Are you a student that’s graduating this year? Congratulations! After the ceremony ends, you are officially ready to take your place in the workforce as a qualified professional.
However, it’s not all roses and sunshine for you. The chances are that you’re graduating with a mountain of student debt that you’ll most likely spend the next decade or so paying off to the government.
What if you can’t find a job in your field? What if you only manage to achieve a low-earning clerk position for your first two years of employment? How will you manage to pay your bills and afford to pay off your loans as well?
Student debt can be a crushing financial burden on may new graduates, but there is no escaping the promise to pay back Uncle Sam. All student loans are Federally guaranteed, meaning that the government underwrites the loans. If you default on your payments, then the taxpayer takes a hit.
The Student Debt Crisis
- 1 The Student Debt Crisis
- 2 Student Debt – The Good Vs. The Ugly
- 3 How to Pay off Your Student Loans Early
- 4 Always Pay More than the Minimum
- 5 Refinance and Consolidate
- 6 Cash Windfalls
- 7 Debt Forgiveness
- 8 Cut Your Expenses
- 9 Get a Side Hustle
- 10 Be Strategic with Debt
- 11 Automatic Payments
- 12 Use Tax Credits
- 13 Make Bi-Weekly Payments
- 14 Wrapping Up – Imagine Your Future Debt-Free
Currently, the United States government has over $1.6-trillion in student loan debt on its books – that’s a lot of change in the market with millennials that owe the government money.
The delinquency rate on those loans is around 13-percent, so clearly, some individuals choose to default on their financial obligations for whatever reason. So, what happens when you default on a student loan?
Should you default on your loans to the government, and fail to refinance your debt, then you run the risk of being blacklisted with the credit bureaus. Receiving a blacklisting as you start your career will do nothing but slow your growth and place obstacles in your way.
Blacklisted individuals can’t buy a home, lease a car, or apply for insurance – you may even find it hard to rent an apartment! Paying off your student loans is not an option – it’s a necessity if you want to remain in the good graces of the government and credit providers.
Student Debt – The Good Vs. The Ugly
Sure, student debt may be unavoidable for some young adults that want to study in the STEM fields. After all, if you’re going to be an engineer or an astronaut, you’re going to breed higher education. In this case, student loans offer a pragmatic solution to financing your studies – and they are a welcome relief for anyone that has to make tuition this summer.
However, there are times when taking on student debt may be a bad idea. If you are studying in other fields outside of medicine, science, tech, engineering, and math, then you might want to consider your options before you sign your loan agreements.
While working as a professional, such as a doctor, provides excellent financial rewards – trying to find work as a philosophy major may wind up with you thinking many deep thoughts about being unemployed.
In this case, struggling to find a job in your chosen field may result in unemployment, which forces you into the secondary or part-time job market to pay off your loans. Considering the price of earning a degree and the costs of financing the debt, the majority of a part-time earners salary will go toward servicing their student debt, and that’s no way to have to live for a young person joining the workforce.
How to Pay off Your Student Loans Early
If you graduated from college with massive amounts of debt, it’s a wise idea to pay down your student debt as soon as possible. Taking on student debt may mean that you have to make loan repayments for up to 20-years after leaving college.
If we consider the fact, that the average student graduates with $37,000 in student debt, paying it off over the course of 20-years exposes you to the effects of interest on your repayments.
You are throwing money down the drain if you choose to pay off your loans using the entire loan term. While it may be tempting to stretch your loans out over the long-term, you will regret it in the future.
Leaving a loan for a 20-year term means that you are paying almost double or more of the original loan amount in interest payments. Paying down your student debt sooner allows you to save money which you can put toward buying a house or saving for retirement in your 401(k).
We decided to give you a few tips on how to pay off your student loans early. Go through this list and see which ideas make sense to you, then calculate an action plan to ensure your financial success in the future.
Always Pay More than the Minimum
When your first student loan statement arrives in the mail, you’ll notice that it displays a minimum amount you need to pay. The lender calculates this amount based on the amount of money outstanding, and the current interest rate.
However, just because the statement says you have to pay a minimum amount, it doesn’t mean that you have to follow this instruction. Lenders are quite happy for you to pay extra on your loans every month. Adopting this strategy will save you thousands in interest over the duration of your loan, and you may be surprised with how quickly your outstanding balance starts to drop.
Save all your extra money and put it toward your student loans. Remember, paying off outstanding debt is as good as saving since you are paying off unnecessary interest charges in the future. Even an extra $20 or $50 toward your loans each month can make a massive difference in the total amount of money you pay back to the government.
Refinance and Consolidate
Refinancing your existing student loan is one of the best ways to save money on interest payments in the future. With a refinancing, you get the opportunity to renegotiate your interest rate, saving you money in the long term.
