According to the Federal Reserve, during the first quarter of 2018, student debt in the United States is currently at $1.5 trillion, exceeding auto loan debt ($1.1 trillion) and credit card debt ($977 billion). With one of the biggest debt in the US falling on the shoulders of college graduates, many students struggle to balance paying their loans to the demanding cost of living. While some students may find themselves defaulting their student loans, it’s better if to come up with a system that will help you pay, fast. Paying it as fast as possible has its own perks.
First, it has to do with interest. According to Maizie Simpson, data and news editor at Credit Karma, “the longer you draw out your repayment period, the more interest you’ll end up paying,” Simpson said. “The second reason is that the longer you have student loan debt, the longer you might put off big life decisions or making investments in your future, such as starting a family or contributing to a 401(k).”
The general gist of it all is to make sure that you have a plan in which you can make payments towards it, no matter whether it’s big or small. After reviewing many stories and plans of how previous college graduates pay off their student loans, here is a ten-step plan you can work with to pay yours off too.
1. Knowing How Much You Owe
We all know that loans, in general, is the embodiment of stress. Loans stop you from doing the things you want to do. It stops you from making long-term investments like your 401K or a college fund for your kids. But to find a solution to the problem, you need to first recognize the problem. Taking measure to find how much you owe is the first step in helping you create your perfect plan. One way to find out is to check out National Student Loan Data System to find any federal student loans you took out while in college.
2. Prioritize Your Student Loan Debt
If you are in danger of or already missing student loan payments, Elyssa Kirkham, a finance reporter and student loan expert for Student Loan Hero, recommends triaging your loans.
She recommends switching federal student loans to an income-driven repayment plan that will lower your monthly payments. Then the next step would be to apply for deferment or forbearance to pause the payments if you do encounter any major financial changes, such as losing a source of income.
Many private student loan lenders also provide an option to defer payments, Kirkham said. “And keep in mind that unless you have Direct Subsidized Loans, deferred student debt will continue to accrue interest and your balance will increase.”
3. Consider Other Possible Financial Debts
Prioritize. Prioritize. Prioritize. If you happen to have other financial debts that require your immediate attention like credit card balances, it might be in your best interests to pay them off first.
4. Save Money
Keeping your lifestyle modest and humble is a huge factor that will enable to have breathing room to pay your loans. You don’t need to live in a fancy apartment or needing to drive the newest Tesla. Live humbly and be as frugal as you need to sustain yourself and your happiness. But don’t get too excited and start swiping your card like a maniac. Prioritize. Every dollar saved is a dollar off your student debt.
5. Decide How Much You Want To Put Toward Student Loans
After calculating how much of your income should go towards your student loans, what’s left is your spending money. Even though it would make sense to put all your money into paying off student loans, don’t forget that you need to live too. You should try to have a set amount or a percentage of your paycheck to pay for your student loans.
6. Make Extra Student Loan Payments Each Month
Kirkham recommends making another student loan payments each month by setting up an automatic, extra payment to go through after each deposit. She says “This puts your student debt goal first and keeps it on track, instead of putting it at the mercy of your spending habits.”
However, some services will count them as advance payments instead of applying them to pay off the debt, so you need to call sometimes and make sure that it goes the way you want it to.
7. Pay High-Interest Student Loans First
There is a method called the debt avalanche method that worked really well for many when it comes to paying off their credit card. This method is basically making minimum payments on all your debts, but the difference to this is that you order debts not by their number, but by their interest rate. You start by paying off the highest interest rate debt first to make sure no additional fee racks up.
8. Refinance Certain Student Loans
Kirkham’s tip for this is, “Private student loans and PLUS student loans, in particular, tend to have high enough interest rates that it could make sense to refinance,” she said. “You’ll need to be well-qualified, but taking this step could help you replace your high-interest student debt with a new private student loan at a lower interest rate.”
9. Finding Another Source Of Income
Finding another source of income can be a good way to help boost you out of your financial crisis faster. Maybe you can have a side job as a barista at Starbucks on weekends, or have a garage sale. Whatever it is, any legal sources of income you can find and fit in your schedule is a good idea to help you pay off your loan faster.
10. Stay Motivated And Sticking To The Plan
I’m sure you’ve heard of the quote “Life is a marathon, not a sprint” and it is just as holistic and reassuring as it sounds. You could tackle your financial debts with this mindset. In a marathon, you go in a steady and comfortable pace that would allow you to reach longer distance than what a sprinter would go. Blowing off all your money into it and being inconsistent is not the key here. Following the last 9 steps has proven to work for many others in the past and most likely will for you too if you follow.
You need to stay committed and motivated in this type of investment if you want to live college debt free before you retire. As what Kirk says, “Keep your eye on the prize and stay focused on your goal of paying off student loans.” she said. “Track your progress and celebrate your wins as you go, from the first extra payment you make to the first student loan you pay off to the last payment you ever send a student loan servicer.”