Student loans can be a big financial burden. They can take a big chunk out of your budget every month. But student loan repayment shouldn’t stop you from working toward your other financial goals. Life doesn’t stop just because you have student loans.
If you find you have extra cash after making your student loan payments, here are a few ways you may want to consider spending your money.
Pay Off High-Interest Debt
Most credit card companies charge as much as 18% APR or more. There are very few investments, if any, that will match an 18% return. That’s why it’s important to make paying off your high-interest debt a priority. You don’t want to spend a portion of your hard-earned money on interest.
Steven Millstein, credit repair consultant at CreditRepairExpert.org, stated, “Debt of any kind can be a real serious threat to your financial security as it holds you back from making the most of your money.”
If you have any high-interest debt, including credit cards, personal loans or even your student loans, you may want to spend some of your extra funds on repayment of your debt. You may also have some private loans that have significant interest rates.
Review all of your accounts and their interest rates. Then determine if it would be beneficial to put some of your extra funds toward the repayment of your debt.
Build an Emergency Fund
What happens if your car breaks down or your heat goes out? Do you have extra funds to pay for these repairs? According to a new Bankrate study, 23% of Americans don’t have anything in their savings accounts.
Emergencies happen, and if you’re not prepared it could turn into a huge financial disaster. Even if your high-interest debt is a priority, you can set aside a little extra cash to build up your emergency fund. You don’t want to put yourself in a compromising position and not have enough money when you’re in a pinch.
It’s recommended that you have at least 3 – 6 months of your expenses in an emergency fund. This amount should include your mortgage or rent, as well as any other monthly expenses that need to get paid every month.
Put Extra Money Toward Your Student Loans
If you have an emergency fund and your high-interest debt is paid off, you may want to put a little extra money toward paying off your student loans. All federal and private student loans allow penalty-free repayments. This means that you won’t be penalized for early repayment.
However, if you have personal loans, you may want to verify with your lender that there won’t be a penalty for paying off your loans in advance.
Not only will repaying your student loans faster eliminate this financial burden, but it will leave you with a sense of accomplishment.
Invest Your Extra Cash
Even if you’re working toward repaying high-interest debt or building your emergency fund, you may want to set some extra cash aside for investing. Let’s say you only have an extra $100 to invest each month for the next 30 years. If you were consistent every month, you would have $113,352.94, assuming 7% interest.
Keep in mind, the numbers above are strictly to illustrate the power of compound interest. But you can see, even if you just have a little bit of money to invest, it can go a long way.
There are plenty of ways you could start investing. One way would be to contribute to your companies 401(k). Most employers have a retirement account you can contribute to. If you are unsure of your program’s requirements and eligibility, contact your Human Resources Department for information. They can provide everything you need to know about your employer’s retirement plan.
Some companies provide a match program. This means that they will match your contribution up to a certain percentage. Essentially, providing additional compensation for participating in their plan.
You could also invest in a Roth IRA, an IRA, a brokerage account or another investment vehicle. Keep in mind, all accounts have different tax advantages. You may want to speak with a financial advisor or tax professional to make sure you’re selecting the best account for your financial situation.
Additional Tips for Spending Your Extra Money
Figuring out how to spend your extra cash may be a bit of a challenge. There are plenty of options that may help you reach your financial goals. Here are some additional tips to help you balance your financial priorities while paying off your student debt:
- Write down your goals: Do you want to purchase a home in the near future? Or maybe you want to save for a family vacation to Florida? Whatever your financial goals are, write them down. Determine what your 2-, 5-, 10- and even 30-year goals are. This will help you narrow down your financial focus and determine how to spend your money.
- Budget: Once you have written down your goals, review all of your expenses. Look at everything that must be paid for every month. Then determine where your extra money should go. You will most likely want to align your budget with your goals. You may also want to look at areas you may be able to cut back on your spending.
- Automating your savings: Manually saving for the future can yield procrastination or using your savings for other expenses. If you want to get serious about saving for the future, automate your savings. Many financial institutions will give you the ability to automate money going into your savings account. This gives you one less thing to do and think about!
- Review your progress monthly: As you begin to make more and more progress towards your goals, you will want to adjust your budget and priorities accordingly. At the end of each month, review your progress and see if you need to make adjustments to your budget.
When determining where to spend your money, determine what’s important to you. Everyone has a different financial situation that requires different actions. Review your goals and put your money toward areas that will improve your financial well-being. Remember, it’s okay to create a balance. You can work toward all of your goals at once.
Where are you spending your money? What financial goals are you working toward despite your student debt? Leave your comments below.
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