If you have multiple loans outstanding, consolidate them into one loan for easy access and payment. You can renegotiate your interest rate at your time of consolidation, and you may end up saving thousands on interest payments over the loan term.
Another reasonably effective means of paying down your student debt faster – is with the use of cash windfalls. Life is full of exciting surprises, and you never know when you’re going to win at the tables in Vegas, or a relative passes and leaves you a small fortune.
Using these cash windfalls to pay down your student debt may seem like a boring way to spend your cash windfall, but its an excellent way to reduce your debt burden and free up your cash flow. Instead of spending your financial blessing on a new car lease or a pair of new sneakers, do something productive with the money and pay off your student debt – your older self will thank you.
If you’re considering working in the public sector for the government, then you may be eligible for debt forgiveness on your loans. If your new job qualifies you for this perk, then it’s like receiving free money or a pay raise.
There are a few disadvantages to this model, being the fact that employers will often tie you to a fixed contract for the duration of your loan repayment, meaning that you are not allowed to leave the job until you settle your debt, and you fulfill the terms of the contract.
Some states offer loan repayment assistance programs (LRAPs) or financially distressed graduates. Most of these LRAP’s have some working requirement. If you qualify for the program, you can expect money toward paying off your Federal student loans.
Cut Your Expenses
If you want to pay off your student loans faster, then take a good look at your expenses. Do you need that avocado and toast at the coffee shop every morning? Are you wasting money on subscriptions services like cable?
Review your budget and look for areas where you can tighten your belt. Stop tasking Uber rides so often and buy a bicycle, cook your meals at home, and spend less on your nights out on the town. Whatever you can do to save money on your expenses can help you to pay down your student debt faster.
Assess your living situation – could you benefit from moving to a smaller place, or a less expensive location? Try to minimize your expenses wherever you can, and live a minimalist lifestyle to avoid incurring new costs that chew up your paycheck.
Get a Side Hustle
One of the best ways to pay down debt faster – is to get a second job. You could bartend in the evenings, or drive for a lift-sharing company. Wait tables on weekends, or sign up for a promotion company to help out at corporate events.
Increasing your income is the best way to supercharge your student debt repayments and get out of debt faster. With a side hustle, you could potentially pay off your loans in a few years, something that very few students ever get the opportunity to achieve.
Be Strategic with Debt
How you pay off your debt also makes a difference in the amount of interest you have to pay. Review your current assets and liabilities. Please take note of all of your creditors and list them based on the interest they charge on their principle.
Make an effort to pay down the debt with the highest interest rate first. By using this strategy, you save yourself thousands of dollars on interest payments over the course of a few years.
Another strategy for paying down debt fast is the “snowball method.” In this method, the student pays off debt with the lowest balances first, allowing you to gain a psychological victory from paying off an account. This feeling “snowballs” as you pay off more accounts. In this case, a series of small winds adds up to a significant victory at the end of your loan term.
Many students don’t know about the advantage of setting up automatic payments on their student loan accounts. Many lenders offer discounts on interest fees of up to 0.25-percent for enrolling in their automatic payments program.
With this program, the lender automatically debits your bank account for the loan amount on a nominated day of the month. While this may not seem like a ton of money, the savings over the years amount to hundreds of dollars.
Setting up automatic payments ensures that you never miss a loan payment, and it boosts your credit score, allowing you to utilize other financial instruments as your career starts.
Use Tax Credits
If you are one of the lucky students that graduate college and find a job in your chosen field, then count your lucky stars. Fortunately, as a member of the workforce, you are entitled to tax credits on your student loan payments.
The federal government allows you to deduct $2,500 from your taxes every year for the duration of your loan. There are specific requirements for eligibility, but the chances are that if you are a twenty-something with a stable job, then you will most likely qualify for the rebate. The deduction still stands, even if you don’t itemize your taxes.
Make Bi-Weekly Payments
Another favorite strategy for paying off your student debt faster – is the use of bi-weekly payments. In this case, you don’t double your payments; you split the one monthly payment into two parts.
This strategy allows you to make a full extra monthly payment each year. This strategy works best for those individuals that receive bi-weekly paychecks, as you won’t feel the financial pinch as severely as someone who has a monthly salary.
Wrapping Up – Imagine Your Future Debt-Free
The power of the subconscious can help you pay down your debt faster. Try this strategy to put your mind in the state of saving money. Once or twice a week, (you can do this exercise every day for faster results,) lay on your bed and close your eyes.
Visualize the day you make your final student loan repayment. Try to imagine all the details of the scene and hold them in your mind. Concentrate on the feeling you get from making your final payment and let the joy wash over your body.
Hold onto that emotion for as long as you can, and then let it go after it starts to fade. By doing this exercise, you program your subconscious into achieving your goal.