Student borrowers sacrifice savings to pay off college debt
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We often hear about younger generations (especially Millennials and Gen Z) postponing financial milestones like getting married, having kids, and buying a home because of their crippling student debt. But there’s another financial decision that’s been delayed by those who deal with student loans, and it’s arguably easier to do than bear the cost of those milestones.
A recent survey of student loans from Bankrate found that adults are sacrificing their savings the most to pay off student loan debt. In fact, saving for emergencies and saving for retirement topped the list of financial decisions most often delayed due to student loans.
While it’s certainly good news that student borrowers are struggling to pay down their debt, it’s important not to abandon your savings account altogether, whether it’s destined for a rainy day or your retirement years. .
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How student borrowers can think about saving
When it comes to create an emergency fund or invest for retirement, years of not saving money can really set you back in the long run, and you’ll miss the compound interest that will accumulate over time.
The goal is to start small: even regularly saving $25 each month in a high-yield savings account such as the American Express® High-Yield Savings Account will help your funds grow. Many experts recommend automating your savings so you can completely eliminate the decision to save and don’t even have to think twice. Through automation — whether it’s a percentage of each paycheck or a recurring deposit from your check to your savings — you get used to living with a budget that’s savings for your future.
When you’re saving for your years out of work, the earlier you start, the better, so don’t wait until all your student loans are paid off. Even though retirement seems like a lifetime away, your biggest advantage is time. Start by depositing a percentage of your paycheck each pay period into an IRA or Roth IRA at a brokerage such as Charles Schwab or into a 401(k), if your employer offers one. Although it may be a small percentage to begin with, we recommend that you contribute enough to respond to any 401(k) employer correspondence, if offered, as corporate correspondence is essentially free money in your nest egg.
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Student borrowers are also delaying repayment of other debts
Before prioritizing student loan debt over other types of debt, borrowers need to determine which type of debt is costing them the most over the long term. For example, the interest rate you pay on your outstanding credit card balance is likely much higher than the interest rate you pay on your student loans. In this case, it makes more financial sense to speed up your credit card repayments over your student loans, as it will save you more money in interest charges.
If you have both student loan debt and credit card debt, get rid of your credit card debt first so that you can then focus entirely on paying off your student loans. A credit card with balance transfer can be useful in this scenario. The Citi® Diamond Preferred® Card with no annual fee and the Citi Simplicity® Card each offer one of the longest introductory periods for balance transfers: 0% introductory APR for 21 months on balance transfers to from date of first transfer, plus 0% introductory APR for 12 months on purchases from date of account opening (after, 13.99% to 23.99% and 14.99% to 24 .99% variable APR, respectively; balances must be transferred within four months of account opening and there is a balance transfer fee of $5 or $5% of the transfer amount, whichever is greater. ).
With a balance transfer card, you can pay off your credit card debt without accruing additional interest during the introductory 0% APR period, which really helps settle your outstanding balance once and for all.
There is also a way to reduce the interest rate on your student loans. If you currently have private student loans, consider refinancing with a top lender to see if you can get a lower interest rate than you are currently paying. When you refinance, you also have the option of shortening or extending the term of your loan. A lender like SoFi offers both variable and fixed rates (which automatically include a 0.25% autopay rebate), the ability to apply with a co-signer, payment protections, and coaching. free career and financial advice from planners. Note that it is generally not advisable to refinance your federal student loans, as you may lose the protections that federal student loans offer, including being eligible for the current student loan payment suspension.
SoFi Student Loan Refinance
No origination fees to refinance
Federal, private, graduate and undergraduate loans, Parent PLUS loans, medical and dental residency loans
Types of loan
Variable rates (APR)
From 2.24%; from 2.37% for resident doctors/dentists (rates include automatic payment reduction of 0.25%)
Fixed rates (APR)
From 2.99%; from 3.12% for resident doctors/dentists (rates include automatic payment reduction of 0.25%)
From $5,000; more than $10,000 for residential medical/dental loans
Minimum credit score
Authorize a co-signer
At the end of the line
While it’s important to keep track of your student loan payments, you shouldn’t do so at the expense of other key financial moves like saving for the future and paying off high-interest debt. Also, with the federal student loan payment and interest freeze extended through the end of summer, you can use that time to redirect those upcoming monthly student debt payments to saving for emergencies or retirement, or to reduce other debt.
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The interest rate and APY are subject to change at any time without notice before and after opening an American Express® High Yield Savings Account.
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.