Starting a business means investing money, effort, and time in your passion project. And, doing so while you are still dealing with the financial burden of your student loan debt can be daunting.
So, if you are part of the growing percentage of the population with over $31,000 in student loan debt at graduation, you might be thinking about putting your business idea on the back burner. Luckily, with the right money management strategy, you won’t have to wait until your debt is paid off to start climbing the entrepreneurial ladder. Here’s how.
The first aspect you should focus on is your finances. If you have recently graduated, the chances are that you are dealing with an entry-level salary, a debt-to-income ratio (DTI) of nearly 55%, and new significant outgoings.
To avoid losing control of your finances, start by creating a budgeting plan to maximize your earnings and minimize unnecessary expenses. In your budget, make sure to account for student loan repayments, savings account contributions, and living costs as well as the costs of starting your new business!
If you just had a million-dollar idea, you might be tempted to quit your current job and let your entrepreneurial spirit run free. However, if you have a significant student loan debt that needs repaying, this move can push you to the verge of financial disaster - especially given the slim chances of survival of new startups.
So, how can you combine your full-time job with your desire of starting a business? There’s more than an option to explore.
For example, you could think of your business as a side hustle to nurture after work or during the weekends. Alternatively, you might discuss available options with your employer, such as going part-time.
While these options aren’t the fastest way to build wealth, they allow you to maintain essential benefits, including healthcare cover and a steady salary. Even more importantly, keeping your current job can help you access employer-sponsored student loan repayment benefits under the CARES Act, which are worth up to $5,250 a year through 2025.
While the majority of small businesses and startups are bootstrapped, you don’t necessarily need to tap into your savings to launch your project - and, you don’t need to take out a small business loan either!
If you are seeking funds, consider pursuing alternative routes such as pitching to angel investors and venture capitalists. Alternatively, you could launch a crowdfunding campaign. While this is certainly a new way to fund a business, nearly 23% of crowdfunding campaigns are successful and can help you raise an average of $33,430.
If chipping away at your student loan isn’t getting you anywhere, you might consider the benefits of refinancing it. Through this financial move, you can take advantage of today’s low-interest rate environment and adjust your monthly payments to reflect your current financial situation.
What’s more, if your credit score or income has improved since graduating, you can save on your student loans by refinancing with SoFi and accessing better overall terms. If you have more than one student loan, refinancing or consolidating them can also help you gain better control over your finances.
If you have tried all of the strategies above, but you still feel that your student loan debt is dominating your financial life, it might be time to apply for a debt relief program.
While not everyone is eligible for this kind of benefit, it is always worth applying - especially now that Biden is just days away from making a decision about canceling $10,000 in student loan debt for over 40 million borrowers.
In any case, if you are a first-time business owner, you should always consider the benefits of partnering with a financial advisor from day one. Not only can an expert function as a mentor, but it can also help you create an efficient tax strategy and avoid costly mistakes.