Student Loans

How To Celebrate Paying Off Student Loan

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 9 minute read

In 2008, I earned my Master of Fine Arts degree and left graduate and undergraduate school with about $37,000 in debt. In the years that followed, I worried constantly about paying off my federal student debts. It seemed like I was going nowhere with them. With an income-based repayment plan, I wasn’t even covering the minimum monthly interest payment, so I barely made ends meet.

I chose to tackle my college debt around the year 2015. Following the debt snowball strategy, I made larger monthly payments than what was required. In the summer of 2018, I was able to pay off all of my debt. I had no outstanding debts at all.

My mind immediately went to “now what?” The drama, preparation, and sacrifices necessary to repay student debts are often discussed. People who are or aspire to be eligible for student debt forgiveness because of their public service careers often discuss their experiences consolidating or refinancing their loans to reduce interest rates and monthly payments. However, what happens to people after they have paid off their debts is hardly discussed.

Loan aggregators and collectors treat the final installment of student loans with a surprising lack of enthusiasm. Very little acknowledgement was given to my most recent payment. While I didn’t anticipate a diploma or a celebration, I did hope for something more thrilling.

Like me, maybe you’ve just finished paying off your school loans. Or perhaps you are nearing the end of your student loan repayment and thinking about what life will be like once you are free of this financial burden. We have some discretionary funds; how should we spend them?

First and foremost, choose a way to commemorate the occasion.

When I finally paid off my college loans, I didn’t exactly throw a party to celebrate. Although I may have let out a sigh of relief, I didn’t really do much to celebrate. If I had done anything, that last payment would have seemed more definitive.

Naturally, I am not suggesting that you go out and rack up additional debt in the sake of revelry. Have a good time, but be careful not to rack up any additional bills. Here are a few suggestions on how to celebrate your newfound freedom from student loan debt:

  • Have a nice meal in the house. Spend the evening together at your preferred eatery. You’re welcome to bring your significant other, kids, or anybody else you’d want to eat with, or you may eat by yourself. To celebrate your success in eliminating your debt, you may also like to invite some close friends or those who have been there for you during this time.
  • Host a get-together. There’s little doubt that paying off student loans isn’t a typical life achievement, but for many millennials (and even some older people), it has taken on that significance. There are parties for other significant life events, such as turning 30, getting married, and having a baby. You should have a party to commemorate your debt being paid off.
  • Get your travel arrangements in order. Is there somewhere you’ve always wanted to go, but you’ve been putting off because you thought you needed to pay off your school debts first? One approach to celebrate your success in reaching this major objective is to book that vacation you’ve been dreaming of. It may take a few months to be ready to go, depending on where you travel and how long you expect to remain there, so get started with your preparations now! There are several strategies for having a memorable trip without breaking the bank.
  • Get Yourself That Postponed Buy. You probably didn’t buy anything you didn’t have to while you were determined to pay off your debt. You probably didn’t upgrade your wardrobe and made due with worn-out old furnishings. Congratulations on paying off your debt; now go out and treat yourself to a new couch or some fancy kicks.

As a last word of caution, it’s tempting to go overboard while celebrating paying off student loans. You’ve probably been feeling productive and loaded with cash lately, especially if you’ve been devoting a sizable portion of your monthly paycheck to paying off debt. But after you’ve had a little fun, you should go to work deciding how to invest your windfall as soon as possible. You may find the following suggestions helpful.

Concentrate on Paying Off Other Debts

Now that your student loan debt has been paid off, what financial plans do you have in the works? Any outstanding debt should be paid off as soon as possible, whether it’s from a credit card, a vehicle loan, or anything else carrying a high interest rate.

As a matter of fact, the majority of debt repayment strategies advocate redirecting your student loan payments to your overall debt load. You may pay off your debts more quickly this way than if you had used the money for something else.

Having your student loans paid off might free up a lot of cash that can be used toward other bills. You’re feeling pretty good about yourself after you finally paid off that loan. You have reached the stage when you are confident in your ability to succeed. You’ll feel more confident in your ability to pay off your bills, whether you have just one or several.

In the event that you still owe money on more than one obligation, how should you prioritize them? Credit card debt, which often has a higher interest rate, should be paid off first. When one loan is paid off, the funds may be moved to the next one on the list, and so on, until all of your debts are gone.

Create an Emergency Fund

With a small bit of extra cash on hand, many people struggle to decide whether to put it toward debt reduction or an emergency fund. If, after paying off your student loans, you still have other obligations but no savings, you should prioritize saving up for an emergency fund before putting any additional monthly income toward paying down debts. Start earning above-average interest by opening a CIT Bank Savings Builder account.

