The path to prosperity has never been easy, but these days you could argue it’s a lot less simple than it used to be. A big factor? Student loans — and lots of them. Today more people are taking on a larger amount of education debt than ever before. And when you’re shouldering five or six figures worth of debt, the idea of simultaneously building wealth is not exactly a straightforward proposition.
Even if your degree has afforded you a better salary, it can be difficult to know exactly where to begin. Should you wait until loans are paid off to tackle saving for retirement? If not, which goal do you prioritize? And how do you do both without breaking the bank?
While everyone’s situation is unique, the key for most people is to get a solid strategy in place. Here are a few tips to help you do just that:
1. Do the math
It’s essential to start with a full picture of your financial situation. How many student loans do you have, how much time is left on each and what are the interest rates? What about interest rates on other debt, like credit cards and auto loans? How much money can you put toward saving and investing after you’ve paid your bills each month? You’ll need to know the answers to these questions in order to create your plan.
2. Lay the foundation
Most financial experts agree that it’s crucial to a have three to six months worth of living expenses saved up in case anything happens to your income. For student loan borrowers, this is especially important because even one late or missed payment can damage your credit. If you don’t already have an emergency fund in place, this would be a good place to start.
3. Decimate high-rate debt
Along with building a savings cushion, eliminating high-interest rate debt should be top priority. Whether you decide to tackle these goals at the same time is up to you. Just remember that step where you did the math — if you’re putting $50/month toward savings but spending $100/month on high interest debt, you’re essentially taking one step forward and two steps back.
The usual culprit here is credit cards — perhaps you opened one or two to help pay for expenses during or after school. But if the introductory interest rate has gone up and you’re now looking at double digits, you’ll want to eliminate that debt pronto. If you’ve got solid credit, one tool that can help you do that is a low-interest rate personal loan. And once your credit cards are paid off, keep it that way. Nothing sabotages a wealth-building strategy like carrying a credit card balance.