Working on organizing your loan repayment strategy can feel overwhelming. Personally, I feel like a lot of pressure is put on young professionals to focus on a financial strategy for their debt repayment. While putting together your repayment plan based on loan balances and interest rates is important, it’s also important to focus on your personal goals and objectives. Your debt repayment plan needs to represent every aspect of your financial and personal life.
Start With Your Goals and Objectives
Before you even look at which loan you want to pay down first, or whether you want to consolidate or refinance, start by reviewing your goals and objectives. What are you trying to accomplish?
You can start by thinking through the next few years of your life. Do you want to get married? Start a family? Change jobs? Look a little further into the future – do you want to buy a house? Spend a month volunteering overseas? Use your wealth to positively impact your family and your community?
Your financial plan, and your debt repayment goals, need to tie into the long-term lifestyle you envision for yourself. For example, if you’re only focused on repaying your student loans, you might keep pursuing a career path that, while lucrative, doesn’t make you happy. Maybe you’d prefer to work a lower-paying job in the public sector, but are worried that you won’t actually qualify for PSLF, and will be stuck with student loans you can’t afford to pay back.
Or, maybe your goals have nothing to do with your career. Maybe you’re really passionate about making a difference in your community, and allocating every extra dollar to repay your student loans is actually hurting your ability to contribute in a way that’s meaningful to you. Whatever your goals are, write them down. Be as clear about them as possible, so that you can build your student loan repayment plan, and your overall financial plan, with confidence.
What’s the Impact You Want To Have?
This ties into the big-picture goals and objectives you have for your life. What type of impact do you want to have on the world around you, and how can your finances support that? When people think about “impact” they often think about multi-million dollar donors, or spending every weekend volunteering at an organization they’re passionate about. However, you can make an impact in the world right now – even as a young professional who’s just starting out.
You don’t always have to think big-picture. Pick a few causes, or values, that matter most to you. Are you passionate about supporting your family? Do you want to make sure your kids and grandkids graduate college debt free? Do you want to help provide Thanksgiving dinners to local families? Does supporting small businesses mean a lot to you?
You can choose to make an impact in any number of ways. As you build your loan repayment plan, you have to think about what your debt is doing to your overall cash flow. How much can you feasibly dedicate to knocking out your debt while still making the impact you’re passionate about?
Thinking about the impact you want to make is also a good way to stay on track with your repayment plan. Think of how much more you can accomplish with the monthly payments you’re currently making toward your loans once they’re finally paid off?
Another next-step in developing your loan repayment strategy is deciding whether or not consolidation or refinancing is for you. If your loans are less than 1.5x your income, refinancing may be a good option for you. Alternatively, if you have multiple loans that you’re struggling to keep organized, you can also consider consolidation.
However, this all ties back to you and your long-term goals. For example, if you want to work in the public sector and are hoping to get PSLF after making the required number of qualifying payments, you should know that refinancing your loans will disqualify you from PSLF.
Or, if you want to pursue an Income-Driven Repayment plan (IDR) to protect yourself against potential lack of job security (and possibly defaulting on your loans), you’re going to want to focus on keeping your federal loans and making sure you have the right ones that qualify.
You Aren’t Your Debt
As a group of fee-only financial planners, the Deerfield team starts by thinking about our clients as whole people before building a plan for their student loans. You aren’t just your debt. You have goals and dreams for your life, you can’t let yourself get lost in letting your student loans define you. Make decisions based on the impact you want to make, and the life you want to live. Then make decisions about your debt that reflect the lifestyle you’re working toward building.
Ready to dive in? Schedule a meeting with us today. Our team would love to help you create a loan repayment plan that reflects your goals and values.