23 Jan Help in paying student loans

Q. I recently graduated from Montclair State and I’m having a hard time paying off my student debt. I only earn $400 a week and my student debt costs $250 a month. I know there are different payment options, but I’m having trouble deciding. I’d also like to buy a car. What do you recommend?
— Graduate

A. We’re glad to see you’re considering your options carefully. What you choose can have big ramifications on your financial life for years to come.

Your student debt should be considered as part of your overall financial plan.

It comes down to interest versus risk, said Steven Sirot, co-founder of College Benefits Research Group (CBRG) in Roseland.

“No one likes to incur high interest costs so paying down student loan debt is usually a focus,” he said. “The risk, however, is not having cash flow for other things like an opportunity, like having a car to travel to a better paying job, or an unexpected event, like a job loss or emergency.”

He recommends that you start by looking at cash flow.

Sirot said there are several payment options available for federal loans, and using one can lower your monthly payments and help you save up for the car. But, he said, on top of that you should start building a cash reserve of between three and six months of your monthly income. After achieving that cash reserve, you can consider accelerating payments towards your student loan debt.

We don’t know all that much about you, but Sirot said it sounds like the income-driven repayment plan should be considered.

“Your monthly payment will never be more than the 10-year Standard Plan amount,” he said. “Your monthly payments will be 10 or 15 percent of discretionary income depending upon when you took out your loans. ”

It’s important for you to calculate your “discretionary income,” Sirot said.

That can be done at www.studentaid.ed.gov. From there, he said, go to “How do I manage my loans,” where you can learn about your options and apply.

“Please note that it is always wise to sit down with a professional financial advisor to look at all considerations in building a plan,” Sirot said. “Good luck and Go Red Hawks!”

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This post was first published in January 2017.