||Undergrad |
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1 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.
To check the rates and terms you qualify for, Splash Financial conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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 October 1, 2020.
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.
Annual Percentage Rate (“APR”): This term represents the actual cost of financing to the borrower over the life of the loan expressed as a yearly rate.
Interest Rate: A simple annual rate that is applied to an unpaid balance.
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 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 5.49% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 5.34% 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 October 26, 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 10/26/2020. 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.
© 2020 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 LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 10/15/2020 student loan refinancing rates range from 1.98% APR to 8.55% Variable APR with AutoPay and 2.99% APR to 8.77% Fixed APR with AutoPay.