Imagine a world where you have a large enough savings to cover an unexpected financial emergency. Pretty nice, right? It’s not hard to believe that people with an emergency fund have a greater sense of financial well-being. Freedom from worrying about the “what ifs” and a sense of pride in achieving a monetary goal would make anyone feel good!
However, barely half of Americans have an extra $400 at their disposal in the event of an unexpected expense. A Federal Reserve survey shared that 30% of people find it difficult just to get by. While debt isn’t all to blame, the average U.S. household does carry more than $15,000 in credit card debt. This emphasizes that many Americans are sending monthly payments to credit card companies instead of putting their hard-earned money into their savings.
Beyond credit card debt, an increasing number of Americans (44.2 million and counting) are wading through massive student loan payments. To equate an average college student’s debt, college graduates in 2016 had almost $40,000 to pay back. It may be known as “good debt” due to the long-term financial benefits of a college education, but in the short run, student debt is one more thing getting in the way of growing a savings.
If you’ve been making automatic student loan payments you’ve already instilled a good financial habit. While it creates a tighter budget each month for you, it’ll make a world of difference in the long run.
If only you could reduce the amount of money you send to your lender each month and instead automatically transfer the difference into a savings account – well, maybe you can.
If you have federal student loans, you may qualify for a program that will allow for the remaining balance of your student loan debt to be forgiven after a certain number of qualifying monthly payments.
If you work for the military or as a teacher you may already be aware programs that forgive some or all of your student loans. Likewise, assistance exists for lawyers, nurses, pharmacists, and doctors and dentists who work in certain areas. Other opportunities, such as the Public Service Loan Forgiveness (PSLF) Program, offer loan forgiveness to employees in local, state, or federal government or who work for certain a not-for-profit organizations.
Before you get too excited, note you must submit the necessary paperwork before your payments begin to qualify toward forgiveness. Don’t put it off! Contact your student loan servicer to get the conversation started.
For those who have been continuously putting money towards their monthly student loan for close to two decades, consider asking your lender if you qualify for a new student loan repayment plan. You may be able to make lower payments each month until the 20- or 25- year mark, which depends on your loan terms, after which your remaining balance could be forgiven.
Keep in mind, however, that reducing your monthly payment amount via an Income-Driven Repayment (IDR) is helpful only if you are close to reaching the end of the term of your loans. Otherwise, you will simply take longer to pay off your student loans. The greater amount of interest you pay in the long run likely isn’t worth the savings you will put away in the short run.
If you have found a way to decrease your monthly student loan repayments, congratulations! However, we know it can be tempting to have extra cash around. Consider setting up a new automated process to deposit what you don’t need into a savings account. You’ll never truly know the difference if it’s money you previously didn’t have, and the sense of financial well-being is well worth it.