Millions of borrowers have no doubt enjoyed the three-and-a-half-year student loan payment pause, but those payments will resume in October — and that’s going to be a problem for many. According to July research from financial services company Empower, plenty of Americans anticipate having to cut back on discretionary spending, take on credit card debt, dine out less and or even consider trading in their car, living with roommates or forgoing travel — all to afford those payments.
“Record every expense in a spreadsheet or in Quicken or Mint.com. Tag each expense as mandatory or discretionary and categorize it into broad categories like food, transportation, housing, medical care, insurance and taxes. At the end of the month, total up each tag and category to help you identify whether you need to cut spending and how much to cut to make room for the student loan payments,” says Kantrowitz.
But more than prioritizing debt and loan payments, Craig says, “Once you understand how much your student loan payment will impact your current budget, you should consider how you can perhaps reprioritize your other savings goals, or at least some of them, to meet your loan obligations, says Craig.
“There’s no reason to derail your long-term financial goals by being unaware of how the end of the payment moratorium will impact your monthly expenses. Remember that interest hasn’t accrued on loans during the moratorium, but they’ll begin accruing again in September and should be taken into account before payments resume in October,” says Carlos Rodriguez, director of financial planning at Edelman Financial Engines.
In short: While of course it’s important to pay the minimums on all debt, but if you’re able to put additional funds towards paying off more than the minimum, applying it to the most expensive debt like credit cards, can save you money in the long run.