Going to college is a top goal on many people’s lists. However, can achieving that goal be detrimental to future plans? With the average student loan equaling close to $40,000 (and some students even owing $100,000 or more), it’s enough to make anyone bat an eye once or twice. It can really make you question whether or not you’ll ever achieve your dreams of owning your own car, house, or business.
Despite accruing an impressive amount of debt, you can still do all those things and more. Here’s how you can plan for major life expenses while still paying off student loans.
Affording a Car
It can seem impossible to afford a car when you have to pay student loan bills on top of your other expenses. That doesn’t mean a vehicle is completely out of the question. Although you may not think your budget has room for a down payment along with various monthly payments, it is completely doable.
With a few strategic adjustments to your finances, you’ll be driving off into the sunset in no time. Here’s how you can start saving for a car while managing student loans:
- Start With a Budget: Before you do anything, you need to know how much you’re spending every month. Creating a budget will help you determine expenses you can eliminate or cut back on to go towards your car purchase.
- Estimate Potential Costs: After you make a budget for your current expenses, it’s time to estimate the potential costs of owning car. By figuring out how much you’ll pay each month on car payments, gas, insurance, and maintenance, you’ll have a better idea which car to get and if your current lifestyle can support the cost.
- Pay Down Your Debt: Depending on how much of your student loans you’ve already paid, it may be wise to lower your balance even more when considering purchasing a car. How much debt you’re in can potentially affect your chances of getting approved for a car loan.
- Save, Save, Save: Whatever extra money you make, put it aside in a savings account so it can grow and be there for you the day you buy your car. If you’re hard pressed to find money to spare, consider taking on side jobs to contribute to your car fund.
Financing a Home
Now that you have a car, you need a garage to put it in, right? Thankfully, plenty of houses come with one of those. However, now that you have student and car loans to pay, could a house truly be in the cards?
Of course. Like with planning a car purchase, there are different things you can do to make a house payment more financially feasible. First off, you need to be looking at homes you can afford. It does you no good looking at lavish estates that are way out of your price range.
By looking at homes that are within your budget, you can fall in love with the right house instead of pining for a mini mansion that’ll sink you into even more debt. Speaking of debt, the amount you have is extremely important to lenders.
Just like with car loans, mortgage lenders are looking for potential borrowers to have a specific debt-to-income ratio (36 percent or less including the mortgage to be exact). They’ll also be taking a look at your savings and credit score. To give yourself a better chance of getting approved, pay off as much of your debt as you can before you apply.
You can potentially make this easier by decreasing your student loan payments. This can be done by either refinancing your student loans or by changing your repayment plan to be income-driven. Whatever you decide, it’s important to make every student loan payment on time.
Late payments on any debt will hurt your credit score and will lead lenders to assume you won’t pay your mortgage on time either. The better your credit score, the greater your chances are that you’ll be approved.
Lastly, you’ll need to save up for closing costs and a down payment. Closing costs are usually 2 to 5 percent of the price of the house while down payments are usually 20 percent, and both need to be paid upfront.
Building Your Business
It’s the dream of many to be able to work for themselves. However, starting your own business is dramatically different, and riskier, than owning a car or house. The stakes seem especially high when you’re already thousands of dollars in debt with student loans.
Don’t let that deter you though. Many people with student loans have started their own small business, which means that you can as well. If you have two or more student loans, it may benefit you to consolidate them.
Doing so can decrease the amount of interest you need to pay and make it easier to make payments on time. In order to qualify, you’ll need a good credit score and have no defaulted student loans or bankruptcies on your record. Consolidating your loans may also require paying a fee and can affect the terms of forgiveness programs federal loans offer.
Another option is to apply for deferment or forbearance to lower monthly payments. The extra money you save can go towards your small business expenses to get it off the ground and running. Just remember that interest will still accrue even when accepted into these programs.
Finally, you need to work hard and cut or lessen every possible expense. Starting a business isn’t cheap, and having student loan debt makes it that much harder to raise the capital you need. If you still need to work a full-time job while your business is still in its infant stage, then do it.
Move back home with your parents if you have to or live with a roommate or two. Take advantage of public transportation as much as possible. Living frugally and shopping smart not only increase your chances of small business success, but also of repaying your student loans sooner.
Having student loans can make it feel like you have to put your life on hold until you pay them back. However, that doesn’t have to be the case. Owning your own car, house, or small business is possible if you’re smart with your finances. By creating a budget, utilizing different loan programs, and living inexpensively, you can live your life to the fullest despite having student loans.
This article was contributed by guest author Devin Morrissey.