Freelance writer Stephanie Taylor Christensen shares her experience of budgeting for her student loan payments and saving for her baby’s future.

Making the decision to prioritize paying off student loans is an important first step in your ability to eliminate those balances entirely. But the average college grad is burdened by close to $40,000 in student loan debt. Paying several thousands of dollars in student loans requires consistency and commitment–and considerable patience. When your life plans include having a baby, you may not want to delay your future until student loans are officially in your past.

Good news, Grownups. You can establish a savings plan to prepare to start a family, while simultaneously paying off student loans. Here are some strategies to help you balance both goals.

Prioritize the debt that costs you the most

Nate Matherson, CEO and co-founder of student loan marketplace LendEDU graduated with more than $50,000 in private and Federal student loan debt. He says he reached his goal of paying off student loans by focusing his payoff efforts on the loans that cost him the most, and/or offered no benefits in return. “Often we see that consumers aren’t prioritizing the right student loans. In most cases, individuals should work to repay private student loans before Federal student loans. Private student loans almost always have higher interest rates. Moreover, private student loans do not come with the same protections offered by the Department of Education,” explains Matherson.

Compile your student loan account statements and compare the loan type, and interest rate on each. Those with the highest rate technically cost you the most to carry each month, regardless of the balance. If you get a raise, a bonus, a tax refund or simply came in under budget at the end of the month, put extra money towards your highest interest loans whenever possible. As you reduce the balances, more of your payment will go towards the principal, rather than interest charges.

Consider refinancing

If you have private student loans or variable interest rate loans, you may benefit from refinancing some of them, especially if you have good credit. Matherson’s firm’s research indicates that the average approved refinance applicant has a credit score of 757; the average refinanced loan has a 4.82% interest rate (including ACH auto-pay discounts).

Shop around for potential lenders that may offer a more competitive interest rate on your student loans, but be careful to note additional fees related to loan origination, application, or prepayment penalties, which can negate the money-saving potential of a lower interest rate. If you do refinance, don’t extend the loan term in the process.

Establish a balance benchmark

You don’t have to delay saving for a family until you eliminate student loan debt entirely. Instead, establish a personal benchmark to guide you to a point where your loan balances feel manageable. Once you reach it, that’s your signal to allocate some of your paycheck to a savings account for your future family costs. The exact benchmark you set is based on personal factors like your comfort level with debt, loan balances, and how soon you want to start a family. Here are a few approaches to consider:

  • The Avalanche. Set a goal to eliminate your highest interest rate student loan before you’ll save for having a baby. You may have lingering student loans after that balance is gone, but it indicates when you’re ready to work towards both goals simultaneously.
  • The Snowball. Pay off your smallest student loan balance. Once you’ve eliminated it, start contributing to a savings account for baby. Continue to whittle the next smallest student loan balance, then the next, and so on.
  • Debt to income ratio. Your debt to income ratio (DTI) is the monthly sum you pay towards debt, divided by pretax monthly income. Mortgage lenders often use 43% as the maximum DTI ratio a borrower should have to maintain the financial ability to balance a mortgage payment with other financial commitments. You can apply the same calculation to your own financial life to objectively gauge when you’re financially ready to start saving for a family, despite student loan balances, and other debts you may have for auto loans, credit cards, or similar. To calculate your DTI, add the total of your monthly loan payments. Divide that number by your pretax monthly income. If you pay a total of $1,500 to debt payments each month but make $3,000 a month, for example, your DTI is 50%. Set a goal to pay debt balances down until your DTI is below 43% to determine when you’re in a better financial position to start saving for baby.

Estimate the cost of having a family.

A middle-income married couple will spend (on average) between $12,350 to about $14,000 on child-rearing expenses each year, according to The United States Department of Agriculture’s data. Yet, CNBC advises couples save at least one year’s worth of their annual salary for a baby.

The truth is, there is no one standard answer that applies to all parents; costs depend on how easily you’re able to conceive, your medical insurance coverage, medical needs during pregnancy, labor, and delivery, and after the baby is born. Workplace benefits like paid maternity or paternity leave, childcare arrangements, your lifestyle, and goals like saving for college so your baby won’t be saddled with student loans all impact how much you need to save to feel financially ready for a family.

Use the numbers like those mentioned above as a guide for realistic savings goals, but run your own calculations to determine how much you really need to save, based on your personal and financial life.

This photo shows freelance writer Stephanie Taylor Christensen

Stephanie Taylor Christensen is a former financial services marketer turned freelance writer who covers personal finance, career, health, and small business news. She is the owner of Om for Mom prenatal yoga in Columbus, Ohio. Connect with her on Twitter.

Any third-party resources or websites referenced above are not under Society of Grownups control. Society of Grownups cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites.

While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

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