Federal student loan payments resumed for many Americans in October.
Shark Tank's Kevin O'Leary said borrowers shouldn't focus solely on paying down their student debt.
He said cutting spending can help borrowers also save for retirement and pay off their credit card balances.
Student loan repayments have resumed for many Americans. While paying down the debt as quickly as possible might sound like a good idea, borrowers would be wise not to go all in — and instead make a plan that allows them to tackle multiple financial goals at once.
Paying off student loans — while also investing a portion of one's income for the future — is the best way to get in the habit of saving and set oneself up well for retirement, O'Leary said in a late September interview with Good Morning America.
"You have to reduce your spending to 20% less than what you were spending just 24 months ago by not buying as much stuff," O'Leary said, adding, "You're going to buy a smaller house. You're going to spend less on stuff. You're not going to buy 14 coffees at $5 a piece each week."
Of course, this is easier said than done. Millions of federal student-loan borrowers were not required to make any monthly payments for over three years, allowing them to put more money into savings and pay off other forms of debt. Now that they're footing an additional monthly bill on top of high inflation levels, some borrowers have already found themselves strained, struggling under the weight of affording basic necessities and staying on top of their loan balances.
And while the Education Department has implemented a 12-month "on-ramp" period during which it will not actively report any missed payments to credit agencies during this time, interest will still accrue, so borrowers who want to lower their balances need to be making their payments.
Still, the prospect of broader student-loan forgiveness might be keeping borrowers from paying off their balances completely. The Education Department is in the process of crafting its new plan for relief after the Supreme Court struck down President Joe Biden's first plan in June, and in the meantime, targeted groups of borrowers have received relief through various reforms.
Young borrowers should set aside 7% of their earnings for retirement and pay off credit card debt
"If you're in your late 20s, early 30s, and you make only $60,000 a year, the numbers are in your favor to end up with a million and a half for retirement," he said.
In addition to investing and student loan repayments, O'Leary said borrowers should also dedicate some money to a third area: their credit card balances.
"The credit card debt with the rate increases are now 23%," he said, referring to the impact of the Federal Reserve's interest rate hikes on credit card rates. "So if you have a balance on a credit card, you have to be out of your mind to not be paying that down."
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