Imagine (or realize, if you are fortunate enough) the situation where you have completed education goals and have obtained either the degree or certificate of your choice. Assuming you have a full-time job in your field, you may be ready to start thinking about major purchases. The two major purchases that you may start to think about are a first (or new) house or car. Both are obviously major investments that take planning and thought. If you are an independent person, having your own house and car are essential to your survival. But what if you have student loan debt? Can you really take on a mortgage or a car payment?
The answers to the above questions are not a simple “yes” or “no”. Each individual’s situation is going to be different, so it is important that you assess your own financial situation, or talk with a trusted financial advisor. I just recently finished school, and I am in the process of buying my own house. To be honest, I did not know if I would be able to accomplish it. There are so many things that have to be considered, and little expenses that you do not even think of will pile up. If you are trying to make a major purchase and have student loan debt, below are some tips to help you.
- Be aware that the price you agree on for the house or the car is not the only expenses you have to worry about. For houses, there are inspection fees, closing costs, and you have to furnish your new home. For cars, there is insurance, inspection costs, and potential repairs later on down the road.
- Never live outside your means. If your income fits a small car, do not try to buy a seven-seat SUV. If you only need a two bedroom house, do not try and buy a four bedroom house. A lot of people can get themselves in a bad financial situation by trying to live outside of their means.
- Contact your Federal Student Aid (FSA) loan servicer to pick the best repayment plan. If you have a large amount of debt, ask about Income-Repayment plans. If you have not started to pay back your loans but want to make a purchase, it may be best to do a standard repayment plan instead of a graduated repayment plan. Graduated repayment plans can affect your debt-income ratio, which can negatively impact your chances of receiving a mortgage or car loan from the best creditor.
- Make a detailed and honest budget before making any type of large purchase. It is absolutely essential that you completely understand your financial position. Your debt-income ratio plays a major role in your ability to get a loan. Make sure you have talked with all of your creditors to confirm your financial situation is correct and manageable.
Despite what some people may think, student loans do not have to keep you from buying a house of a car. It may take some effort and time to find the best situation, but do not feel like your student loans are preventing you from reaching your goals. As long as you are financially responsible, creditors will want to work with you!
By Ryan Laspina
Senior Specialist, Red Flags and External Reviews at APUS