In America, we are accustomed to living with debt and accept it as a fact of life. Car loans, a mortgage, credit cards, and yes – student loans – are all customary to most of us, and we don’t think twice about debt spending to get what we want and need. But with unemployment still an issue, the economy lackluster and Obamacare faltering and causing millions to lose their health coverage, now is not the time to be adopting more debt.
If you have five digits worth of student loans, you should think carefully about adding to what you owe. Here are four things you should consider postponing until your student loans are minimized (or vanquished):
#1 A New Car
If your current auto is hanging in there, purchasing a new car just to have one is a poor use of your funds. Even if you’re earning a good salary, your money would be better dedicated to your student loans. A five year $20,000 car loan at 5% would cost $377 per month. This totals nearly $23,000 and is the equivalent of the average student loan balance. Ditch the new car, and pay off your loans instead!
#2 More Education
There’s been a trend in which graduates struggling to find a job and financial footing choose to head back to school to try and create more opportunities. Throwing debt at debt doesn’t generally make sense. Toughing it out as a barista while you job hunt and signing up for Pay as You Earn is a wiser approach. There’s no guarantee of future employment with your advanced degree, but the debt is a certainty.
You may see paying rent as a waste of money, but you have to think long-term about your entire debt portfolio. If you get into financial trouble, the home can become a millstone. And if your student loans plus your mortgage stretch your budget to the max, that means you can’t truly afford both and the student debt isn’t an option. Think carefully about buying a home when you owe a pile of student debt!
This trend is already in full force – student loan debtors are increasingly postponing marriage and, financially, it just makes sense. Filing taxes as a singleton is more advantageous and if you are in a cash crunch, you’ll get better results from Income Based Repayment and Pay as You Earn by filing single. And as weddings are costly, they can be debt generators themselves.
This advice doesn’t mean that you can’t have a life while you’re dealing with student loans. But what it does mean is that you should think carefully about adding any debt to your pile. Debt breeds debt and if you have a substantial load, a financial blip could turn catastrophic.