How HENRYs Can Achieve Debt-Life BalanceJune 3, 2020
If you are a HENRY (High Earner, Not Rich Yet), you may feel the struggle of wanting it all while still having to contend with paying off debt. You earn a good salary and deserve to reward yourself for your hard work, but you can’t forget about your debt. Paying down debt doesn’t have to take over your life! In fact, it’s completely possible to pay down debt faster while still maintaining the type of lifestyle you enjoy. Keep reading for ways to balance your debt payoff journey without sacrificing fun.
By Caroline Farhat
Ways to Achieve Debt-Life Balance
Many people that are considered HENRYs are facing debt, most likely from student loans. The average student loan debt for HENRYs is $80,000. But HENRYs, like millennials, enjoy living for the present. Money spent on experiences and travel is a high priority. So how much should be allocated to paying off debt while balancing the lifestyle you enjoy? There are different budget methods that can help achieve this balance.
With the 50-30-20 budgeting method, your take-home pay is allocated in three major categories.
- Fifty percent is for paying for all basic needs, including housing costs, car or transportation costs, food, utilities, and minimum payments on your debts.
- Thirty percent of your take-home income goes to your wants. With this amount you can continue to live the lifestyle you like within your means.
- The last 20% goes towards savings and debt payment. Part of it can be used to start and build an emergency and the other towards making additional payments towards debt. The additional debt payments will save you money in interest over the lifetime of the loan.
With this budgeting method, you order your debt balances from smallest to largest. You pay the minimum on all debt payments and any extra money you have for debt payments goes towards the debt with the smallest balance. Once the smallest debt is paid off, the minimum payment and the extra amount that was being paid towards that debt now goes to pay the second smallest balance. With this method, you get fast wins by paying the smallest debt balance first. You also can still allocate money for wants and entertainment, knowing that all your debts are being paid. This method is good for people who are motivated by seeing continual progress.
This budgeting method is similar to the snowball method, however, instead of ranking the debts by balance, they are ranked by their interest rate. The balance with the highest interest rate is the first focus, so any extra money you have for debt repayment is put towards the highest interest rate loan. Paying debts off with this method allows you to save money in interest costs, but takes longer to knock out balances. Just like all the other methods you can still budget for entertainment costs but still make progress on all debt balances. This method is good for people who prioritize saving money on interest.
To create a zero-based budget you subtract all your expenses, savings included, from your income to equal zero. Start with subtracting all the necessary basic expenses, including minimum payments on all debts. Then you can subtract savings, lifestyle expenses, and extra debt payments. If you run out of money while creating this budget before you set aside money for additional debt payments, take a look at your other categories to see if you can reduce any unnecessary expenses. On the flip side, you may find that you have money left over that you don’t know what you did with. That extra money can be put to paying down debts faster, enabling you to save money and be debt-free sooner.
Pay Debt Off Faster
Looking to pay your debt off faster without sacrificing your lifestyle? Here are some strategies to try:
Refinance Student Loans
Student loan refinancing is extremely beneficial for many people with student loan debt because it can save you money on your monthly payment and save you in interest costs over the life of the loan. The savings can go towards debt balances to pay them off quicker. Refinancing is an easy process where you obtain a new student loan, presumably at a lower interest rate than your current one, to pay off your old loan(s). To find out how much money you may be able, to save check out our Student Loan Refinance Calculator.*
Earning extra money outside of your day job could be a great way to make extra debt payments. Afraid your side hustle could cramp your lifestyle? Try turning your hobbies into some extra cash. If you love photography, try selling your photos or offering photography services. Like finding a good deal? Use that to find items you can resell for a profit.
Do you shop online using a cashback site or earn cashback rewards from credit cards? When you receive that found money, put it towards your debts. Although they may be small checks you receive, when paying off debt, every little bit can help cut down on interest costs and pay the loan off quicker.
If you receive bonuses from work, commit to putting at least half towards extra debt payments. This allows you to still use some of the money for fun items or experiences you are saving for, but helps you move towards a better financial future as well.
Sell Unused Items
Have items around your house that you no longer want or need? Turn them into extra cash. Take a couple of days to declutter your house and you may find items you realize you haven’t used in a while. Try selling them through an app, Facebook Marketplace, or consignment stores if you have designer clothing you no longer want.
If you have debt, you can still live the lifestyle you enjoy while paying it off. With a plan on how to tackle the debt, you will find that you can still balance your wants and entertainment in your life while making progress on paying down the loans. And if you are ready to knock out debts even quicker, try some of these strategies to help you reach your goal. Good luck!
*Subject to credit approval. Terms and conditions apply.
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