In the United States alone, it is estimated that Americans owe more than 1.5 trillion dollars in student loan debt. On average, this statistic can be applied to one in four people with an estimated monthly payment averaging around $400. I know what you’re thinking – how can I beat the odds when this affects so many people? Is this even something I can pay off in a reasonable timeframe? Believe it or not, there are more than a few ways to lessen the burden you constantly feel about student loans. Take a look at some new and improved ways to empower your finances and reduce student loan stress.
Educate Yourself and Strategize a Game Plan
Many of us graduated from college and were completely oblivious to the terms and conditions of our student loans. In our immaturity and lack of knowledge, we agreed to terms we most likely didn’t understand. While this is the step no one likes, it is so necessary. Go behind the curtain and review all of your outstanding loan terms. During this deep dive, you should be able to answer all of the following questions:
- Lender name and information – who do you owe?
- Type of interest rate – fixed or variable? If variable, how often does it reset?
- Interest rate – the percentage you are responsible for paying on top of the principal amount of the loan.
- Loan amount – the total amount owed to the lender. Principal (original amount) + Interest
- Repayment plan and length of repayment term- The length it will take you to pay the loan amount in full.
- Monthly payment – the amount you owe every payment cycle.
- Due date – the calendar date in which the monthly payment is due.
If your student loans are under one lender, this exercise may be a bit easier. In the instance you have multiple lenders, dedicate some extra time to truly understand all components of each loan. The more educated you are, the more confident you can be about creating a game plan that works for you and your budget. Federal loans tend to offer various repayment plans based on your income or personal circumstance; contact your lender for specific details.
Once these steps have been completed, spend some time brainstorming the best game plan. Is it feasible to pick up a part-time job or leverage a side hustle to bring in extra cash? Are you open to reducing the number of impulse-buys each month? Evaluate your spending habits and adjust accordingly.
Automate Student Loan Payments
In order to alleviate the hassle of maintaining several due dates with student loans, this option automates a draft from an account of your choice each month. This also guarantees timely payments, which contribute to 35% of your vantage credit score. Some loan servicers also provide an interest rate reduction when this option is selected; in turn creating cost savings.
Adopt the Avalanche or Snowball Method to Eliminate Student Loans
Both methods have one thing in common – reduce the debt quicker by making extra payments. The avalanche method suggests paying the loan with the highest interest rate first while paying the minimum on the other loans. For example, if you have four loans with the following interest rates: 5.1%, 4.8%, 4.4%, and 3.7%, you will focus on paying the loan with the 5.1% off first, no matter the outstanding amount on the loan.
The snowball method suggests paying the smallest loan amount off first while paying the minimum balance on the other loans. For example, you have student loans with the following balances: $15,000, $10,000, $7,000 and $5,000. You would focus on paying the $5,000 loan amount first and while paying the minimum on the others. This method allows for small wins to take place, increasing your motivation each time a loan has been fully paid. There are online resources and calculators available that can compare both methods and see what is best suitable for your situation.
Conquer FOMO – the Fear of Missing Out
As if there are not enough pressures in this world, social media can leave you with many thoughts of inadequacy. Do I travel enough? I could use another vacation. Should I buy these clothes? I actually do need that item in my closet. Establish what’s most important to you short and long term. The real answer is, you’re not going to be able to do every single thing you want to do – and that’s okay! Talk about your goals with your friends and those closest to you. Be honest and transparent about what you’re trying to accomplish. You won’t make it to every event or brunch. There are going to be seasons where you wear the same clothes over and over. Financial freedom is your goal. Once your student loans are a thing of the past, you can frequent as many dinner dates and outings as you want. Don’t allow social media to make you think your decision to alleviate debt isn’t the right thing to do.
Stop Stressing and Work Your Plan
I know this is always easier said than done but stop stressing. Once you educate yourself, come up with a tangible plan of attack and implement the plan–the only thing left to do is sit back and watch the fruits of your labor. This is not an overnight feat and takes grit, commitment, and dedication. If you’re still having trouble identifying good financial habits and establishing a solid budget, consult with a financial planner. Remember, there are a lot of resources to help you–but you must stick to the plan to see true success.
Whether you’ve been on this journey to eliminate your student loan debt for a while or starting over for the millionth time; it’s never too late. Student loan anxiety does not have to play a major part of your life. This is something you can overcome. Take things one step at a time, celebrate the small wins, adjust as necessary and you’ll be well on your way to eliminating student loan debt.