People with student loans often feel like they’re in a hole that prevents them from living life to the fullest. But contrary to popular belief, you can still live a normal life while paying back your debt – including owning a home.
It might not be easy, but you can save while paying back your student loans. This goes right along with out theme of striking financial balance that we just discussed a few days ago.
Here are some of our tips on how to save for the down payment while paying back your loans.
Make More Money
If your current job doesn’t allow you to pay your bills (including your student loans) and save for a down payment, it’s time to make more money. That may sound obvious, but it’s an option most people don’t consider.
Some ideas include renting out your apartment on Airbnb, selling things around the house or dog-sitting. You can also try negotiating a raise at your current job, taking on a part-time gig or starting a side hustle.
Earning more money may be the fastest way to save for a down payment. Here’s an example: if you want to save $10,000 in one year, you can get a part-time gig paying $13 an hour and work 20 hours a week. Even a few hours a week can net a grand or two over the course of a year.
Pay The Minimum On Your Student Loans
Even though becoming debt free should be a major financial goal, it may be a good idea to only pay the minimum on your student loans while you’re saving for a down payment. After you buy your home, you can go back to putting more toward your loans.
This is especially true if buying a home could potentially save you money in the long run, like if your monthly payment would be less than you currently pay in rent. Personal finance is best approached with a long-term mindset, and delaying debt for the purpose of saving in the long run is a great example of this. Think of it like an investment that won’t pay off for a while.
It’s about setting goals and striking a balance. If your goal is homeownership, consider this route. But if your goal is to be debt free as fafst as possible, maybe you want to wait on saving.
Lower Your Student Loan Payments
If you’re having trouble paying your student loans while setting aside money for a down payment, your student loan payments may be too high. You can lower those payments by refinancing your student loans through a variety of lenders. (Here’s the company we recommend.) You may be able to decrease your monthly payments while also keeping the same terms, so you’ll save more on interest.
A lesser-known solution is to change your payment plan. Federal student loans allow you to switch to an income-based repayment program, which can significantly lower your payment. You may also be able to change your private loan depending on the loan provider. You can learn about income-based repayment plans in our Definitive Guide To Student Loan Debt.
However, realize that lenders will only use your Standard repayment plan amount when considering your debt-to-income ratio. So, while lowering your payment is a good tactic to save, if you really can’t afford your loans, you likely won’t qualify for a mortgage.
Save All Windfalls For Your Downpayment
Saving for a down payment can seem impossible on top of all your regular expenses, so put any unexpected windfalls toward your down payment. These can include birthday checks from Grandma, work bonuses, rebates, tax refunds and more.
This is a difficult concept for many people, as windfalls are traditionally seen as an excuse to spend money on a luxury. But if you can reign in that desire, you’re looking at a sizable addition to your savings for no extra effort.
One of the best ways to save for anything is to make it an automatic part of your budget. For example, if you need to save $500 a month for your down payment, set up automatic transfers between your checking account and savings account.
We recommend using a tool called Digit to automate your savings.
Saving automatically will force you to reach your goal faster, and make it a firm part of your budget – not something you half-heartedly try to do every month.
Cut All Other Expenses
If earning more money isn’t getting you to your goal, it may be time to trim your budget. Cut all unnecessary subscriptions, scale back on eating out and put a pause on buying new clothes.
If your lease is almost up, you can try downsizing to a smaller apartment or getting more roommates while you save up for your own pad. These changes coupled with a higher income can put you over the top for your down payment.
If you’ve saved for a down payment while paying off student loans we’d love to hear what worked best for you. Let us know in the comments.
Photo Credit: stevanovicigor / 123RF Stock Photo