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Jan 21 2013 12:00AM

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Question

My husband and I are doing our very best to save, but my student loan payments are eating up so much of our paycheck. We cannot do any more consolidation. Is there any other way to relieve this burden? We want to start a family, save for a house and retirement.

Answer

With the limited amount of information I know about your situation, these are my suggestions. 

  • Family. Is there a family member that can help? For example, I have a client who loaned money to their daughter, who then paid off one of her student loans. So the “child” got out from underneath an 8.3% interest rate, and she is paying her folks 4% interest, which is a good rate of return for the parents. Now she can pay down her student loans more aggressively, making the same loan payments but the loans will be gone sooner.
  • Retirement Plan. Are you and/or your husband contributing to your 401(k) plan at work, if one is even offered? Is there an employer match? Many times the employer will match the employee contribution up to a certain amount, such as up to 3% of your wages. If that’s true, every dollar you put in turns into $2, and it can grow from there. While this does not help with your student loans, it gets a jump-start on retirement savings. You just cannot “double your money” in the real world of investing without gambling. With an employer match, you get to double your money from the get-go.
  • Budgeting. Oh, we hate that word. Let’s put a different spin on it: Spending Plan, and it is different because you have a different mind-set. Maybe there are dollars being eaten away in your monthly spending that can be better controlled. For example, let’s say that both you and your husband get $100 cash each week (or whatever the number is) to spend on whatever you like (lunches, dinner out, movies), but no more.  Hit the ATM machine every Sunday, and that’s that. After that, you have only your rent, utilities, loan payments, groceries, and if you can, “savings”. Rather than nit-pick a budget that seems so legalistic and hard to manage, give yourself some freedom but also guardrails.
  • Create a plan! Yes, the student loans are overwhelming. How long do you have to pay them? A primary goal should be to get out of debt. If you can do that and save at the same time, good for you. If not, plan to get out of debt. If you get Christmas money [or birthday or whatever], consider paying more on your loans. Extra money should be applied to the highest interest rate loan. Focus on one loan at a time, and get rid of it, then focus on another, all the while making your minimum payments on the others. If you make a plan, and work the plan, you can see success. We call this “delayed gratification,” which is something prior generations dealt with, and current generations typically don’t. Maybe a part-time second job for you or your husband is in order to knock out one of those loans. Once one is gone, you have the breathing room. That could be part of The Plan.
  • Human Capital. Those student loans gave you something, we call it “human capital” … the ability to earn more money than if you never took out the debt. If that’s not the case, then you should learn from your mistakes. For example, if you got an undergrad in Art History, but you are unemployable in that field because you need a graduate degree, and you mounted up debt for a degree that did not give you “human capital,” learn from that mistake. Nothing against the arts, mind you. The message I’m trying to bring is to analyze your purchasing decisions for long-term assets [education, house, cars] so that you are making the most rational decisions. Also, I know this is a tough job market, and maybe “human capital” did not come because of the tough job market; I’m not here to beat you up on that, and you shouldn’t beat yourself up either. Sometimes that’s just the way it is.

I hope some of these suggestions help. I throw things out to see if they stick, but it is all about creating a financial plan. It’s not as simple as having free cash flow and saving. Once you can save, there should be a Plan in place to accomplish goals: save for a house, save for retirement, protect your assets (insurance), maybe save for a year’s sabbatical once you start your family, etc. The answer is within you and your husband, but often it takes that independent third-party “financial planner” to help you discover the answers.  

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