Student loans are one of the main reasons why millions of Americans are struggling to get out of financial hardship. In 2016, someone who had attended college owed an average of $37,000 in student loans. This number has been rising in the last few years, making it a significant burden for some people to attend college.
Those who have graduated from college understand how much of an economic drag student debt can be. For many, student loans are a necessary evil in the path to obtain a better paying job. Learning how to manage student debt, and eventually pay it off, is critical to achieve financial stability. In this guide, we offer several suggestions that, when coupled together, can help people get out of student debt in a short time.
If you can afford it, make larger payments
Although it may seem like a tall order, making larger payments is one of the most efficient ways to get rid of student debt. Many financial planners like New York-based Allan Katz, head of Comprehensive Wealth Management Group, recommend that if someone can afford it, they should always try to at least pay double the minimum payment. Doing so can significantly shorten the time required to pay off the entire loan.
As an example, a standard $25,000 student loan comes with an interest rate of around 6% and a repayment period of ten years. To repay the loan, the borrower would have to pay $300 each month. However, by choosing to send $600 instead, they will help cut the loan’s principal much faster and pay off the entire loan in five years instead of ten.
Some people are unable to easily set aside more money to make larger payments. However, there are some useful practices that could free up money to achieve this goal. Activities such as preparing a budget, cutting spending and finding alternative sources of income are always recommended. We discuss some of them in this article.
Create a budget and cut unnecessary spending
People who want to pay off their debt must first control spending. If spending is higher than income, debt will continue to grow regardless of what they do. Instead of paying off debt, what they’ll be doing is replacing old debt with new debt. Excessive spending is among the top causes of credit card debt in the United States. A good way to avoid unnecessary expenditures is by following this simple rule: “if you don’t need it, don’t buy it.”
To cut spending, families first need to know where the money goes. Creating a budget is the most efficient way of tracking monthly expenses. This way, a family can separate critical spending, such as food and utility bills, from items such as the Cable TV bill and other subscriptions. A budget also gives households a clear picture of their deficit, which is the difference between earnings and expenditures, and the main cause of debt. Reducing the deficit is the purpose of a budget.
New technologies offer ways to cut spending. For example, replacing the Cable TV subscription with Netflix can help save up to $50 every month. Applying to receive government assistance is also recommended. There are many federal programs that provide financial help in order to cover expensive bills. Education grants are also a good alternative to reduce the cost of education and set aside more money towards paying off debt.
Get a part-time job and start a college repayment fund
In the previous section, we offered recommendations meant for families whose children are attending college. However, there are many ways which can help pay off student loans by yourself. Getting a part-time job is a popular practice among college students across the United States.
Part-time jobs usually pay well enough, giving students access to an extra source of income which can be used to make larger monthly payments. Other alternative sources of income are available. The Internet provides an extensive list of money-making options, such as by filling online surveys.
Setting up a college repayment fund can help automatically set aside extra money towards paying student debt. This arrangement is useful when following a budget, as it provides a way to maintain spending discipline and avoid unnecessary spending. Make sure to choose a savings account with a high yield to get the best out of the money being saved.
Stick to the plan, avoid making common mistakes and try to refinance when possible
Those who decide to make the effort to pay off student debt must make sure to stick to the plan. Switching things up along the way will have a negative effect, possibly affecting the entire budget and throwing their finances off-track. Wealth managers such as Clayton Shearer from A&I Financial Services have reached the conclusion that knowing exactly how long it will take to pay off debt greatly improves the chances of doing so. Making constant changes along the way creates uncertainty.
They also recommend their clients to avoid common mistakes people make on their way out of student debt. People who lose track of their budget or miscalculate their spending often fail to complete their financial goals. Hiding expenses or underestimating their impact on the budget are also common reasons why people fail to pay off their student debt. Maintaining financial discipline is key to success.
College tuition has risen significantly in the last few decades. Getting a college degree is a difficult economic decision families often make to try to achieve financial stability. Having a plan in place to pay off unavoidable student debt is a step in the right direction to get the most out of a college degree. Following the right suggestions with discipline and determination may have a lasting impact along the way.