How Plan Ahead and Avoid the Burden of Student Loans

For many of those with student loans and other debt, financing the purchase of a new home can be, to say the least, difficult. In fact, one study suggested that 75 percent of recent college graduates complained that their student loan payments made buying a home next to impossible. If you follow some strategic tips, you can avoid finding yourself in the same predicament.

First, limit your spending in school, and remember that your student loans are meant to finance your education (tuition, room and board, and books) and not your social life. Careful spending is the first step.

Second, try to earn as much money as possible while you are in school. This will help to reduce your debt burden as much as careful spending. In total, it is recommended that your student loan repayments not equal more than 8 percent of your yearly income. Do the calculations and keep your borrowing under this level, or you will be surprised with unmanageable repayments upon graduation.

After graduation, when you are looking for that new home, try to consolidate your debt for a lower interest rate if you have more than about $10,000 in student loans. Avoid credit card debt at all cost, pay all bills on time, and check your credit report every year to be sure that it accurately reflects your credit status. To increase your chances of scoring a home loan, pay down as much debt as possible and do not open new credit accounts in the months prior to looking for a home. Finally, save all unexpected income (bonus checks, income tax returns, and the like) for your down payment.