Where Are You on Your Journey

Student Loan Refinancing: Manage Your Extra Cash 

By refinancing your student loans, you’ve made a very smart move. You’ve lowered your interest rate – and probably your monthly payments as well. You might even have some money left over each month.

So here’s your next assignment: Determine what to do with that extra cash. Here’s a hint: Don’t spend it.

It’s a great temptation. You’re young, and there are a million fun things to do and buy. And using a little of that refi windfall each month is perfectly legit.

But it's way smarter to use the money for your long term financial goals.  And by doing this, life may actually be more fun. How? You’ll probably worry less. And you’ll be more likely to achieve your goals and dreams.

Here are some strategies for making the most of the money that your loan refinancing can offer. What approach you take will vary on your circumstances – your job, where you live and the bills you need to pay. The key is to make a plan and stick to it, while also building in some flexibility.

Make a budget

You’re no longer living like a student. Now that you have a job and cash flow, the next step is to take a snapshot of your income and spending. How much are you bringing home each month? What are your monthly bills? With that extra money available, it pays to know how much is coming in and going out of your bank account.

That means drawing up a personal household budget. Creating one will help you wisely manage your spending. Bonus: It will also help you determine how much cash you can save in the long term.

Pay off debts faster

While refinancing your student loan(s) was a big boost to your finances, the fact remains: You still have to pay them off. And that’s not to mention other debts, such as an auto loan, you might have. Paying off the principal of these loans each month can lower the amount of interest you end up paying.

Here’s an example:

  • Let’s say that refinancing your loan is saving you an $200/month.
  • You also have $6,000 left on a car loan with 24 months left to pay it off.
  • Your monthly car loan payment is $250.
  • If you put an extra $125 toward the car loan each month, you could pay it off within approximately 18 months – and save interest in the process.

Be prepared

Another smart place to put that refi money is in an emergency fund. It’s not fun to think about the things that could happen in life, whether that’s a car accident or a job layoff. So don’t think about them. But be prepared for them, just in case. A little financial cushion can keep your plans from getting derailed.

Here’s the payoff (the really fun stuff)

What are those long-term dreams? Getting married? Traveling overseas? Owning your own home? A fun-filled, and perhaps early, retirement? All excellent objectives.

And all of them require saving for the future. So let’s think long term. Really long term. If your workplace offers a 401(k) or other retirement investment vehicle, get on board. Many employers offer at least some matching funds for the money you put in. Even if they don’t, these retirement programs offer an easy way to save for retirement. And the earlier you start, the nicer your retirement will be.  

One final note: Your long-term dreams don’t have to remain in the dream state. With some discipline and smart financial planning, you can make them come true.