How To Avoid Student Loan Debt Impacting Your Future Financial Plans


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Student loan debt is often tremendous burden for recent college graduates trying to start the next chapter of their life. In 2021, 44.7 million Americans have student debt adding up to $1.71 trillion collectively. That’s an average student loan debt of $37,693 per individual. Individuals leave school with their accomplishments, ready to kickstart their career, only to find out that they are already deep in debt. Colleges and universities make it difficult for most students to attend school without using financial assistance with student loans. Most students and graduates fail to realize how this assistance impacts their financial future in more ways than one.  

Credit Score  

There are two types of student loans: federal and private. Repayment for federal loans starts once you leave school, while direct subsidized and unsubsidized loans provide a 6-month grace period before you have to start repaying. Whichever loan you choose requires you to create a repayment plan consisting of monthly payments. Monthly payments, when made on time and in full, could positively impact your credit score. However, you do risk damaging your credit if you fall behind in your payments. Credit bureaus are notified of late payments which they mark on your credit report. Payment history is the most important factor of your credit score, contributing to 35% of your credit score. Using your FinLocker to monitor your student loan accounts in real-time can assist you in avoiding missed or late payments to your student loan debt and damaging your credit score.  

Debt-to-income ratio  

Similar to your credit score, your debt-to-income (DTI) ratio could be affected by your student loan debt. Your debt-to-income ratio, shown as a percentage, compares your monthly debt payments to your total monthly income. For example, if your monthly income is $4,000 a month, but your monthly debt payment is $1,200, your debt-to-income ratio would be 30%. A low DTI demonstrates a healthy balance between debt and income, while a higher DTI shows that your debt overtakes the money you are bringing in every month. Student loan debt may be the reason why your DTI is so high, but there are a few ways to reduce your student loans, resulting in a reduction of your DTI. Paying more than the minimum monthly payments, refinancing your loans, finding a job with a higher income, or finding a second job are all ways to help lower your DTI, increasing your odds of getting approved for other loans in the future.   

Open a Savings Account 

Setting up a savings account for emergencies, or personal financial goals is one of the more intelligent ways to prepare for the future financially. When you create a budget, assign a percentage of your income to save. See if your employer will allow you to split your paycheck, so that your savings can be directly deposited into a separate savings account. If you don’t see it in your every-day bank account, you’ll be less likely to spend it. Setting aside money to save prepares you for future unexpected expenses, helps you plan for the future, and provides you with financial freedom and security. When you have a substantial amount of student loan debt to pay off, you might it may be the case that you do not have any money left over to save for your financial goals, or to set aside for an emergency fund. However, savings will provide peace-of-mind that you can afford unexcepted car repairs, medical expenses, etc. , so it’s worth saving even $20 from each paycheck.   

Buying a car with student loan debt 

Often the first major purchases many college graduates make is a car. Your DTI and credit score play a significant factor if you need to obtain a car loan, as well as your monthly budget. If you have a very high monthly student loan payment, it might be difficult for you to put aside any additional money for monthly car payments. 

Getting a mortgage with student loan debt 

Mortgage approval is a big step you may take in the future. In 2020, 68% of homebuyers financed at least 80% of the cost of their home purchase (NAR). When you apply for a mortgage, your debt-to-income ratio and credit score are two financial credentials lenders review to assess that you can afford to repay the loan. Most lenders want to see that you have a DTI of 45% or lower and a credit score of at least 620 to be eligible for a mortgage. Don’t get disheartened if your student loan debt delays you saving for your home down payment; 47% of homebuyers in 2020 said that student loans delayed them saving for their down payment (NAR). Using your FinLocker to manage your student loan debt, budget your income, and save for your down payment and closing costs will help you get to the finishing line.  

When you start managing your student loan debt, you can start planning for the future, and avoid having the debt control you to the point where you feel overwhelmed and financially stressed. FinLocker provides all of the tools and resources you need to start confidently managing your student loan debt so that you can plan how  to achieve your financial goals. 

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