How to use extra money in your budget from student loan forgiveness

“It will be enough for us to start talking realistically about buying a home,” Dara Zucker, 28, said of student loan forgiveness.

Zucker and his fiancé have been looking for a house in Tampa, Florida. They budgeted $250,000 for a 1,400-square-foot home, but between the unpredictable real estate market and her student loan balance of $38,877, “we had to put that on hold.”

If $10,000 of his debt is forgiven, as expected, “I think it will be more realistic,” he said.

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Borrowers could see ‘an extra $150 to $300 a month’

“Canceling student debt will close that racial wealth gap and give people the opportunity to start a business, have a family and buy that first property or home,” Herbin said.

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considering the average student loan paymentForgiving $10,000 per borrower means “an extra $150 to $300 a month in your budget,” according to Herbin. That opens the door to “go ahead and get wealth and equity,” he said.

The White House It also expects the average annual student loan payment to drop by more than $1,000 for current and future borrowers after the new cap on income-based repayment plans.

‘It’s not just a stroke of luck, it’s an opportunity’

Consider the milestones you want to achieve in the future.

“For many Americans this will be transformative, for others it will be just a drop in the bucket of what they owe,” said Brian Powell, a sociology professor at Indiana University and co-author of “Who Should Pay?”

Either way, any money that has been freed up can be put to good use, so start with a plan of action, advisers say.

It’s not just a lucky break, it’s an opportunity.

rose niang

director of financial planning at Edelman Financial Engines

“When you have a plan in place, you’re less likely to throw that money away,” said Rose Niang, director of financial planning at Edelman Financial Engines.

“It’s not just a windfall, it’s an opportunity,” he said. “It’s an opportunity to push yourself to the next level; it’s an opportunity to improve your financial life.”

With the extra cash back in their monthly budget, more than half, or 53%, of borrowers said they would use it to pay off other loans, followed by saving for retirement, investing, buying a home or traveling, according to a CNBC poll of more than 5,000 adults in August made online by Momentive.

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Here’s what advisers say are the best ways to use that money:

1. Pay other debts

One of the biggest advantages of loan forgiveness is the flexibility to use that money to pay off any other outstanding high-interest loans, particularly expensive credit card balances, added Carter Seuthe, CEO of Credit Summit.

“Since credit card interest rates are often significantly higher than those associated with student loan interest rates, you should pay special attention to this type of high-interest debt,” he said.

Average credit card rates are currently near 18%, which is an all-time high, and could be closer to 20% by the end of the year.

“With interest rates going up, that debt is only going to get more expensive,” Niang said.

2. Start an emergency fund

“An emergency fund will help avoid debt traps and keep you calm,” Seuthe said.

Transferring money that would previously have been used for your monthly student loan payment into a savings or money market account could go a long way toward building a cushion of cash to reach those long-term goals.

Most financial experts recommend having at least six months of expenses set aside in an emergency fund. However, Niang advises clients to save about 12 months, considering increasing inflation and a clear slowdown in the economy.

“A looming recession could affect employment,” he said. “If you have a job that’s pretty resilient to the recession, then maybe you need three months. If you have a very specific job that’s hit hard by the recession, then definitely having 12 months is what we would recommend.”

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3. Increase your retirement contributions