If you don’t have any savings, you may end yourself in even more debt if anything unexpected like an injury, sickness, automobile difficulty, or appliance failure were to arise. 

It’s wise to set aside some cash, perhaps $500 or $1,000, before deciding how to allocate that money toward paying off debt. When you have paid off all of your bills, you can put your attention where it belongs: on your emergency fund.With a small bit of extra cash on hand, many people struggle to decide whether to put it toward debt reduction or an emergency fund.

If, after paying off your student loans, you still have other obligations but no savings, you should prioritize saving up for an emergency fund before putting any additional monthly income toward paying down debts. Start earning above-average interest by opening a CIT Bank Savings Builder account.

If you don’t have any savings, you may end yourself in even more debt if anything unexpected like an injury, sickness, automobile difficulty, or appliance failure were to arise. It’s wise to set aside some cash, perhaps $500 or $1,000, before deciding how to allocate that money toward paying off debt. When you have paid off all of your bills, you can put your attention where it belongs: on your emergency fund.

How much money should you try to save?

Many financial experts advise people to put away at least three to six months’ worth of expenses in case of need. However, this is something that must be considered in light of your own circumstances. As the primary provider for your family, you should prioritize saving. 

It’s possible that a couple with two incomes can get by with a smaller emergency fund than a single person can, especially if the pair has a lot of extra cash lying around.

A year’s worth of savings is a goal of mine as a self-employed person. If anything unforeseen occurs to me, like I get disabled and unable to work, at least I’ll have enough money saved up to pay my living expenses for a whole year.

The most important consideration when setting a goal is to choose one that you can easily achieve while still feeling satisfied. Do your best to save up a year’s worth of living costs if that’s what it takes to give you peace of mind. Start small if you’re OK with a few months’ worth of money as a cushion.

Save for a Major Purchase

According to the NAR’s 2020 Home Buyer and Seller Generational Trends Report, millennials (those born between 1980 and 1998) make up 38% of homebuyers. Young people nowadays face a number of challenges that make it difficult for them to buy a property, such as the COVID-19 epidemic and the burden of excessive college loan debt. 

More than the 7.8% that the typical millennial down payment is, a lender will likely need a substantial down payment.

Student loan debt is a major obstacle to homeownership among millennials, yet it isn’t the only factor. After you’ve paid off your student debts, you may want to focus on building your savings for a down payment and buying your first home.

While many people dream of owning their own home, the reality is that not everyone can or should. You may have purchased a home while still saddled with student loan debt, or you may have no desire to ever become a homeowner.

Don’t Ignore Retirement!

Millennials are not only lagging behind their predecessors in terms of homeownership, but also in terms of retirement savings. About 21% of millennials are concerned about their retirement security, while over 66% are concerned about running out of money in retirement, according to research from the National Institute on Retirement Security.

If you’ve put off retirement savings in favor of paying down student debts, you need to start doing so immediately. If your employer has a retirement plan, you should familiarize yourself with its details as soon as possible. Determine whether or whether your company provides a matching contribution, how much you may put in, and where your money will be invested.

Perhaps you have already started making payments into a plan provided by your company. In that case, now is a good moment to evaluate whether or not you can afford to boost your payments. Opening a regular or Roth IRA with a broker like J.P. Morgan Investing is another possibility, as is making contributions to a 401(k) or similar workplace retirement plan.

If you’ve finally paid off your student loans, you may discover that you’re more interested in or better able to prepare for your retirement now that you’re freed from the burden of worrying about how much money you need to set aside each month.

Even though retirement is years away from now, it’s important to start planning for it and estimating the annual expenses you’ll have. If you’re having trouble keeping track of your finances or making plans for the future, consulting with a certified financial planner (CFP) or financial adviser may be a good idea.

Check out SmartAsset if you’re looking for guidance in selecting a financial adviser. Simply answer a few questions, and you’ll be presented with a number of potential matches in your region from which to choose.

You may calculate how much money you need to save each month or each year for retirement after you know how much money you’ll need to retire comfortably. A certified financial planner (CFP) can also assist you in working toward other financial objectives, such as saving for a home or the education of your children.

Increase Your Insurance Coverage

You may have limited your insurance coverage to a bare minimum as you diligently worked to pay off your student debts. Having paid off your debts, it is a good time to review your insurance policies and make any necessary adjustments.

Bottom Line

Even if the final payment on your student loans didn’t come with the hoopla you were hoping for, paying them off is still a major accomplishment.

You may now plan out the remainder of your life and make progress. Now that you’ve accomplished one of your most important financial objectives, you may find the confidence and drive to set your sights on even greater things. Apply what you’ve learned as you work to eliminate your student loans to your future financial endeavors, whether you’re looking to reduce other forms of debt, increase your savings, or begin preparing for retirement.

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