The day has finally come!
You have probably not been looking forward to this moment, but nonetheless it's coming! Student loan repayments have been on moratorium since 2020 and will resume on October 1st (though interest will have started accruing on September 1st).
There is still time to be able to prepare healthily for student loan repayments - here are 6 steps!
1. Know Where You Stand
The first step to tackling any challenge is understanding it. Take a moment to gather all the details about your student loans – how many you have, the total amount owed, monthly payment amounts, and the interest rates for each loan.
2. Incorporate Payments into Your Budget
If you don't have a budget in place, now is the time to create one. Include your student loan payments as an essential expense, just like groceries or rent. By integrating this obligation into your budget, you'll be better equipped to manage your finances and avoid unnecessary stress.
3. Pause Excess Savings
While having an emergency fund is crucial, it's important to strike a balance between savings and debt repayment. We typically recommend having $1,000 in a mini emergency fund while paying off debt - having a lot more than that in cash while paying off debt can slow you down, divert your focus as well as not put your money to work harder.
Consider temporarily pausing (not ceasing) excess savings and redirect that towards paying off your student loans.
4. Don’t Lend IRS Money For Free
Take a close look at your tax withholding. If you received a large tax refund earlier this year and your situation hasn’t changed, you might be over-withholding and effectively lending money to the IRS at 0%, while accruing interest on your student loans!
For guidance on adjusting your tax withholding, check out this blog.
5. Thoughtful Repayment Plans
There are now likely more repayment options available to you than before, including income-driven plans that reduce the minimum monthly payment.
As you review your repayment options, it can be tempting to opt for the lowest monthly payment. However, keep in mind that extending the repayment period might accrue more interest over time as well as delay the day when you can be free of debt!
Evaluate each plan's impact on your budget and debt-free timeline. Embrace the challenge of tackling your debt head-on rather than delaying it further.
6. Seek Help and Support
You are not alone on this journey! At Hoboken Grace, we are committed to fostering a community where conversations about finances are open and healthy. Don't hesitate to ask for assistance.
We offer resources such as Financial Peace University, a practical 9-week class that equips you with the tools for better financial health, as well as confidential financial coaching from experienced individuals who understand the journey firsthand.