It's hard to overstate the lifelong value of higher education, yet with today's high cost of college tuition, books, housing and more, many students and their families find themselves dealing with the challenge of student loan debt. What's more, when it's time to pay off student loans, recent college grads often face questions about other kinds of debt (auto, credit card, first mortgage, etc.). Whatever you're facing, however, there is one tactic you should consider as part of your overall strategy to reduce debt of every kind.
Start an Emergency Fund
It might seem a bit counter-intuitive. If your student loan debt is the proverbial "fire in the kitchen," shouldn't you "put out the fire" by immediately making the largest payments you can afford to make, as often as you can make them?
Before you do, consider this: Life is full of unexpected expenses.
Auto repairs, doctor visit co-pays, vet bills, home repairs... The list can and does go on and on. If you don't have a plan for how to deal with these issues, it's simply too easy to use a credit card, which only becomes another burden to carry along with the student loan debt you're already trying to pay off.
Instead, consider making minimum payments toward your debt while you save up a modest amount of money (around $1,000 or so) in a safe place, away from your other funds — perhaps in an Ally Online Savings account or even in a No Penalty CD. That way, you can pay emergency expense out of your "rainy day" fund instead of using a credit card. More importantly, you can keep plugging away at your student loan debt reduction plans.
Maintaining your emergency fund balance at a level that makes sense for you is just part of building financial agility into your personal economy. There are other considerations that will help, too. And if you're not already using Mint.com, consider signing up. It's a free online service that helps you manage your finances, set goals and budgets and even find ways to keep more of your money.
When it comes to student loan debt, there are no shortcuts, but when you work toward building sound money management discipline for the long-term, you're more likely to succeed in less time. And with some of the most competitive interest rates and highly convenient banking products available, Ally helps your money work as hard as you do. Explore your options today.