Strategies for Paying Off Student Loans
Every year increasing numbers of students struggle with student loans. The total amount of student loan debt in the United States is now over $1.6 Trillion. Student loans are a very serious cause of financial stress for many in this country. Graduates feel lost, even helpless, trying to balance large monthly payments with other expenses.
Luckily, it is possible to pay off student debt and still maintain an enjoyable life. Here are strategies for paying off students loans that can help you tackle and pay off student loan debt fast.
1. Take ownership
This is, without question, a painful step. You may feel overwhelmed by large balances, and therefore it is extremely tempting to bury your head in the sand. However, it is essential to confront this type of debt as quickly as possible. Remember that paying off student loans must be a priority, regardless of how difficult it might seem, because defaulting on student debt has dire consequences for any borrower. Wages can be garnished, tax refunds withheld, and the damage to an individual’s credit history is serious and long-lasting. The loans won’t go away. The quicker you take a proactive role in attacking that debt, the better life will be.
2. Understand every loan, as well as repayment options
Put together a spreadsheet. List the lenders, all balances, the interest rate for each, the type of loan (private or federal) as well as the minimum monthly payment. It might be a daunting task, but it is important. Taking this step not only builds a foundation for a monthly budget, it also helps to break down the data behind each loan. For example, private debt is very different from federal. In addition, knowing which of your loans has the highest interest rates can help with planning. It is important to educate yourself.
Contact your financial aid office and look into federal consolidation programs for the federal debt. Do your research and compare interest rates. You might find a federal debt consolidation program very helpful.
Explore federal loan assistance programs as well as income-based repayment options. Because of the work done in step 1, you have a spreadsheet filled with data, ready to go. Couple that with research, and it quickly becomes possible to make educated decisions and find a repayment plan that works for you.
3. Make a budget
You have done your research, you understand your loans, and you have a clearer idea of your monthly payment. The next step is to build a solid budget. Your budget should allow you to pay at least the minimum balance, so that you never have to deal with late fees, or default (which has severe long-term consequences). Your monthly payment should be budgeted in the same manner as all other monthly expenses, such as rent or utilities.
4. Make good choices when it comes to living expenses
When looking for an apartment or home, it might be tempting to choose an area you simply can’t afford. We are all enticed to live in exciting, popular areas. However, a decision to live in a fashionable location comes with enormous cost. Make choices for your housing that set you up for success, especially initially. Remember that the more cost effective your housing is, the more money is available for other things.
It is also important to avoid comparing yourself or your living situation to other people. Keeping up with the Joneses is a very bad idea. It is unlikely that you need the same space, the same yard, or the same kitchen as other people. Remember that the Joneses are probably living well beyond their means and stressed from chronic overspending. Don’t follow in their footsteps. Live affordably.
5. Enjoy life by focusing on experiences, not “stuff”
Buying material goods won’t lead to lasting satisfaction. Studies have shown that possessions do not increase long-term happiness. The excitement of possessing a new item (like a new car, or a fancy pair of shoes) quickly fades because it loses its novelty. This phenomenon is known as hedonic adaptation. In fact, spending money on material goods can do the opposite. While we may initially feel a high, that feeling is soon replaced by guilt or regret.
On the other hand, experiences such as time with friends and family or exploring a new museum become a part of our identity and lead to positive feelings. Get resourceful and explore. Use discount websites for travel and dining. Great deals are everywhere. You will find that a small financial investment can lead to enormous feelings of happiness and gratitude, and those effects are long-lasting.
6. Increase income (without increasing monthly expenses)
Over time, you might find your income increasing. Maybe a raise came though at work, or a side-hustle led to a little more cash.
If you make more money, you might feel tempted to spend more. Don’t fall into that trap. Use that extra money wisely. Don’t increase your living expenses with a more expensive car loan, for example. Consider overpaying your student loans or other debts. Start saving. Make that money work instead of increasing your expenses.
7. Balance student loan repayment with investing
Making your minimum monthly student loan payment is essential. If it is possible to pay more on your student loans, the overpayments can be focused on loans with the highest interest rate. But don’t forget how important it is to also save for your future.
Make sure to contribute to a retirement account. If you are fortunate to have an employer 401K with a match, take advantage of that match. Contribute to an IRA. Work with a financial advisor and make your money work for you in whatever form is best for your needs.
Watching your student debt decrease, and at the same time seeing savings increase through compound interest (whether in a 401K, and IRA, an index fund, or any other form) is an extremely rewarding experience. Therefore, balancing the two can function as a tremendous motivator to both pay down debt and save.
When faced with large student loan payments, it is easy to feel overwhelmed. The task of paying off that debt can seem daunting. With careful planning and wise choices, it is possible to tackle student debt. Before long, you can even find yourself on the road to financial freedom.
