Student loans have been all the talk around the Croshaw-SSF household these days. My in-school deferment will be ending at the end of this month which means come February we will be taking on a $900 loan payment in addition to our other monthly expenses. It sucks, but it's life. In anticipation of that dreadful day we've been working on a strategy on how to manage the added monthly expense, while still living our normal lives and paying for a wedding.
Our strategy consisted of 3 steps.
First, lower monthly payments
I have a mix of private and federal loans. Because the terms of my private loans are less agreeable than those backed by the government, paying off the private loans is a priority. As a result, I wanted to make my monthly payment on my federal loans as low as possible. In order to this I have to consolidate all of my federal debt into one loan. Once that process is complete, I will be applying for Income-Based Repayment, or IBR. IBR is a repayment option available to those with more than $30,000 in federal student loan debt. What makes IBR different from most repayment plans is that your payment amount under IBR is dictated by your income as opposed to factors like principle, interest rate, and term.
Second, identify cash inflows and plan for extra income
Between tax returns, tuition reimbursement, and bonuses SSF and I have some serious bonus cash coming in that needs to be accounted for and earmarked before it gets here. SSF made a list of all our expected "extra income" and together we made decisions on where it should go. While quite a bit of it will go towards the wedding we would also like to pay off at least one of our cars and keep some tucked away for a rainy day.
Third, identify cash outflows and cut back on expenses
As of right now we are focusing on one expense: our grocery bill. Despite my attempts at couponing this is the one area we always tend to go over on so starting this month we established a strict budget of $320 per month for groceries. That's a generous $80 a week, and $20 less than we had been spending. How did we come to this number? Well I basically looked at our average spend over the last few months and cut it by 20%.
And that's that. Thrilling right? Not really. But its nice to have a plan. If you are like me though a plan is not enough, so I made a goal too. My goal is to have all my private student loan debt paid off in less than 10 years. (My repayment term is 15 for them.) I've yet to figure out how much that would save me in-terms of interest, but mostly likely a lot. Wish me luck.
How do you cope with your student loans?