Typical housing expenses (rent, utilities, etc.) should never account for more than 35 percent of your monthly income, according to financial expert Jean Chatzky. If you’re paying more than this, you may want to consider making a change. If you live alone, consider getting a roommate to cut your rent in half or even Airbnb your room when you are out of town. Though it may be easier said than done, it may also be worth thinking about moving, whether it is to a smaller apartment, or even another city.
If you’re living in an expensive area, like New York City, for example, think about how your expenses may decrease if you change locations. I personally did this and left New York for Austin so I could focus more on my student loan repayments. This, of course, is all dependent on work and your personal flexibility. It could, however, be a huge factor in helping to prioritize your student loan repayments.In addition, it makes sense not to get in over your head.
If you are saving for a down payment on a home it makes more sense to purchase one that is in your price range rather than purchasing a home that has a mortgage payment that will cause you to drown financially. This means, don’t buy the most expensive home or product. If you’re looking for a new car, it’s best to purchase a used vehicle instead of that new BMW. Prioritizing the most important financial decisions is a key to staying on track with your budget and loan repayments.
4. Keep Saving
It’s tempting to take extra money you may have each month and put it towards something else — whether it’s for something fun like a weekend away or something more responsible, like continuing to paying down your loan balance. However, it’s important not to forget to contribute to your savings account or emergency fund.
Most Americans can’t even afford a $400 emergency fund. According to Dave Ramsey — the first step toward paying off consumer debt is building a $1000 safety net. Other experts recommend saving 5 to 10 percent of your net income.
Next, focus on paying off any consumer debt — credit cards and student loans. Following that, save a few months of expenses up, just in case. There are even tools that can help you do this. For example, Acorns, an app that takes pennies off your purchases and rolls them into an investment account that’s easily liquidated. Having these emergency pockets of money set up can ultimately ensure you don’t miss a loan payment due to an unexpected emergency.
5. Pick a Student Loan Repayment Plan
In order to prioritize paying down your student debt, payments must remain a top priority. Utilizing strategies such as the “debt avalanche” strategy — where borrowers pay off their most high interest loan first, allowing them to potentially save thousands of dollars on interest — or the “debt snowball” strategy that is known as the most psychologically rewarding strategy by paying off the smallest principle loans first. Whichever plan is right for you, pick one and stick with it.
You’ll feel a sense of gratification as you continue to see your total loan balance decrease. Beyond that, it may be worth considering refinancing or consolidating your student loans. Companies such as Common Bond, SoFi and Earnest all have options to help refinance, if it is the right decision for you.