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What to do After Paying Off Student Loan Debt

If you’ve had to pay your way through college with the help of student loans, you’ll know better than anyone how arduous it can be to pay back everything that you’ve borrowed. And with Americans owing 1.57 trillion dollars collectively in student loan debt in 2020, you wouldn’t be alone[1].

Understandably, it would be easy to get caught up in the task of paying off your student loan debt, which is a topic we’ve touched on in the past. But what do you once you’ve finally paid it all off? After giving yourself a well-deserved pat on the back, you might be sitting there without the faintest clue of what to do with all this extra money that no longer needs to be going towards your student loan debt payments.

So, if you’ve finished settling student loan debt, or the end is in sight, it’s time to start figuring out what’s going to occupy this extra space in your budget. Here are some tips to help get you started.

1. Start an Emergency Fund

If you find yourself in the position we described above, you might be asking yourself, “what’s the first thing this extra money should be going towards?” While there isn’t necessarily a single right answer for everyone, if you don’t have an emergency fund in place, this might be the first area you want to focus on.

Piggy bank where you put your savings to pay off student loan debt.

If you’re starting at ground zero when it comes to your savings and you still have some other debts once you’ve finished with your student loans – including installment loan and/or payday loan debt – don’t feel like you need to build up your savings overnight. Work on contributing small amounts on a consistent basis and over time, you’ll get to where you want to be. After all, even having as much as $400 can go a long when you run into an emergency.

Why make your emergency fund one of your top priorities after you’ve settled your student loan debt? Well, if you don’t have any money saved up for this purpose, there’s nothing standing between you and a spiral into more debt. You need some financial protection in case of an emergency, and an emergency fund should be your first line of defense. When you’ve finally managed to pay off your student debt, you can really start to focus on padding this fund.

How Much Money Should You Have in Your Emergency Fund?

While you don’t need to hit your savings goal in a week, you should have a target to aim at. But how much should you be looking to put into this fund? Usually, the default answer to this question is that you should save about six months’ worth of living expenses. But this can change depending on your particular situation.

For example, if you live in a single-income household and you’re the only one with an income, you may feel like you should aim for more than six months of living expenses. If you and your partner both have a steady and secure income coming in, you might be comfortable having less saved up. Just do your best to work towards a number that you’re comfortable with. If you have plenty of disposable income but feel like you won’t be able to rest easy until you have a year and a half’s worth saved up, then set that as your goal.

If you want to get started on building your emergency fund but don’t know how, take a look at this article for some useful tips!

2. Pay Off Other Debt

Once you’ve finished paying off your student loan debt, you’re going to want to continue to focus on paying down whatever other debt you have along with making contributions to save up a reasonably comfortable amount to help you handle emergencies. This could be an auto loan, a large credit card bill, or a line of credit.

You may even want to consider shifting a chunk of the money that you were using to pay down your student loan debts towards this other debt right away. Depending on your priorities, you may focus on building an emergency fund first, or you may be earning enough right out of the gate to build your emergency fund up at a good clip while still paying down debt. After all, you’ve already budgeted money to pay off your student loans, so it’s a fairly straightforward transition to using this money to pay off other debt.

But if you have multiple debts on the go, how do you pick which one to tackle first? There’s more than one method of repaying debt, so you’ll need to do some research to figure out which would work best for you.

person holding a snowball

Two of the most common tactics are the snowball method and the avalanche method. With the snowball method, you’ll want to make your minimum payments on all accounts, and then put whatever money you have left towards your smallest debt. Once that’s paid off, you’ll move on to the next smallest debt, and so on and so forth. This method helps to give you some quick wins and keep your momentum going.

With the avalanche method, you’ll instead start with the debt account with the highest interest rate, and once that’s been paid off, you’ll move on to the account with the next highest interest rate. This method looks to save you the most money in interest payments. Like we said, different methods work for different people, so assess your situation and try to determine what works best for you.

3. Increase (or Start) Your Savings 

With the burden of student loan debt hanging over you, you may have completely shirked the notion of saving your money in the past. But now that this burden has been lifted, it’s time to start. Or if you’ve managed to find room in your budget to put money away while paying off your student loans, you might have the capacity to start boosting those numbers.

While it’s great to start saving, it’s helpful to have specific savings goals in mind. So, the first question you’ll need to answer is what exactly are you saving up for? The answer to this question is going to be specific to you, but here are some things you might want to consider:

  • Save for a down payment on a home: This can help to start your journey on the property-owning ladder and help you work towards owning a valuable asset that you can later sell or pass down to your children.
  • Save money for your children’s college fund: Speaking of kids, why not get a head start on their college fund? After all, you’ll know better than anyone how difficult student loan debt can be to manage, so saving up now can help to mitigate a lot of the financial burden you and your children may face in the future.
  • Save for your own education: If your journey as a student isn’t done, it’ll likely cost you. But if you’re taking some time between degrees, start saving now so you don’t need as big of a loan (or any loan at all) down the line to fund your education.
  • Save up for a car: Like a lot of big purchases, it can be tough to buy a car without taking out an auto loan. But the bigger the down payment you’re able to make, the less you’ll need to pay over the course of your auto loan, so start saving up!
  • Save for a big move: Even if you don’t have any interest in buying a house, you may still have aspirations to move, whether that’s to a new home in your current city or to relocate to a completely different part of the country. Either way, moving can get expensive. So, if you’re planning on moving, start to save up ahead of time.

Regardless of what you save your money for, the key is to save with intention and have a target to aim at. If you keep things vague and loose, it can be easier to spend needlessly and difficult to ensure your money is going to good use.

4. Start Thinking About Retirement

It’s normal to get caught up in paying your student loan debt, but if you’ve done so at the expense of your retirement fund, it’s time to change that. Start by seeing if your workplace has a contribution-matching plan for your retirement fund. This will typically come in the form of a 401 (k). You can also look into other retirement funds like a traditional IRA, Roth IRA, and more.

Older people who are retired.

If you feel like you’re totally out of your depth, you could also consider hiring a certified financial planner to help you out. They’ll give you a plan for your retirement and help you sort through the nuts and bolts of what you need to do to reach your future financial goals.

Put Your Money to Good Use

Don’t get things twisted: paying off your student loan debt is a huge accomplishment. Without the dark cloud of these payments hanging over you, your budget can open up along with all sorts of possibilities for the future. The key is to keep the good momentum going and be smart with how you use the extra money you have after paying off your student loans.

The process of paying off your student loans can also be an invaluable experience in other ways. Throughout this time, maybe you’ve learnt to budget, meet payment deadlines, and to be concise and thoughtful when it comes to how you use your money. Use what you’ve learnt moving forward to carve out a successful financial future, and we hope this article helps!


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