Being saddled with student debt doesn’t mean you can’t save for the future, according to the American Financial Benefits Center. In fact, there are certain actions that can be taken to ensure a savings plan even when paying off a student loan.
AFBC, a document preparation company that helps students apply for student loan repayment plans, recommends these five steps to help reduce debt and build wealth:
- Make a minimum payment every month and never miss a payment. There are extra fees and other penalties that can hurt borrowers from making future payments. And by missing a payment, borrowers might be hit with higher finance charges, extra interest, and it could hurt their credit scores, which brings on other problems.
- Focus on paying off the high-interest loans first. Addressing the higher interest debt first could help shorten the length of payment term.
- To build wealth, also make sure to take part in the company’s 401(k) program and invest as much as possible, or at least the amount to meet the company’s matching as that basically is free money.
- Another good plan is to put money toward a “safety nest” fund that could help a borrower get through short-term unemployment or a personal setback. Try to stash away funds, like the extra paycheck in a fifth Friday month, instead of spending it.
- Check on creating an income-driven repayment plan, recommends Sara Molina, manager at AFBC. An IDR allows borrowers to negotiate a monthly payment based on income and family size, and may allow the borrower to have spare cash to save.
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