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Paid off your student loans? Do this (not that) with your extra cash.
Barclays Ring Public Blog

Young_Couple_Reviewing_Finances.jpgMore than 43 million Americans are burdened with student loan debt. 70% of students who graduated in 2015 left school with outstanding loans, and the average balance came to $30,100.


How long it takes you to pay off those loans ultimately hinges on which repayment plan you choose. Assuming you pick the standard plan and your lender charges a 5% interest rate, you could wipe out your loans in 10 years with payments of $320 a month.


That would make you (student loan) debt-free in your early- to mid-30s, which is great timing if you're thinking about buying a home or starting a family. The question is, what's the best way to use that extra money you're no longer paying toward your student loans?


If you've recently said goodbye to your student loan debt, here are four options for putting those extra dollars to work.


  1. Bolster your emergency fund
    Having cash set aside for a rainy day can be a lifesaver when an unexpected expense throws you for a loop, but many Americans don’t have that financial umbrella. A 2016 Bankrate survey found that 28% have nothing in emergency savings.

    If you fall into that category, the money you were previously paying toward your student loans could help you build a cash buffer relatively quickly. Using the $320 from the example above, you could save $3,840 in a single year. You could grow your savings even faster by depositing the money into a high-yield savings account. Just remember to choose an account that offers convenient access to your cash in case an emergency pops up.
  1. Pay down credit card debt
    If you have credit card debt, having a few hundred extra dollars in your budget can make a significant difference in how long it takes to pay it off.

    For example, let’s assume that you owe $10,000 on a card with a 14.99% annual percentage rate (APR). You've been paying $300 a month, but at that rate it will take 44 months to reach a zero balance. If you double your payment to $600 a month – using the money from your former student loan payment – you can trim down your payoff time to 19 months, and save yourself $1,700 in interest!

    If you have multiple credit cards you're trying to pay down, having a strategy can help you stay on track. Here are some tips for forming a payoff plan:
  • Focus on one card to pay off first. For instance, you could choose the card with the highest APR or the lowest balance.
  • Once you've paid that card off, add its payment to the minimum you've been paying toward the next card on your list.
  • Continue rolling payments over to the next debt as you pay your cards off.
  • Consider a balance transfer to reduce your APR, so more of your payment goes toward the principal.

    Don't rush to close credit card accounts as you pay them off. Doing this can hurt your credit score.

    Most important, going forward, only charge what you can afford to pay off each month, and you’ll avoid racking up additional debt.


  1. Save for a down payment
    When you're ready to buy a home, having your down payment in place makes you a more attractive candidate for a mortgage. For a conventional loan, the recommended down payment is 20% of the purchase price. But with FHA (Federal Housing Administration) loans, you can buy a home with as little as 3.5% down. On average, buyers who opt for an FHA loan are ponying up just under $17,000 for their down payment.

    The money you’ve saved from paying off your student loan payments can put you on track to reach your down-payment goal. You'll want to keep these funds in a separate account, apart from your emergency savings. Mortgage lenders want to see that your down payment has been "seasoned," meaning that you've had the money for at least 60 days.


  1. Ramp up your retirement savings
    Approximately 1 in 3 Americans have saved $0 for retirement. If you didn't save in your 20s because you were paying down student loans, that's something to consider focusing on in your 30s.

    If you have access to a 401(k) at work, increasing your contributions by the amount of your student loan payments is an easy way to play catch up. Another option is to open an IRA. If you were to invest $320 a month in a Roth IRA from age 35 to age 65, you'd have nearly $322,000 for retirement, assuming a 6% annual return.

    Don't give in to lifestyle inflation
    When you suddenly find yourself with extra cash, it can be tempting to just go ahead and spend it, but that's an urge you should resist. Investing the money, whether in a retirement account or simply by paying down your other debt to streamline your finances even further, can give you more bang for your buck in the long run.

Rebecca Lake is a personal finance journalist who's committed to educating and empowering others to take control of their financial lives. You can follow her on Twitter or find her at LinkedIn.,


*All content provided in this blog is supplied by Rebecca Lake and is for informational purposes only. Barclaycard makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.


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