Here at LendKey, we talk a lot about how to take control of your finances and get out of debt so you can enjoy a bright and secure future. However, we have noticed that many graduates don’t really understand how dramatically their lives will change as a result of being debt-free.
You see, for many graduates, debt is a fact of life. They acknowledge that money put towards their student loans and credit cards each month prevents them from traveling, dining out, saving, and shopping as much as they’d like – but it’s also something they’ve learned to deal with.
But the truth is, life without debt is substantially more enjoyable than life with debt. And if you can connect to that reality, it can serve as the motivation you need to pay what you owe faster – so you can start living life to the fullest as soon as possible. With that said, here are the four biggest benefits of living debt-free:
1. Freedom to lead the life you want
We don’t always want to admit it, but living with debt can limit the life choices you’re able to make. It can keep you in a city you no longer love, in a job that’s not fulfilling, and in a relationship you’re ready to leave. That’s because when you have debt, you always have to make sure you can cover your payments and avoid defaulting. But when you’re debt-free, you can change careers, leave a relationship, and move to a new city – no questions asked. Without debt, you’re empowered to lead the life you really want.
2. Less worrying about money
Living with debt inevitably comes with worry and anxiety. You’re constantly thinking about your credit score, interest rates, and all the ways your debt is preventing you from moving forward in life. But when you finally get out from under that burden through loan resolution, you’ll have the peace of mind you want – knowing that when your paycheck comes in, you get to decide how to spend (and save!) it.
3. Increased savings
When you’re living debt-free, you can actually save your money! Short-term savings are funds you set aside for anywhere from three to nine months of downtime, in case you have no income during that time. Long-term savings are funds you set aside for anything past nine months.
You can create an emergency fund, save for retirement – even put money away for your first home. You can take the money you were putting towards your credit cards and student loans each month, and use it to build your wealth and create some much-needed, long-term financial security.
4. Avoid the interest rate trap
Although it may seem like a small number, interest payments can destroy your budget – especially if you’re carrying high balances on your credit cards. It can cost you thousands of dollars over time, while not offering much in return. However, when your credit cards and student loans are paid off, you’re free from the interest rate trap. You can get back to paying for your lifestyle in cash – not financing it at the expense of your financial freedom.
Having debt hanging over your head can be incredibly stressful. You can’t build up your savings or enjoy life because you’re constantly reminded of how much you owe. But – as long as you have a steady income and a desire to get out of debt – financial freedom is within your reach. You just have to make a plan and stick to it.
In order to live a debt-free life, it is important to have a plan so that your repayment strategy does not interfere with your goals. There are three common ways graduates can handle student debt, and each has its advantages and disadvantages.
1. Income-Driven Repayment Plans
Income-driven repayment plans are loan repayment plans based on your income rather than the standard payment you would have paid under the original repayment agreement. Not everyone will be eligible for income repayment plans and you must reapply annually for income-based repayment. If you fail to do so, your payments will jump to the standard amount. The amount you pay will increase or decrease with your income and family size, but will probably never be higher than the standard amount unless your earnings increase dramatically.
2. Refinancing and Consolidation
Refinancing your loans or consolidating them might be a good idea for you. To determine if now is the right time to refinance your student loans, there are a few things you must consider first. Whether you have private or Federal loans, Federal loan forgiveness, an excellent credit score, the amount of income you earn, and how stable your income are all thing to consider. Lendkey can help you find out more about student loan refinancing and help you determine what options are best for you.
3. Aggressive, Rapid Repayment Strategy
The final option is to adopt an aggressive, rapid repayment strategy. Primarily this involves some strict financial planning. Paying more than you owe each month is the fastest way to pay off your student loans. However, you need to be careful how you apply the extra money you are paying. Most borrowers have many loans unless they’ve been consolidated, and the interest rate on those loans often varies. Paying more toward the principal of the loans with higher interest rates is best.
As you can see, becoming debt-free and achieving loan resolution can have enormous benefits for your budget, quality of life, and peace of mind. While there are many ways to handle student loan debt, it’s a good idea to examine all of the options available to you.