As a recent graduate, there’s a lot you have a lot on your mind.
From preparing for interviews and planning career advancements to focusing on building relationships with key influential people in your industry. It’s easy to say that there’s more than enough to keep you busy.
The last thing you want to have to worry about, which might also be the most concerning, is your looming student debt.
If it’s something that keeps you up at night, chances are you’re not alone.
Here are some alarming student loan debt statistics according to Forbes:
- 44.7 million Americans are burdened by student debts
- Student loan debts total $1.56 Trillion across the United States
- Student loan debt is the second highest debt in the consumer debt category – behind mortgage loans but higher than credit card and auto loan debts
- The average student loan debt is above $32,000
The numbers speak for themselves. It’s no wonder why current students and new graduates are feeling an overwhelming amount of pressure when it comes to earning steady income.
We had a chance to talk with several personal finance authorities to get their best advice when it comes to managing your student loans and working towards paying off your remaining balance.
We received valuable input and direction from each of the following money experts:
- Michelle from Making Sense of Cents
- Chris from Money Savvy Mindset
- Josh Hastings from Money Life Wax
- Kevin from Just Start Investing
- Marc Andre from Vital Dollar
- Nick French from FIRE The Family
- Clint Proctor from The Wallet Wise Guy
While there are hundreds of things you can be doing to ensure you are paying off your student loans and managing your debt, the following advice is directly from financial experts who are closely tied to the subject. Some of the advice is even taken from their own personal experiences of dealing with student debt. The tips are:
- Find ways to make additional income
- Pay down your debts as quickly as you can
- Understand the details of your loan
- Get started as soon as you can
- Live within your means
- Create a plan to payoff your debts
- Focus on the principal amount and consider refinancing options
Let’s take a look at each one of these in a little more detail.
Tip 1. Find ways to make additional income
Increasing your income and finding ways to earn additional income is beneficial to your overall financial plan.
Michelle of Making Sense of Cents explains how finding alternative income sources can help you get over the student debt burden faster than you think.
“My top tip for graduates who are looking to pay off their student loans is to find ways to make extra money.” She continues, “Some of the things I did include: selling items on eBay, mystery shopping, managing social media for companies, taking surveys, and more”.
In fact, by doing these things, Michelle herself was able to pay off more than $40,000 in student loan debt. Which means you can as well.
There’s no questioning that increasing your income is critical to your financial success. Not only will it help you manage your current loans, such as student debt. But it can also help you increase the amount you are saving monthly towards your retirement.
Thankfully, Michelle has put together this guide with more than 80 ways of earning additional income.
Tip 2. Pay down your debts as quickly as you can
Outstanding debt is detrimental to your financial health. Not only that, but it’s also detrimental to your overall wellbeing.
Chris of Money Savvy Mindset shares his view on the importance of paying down your debts as quickly as you can.
“As someone who graduated with, and ultimately paid off six-figures worth of student loan debt, I recommend new graduates doing everything in their power to pay it down quickly.” He goes on to mention that, “Student loan interest rates can be absurd and the amount of compound interest you’re paying will ultimately work against you.”
Compound interest is generally only spoken about in the context of investing and positive returns. However, the other side of the phenomenon can negatively impact your financial plan when interest compounds on your debts and loans.
Chris also shares some really insightful advice about how to avoid taking on additional debts that go against your money plan. “Avoid lifestyle creep, make extra payments to your loans when you can, and look for refinance opportunities where it makes sense.” Lastly, he adds “Most importantly, avoid buying that new car (or anything with a large sticker price) immediately after graduation just because you feel like you earned it.”
Tip 3. Understand the details of your loan agreements
Unfortunately, most of us neglect reading through the details when it comes to financial agreements. Big mistake.
Josh from Money Life Wax shares some wise advice about why understanding the details of your loan agreement is critical.
“Most student loan borrowers don’t quite understand how student loan providers service student loan payments. Chances are your loans are serviced by one payment to your servicer. The monthly payment is then used to pay a portion of each individual student loan.”
Understanding the details on your loan agreement is vital to understand when making extra payments towards student loans. Importantly, you will want to know the term agreement, monthly payment amounts, options to freeze or defer payments, or the amount that goes to the principal and interest each month.
Tip 4. Get started as soon as you can
Like just about everything in your financial life, the sooner you start, the better off you’ll be. Your student loan debt is no exception.
Kevin from Just Start Investing gets right to it, “The best thing you can do is to start chipping away right away and limit the amount of time that you have the loan”.
He also stresses the importance of interest rates and the role they can play, “Next, you should aim to minimize the impact of interest rates. The most effective way of doing this is to pay off any high-interest debt first.” To make it a little easier, he provides a quick example, “If you have a student loan with 5% interest and another loan with 3% interest, you should aggressively pay off the 5% interest loan first, while also avoiding any fees on the other loan.”
Managing your loans and the impact of your loan interest rates is something that can easily save you hundreds of dollars, if not thousands of dollars every single year.
“At the end of the day, paying off the high-interest debt first puts more money in your pocket to help you save, invest, and grow your own net worth.”
Tip 5. Live with your means and make sacrifices
This is one you’ve seen before. And for good reason. Specifically, because of the significance and weight, it has on your financial picture.
Marc from Vital Dollar shares his thoughts on just how important it is to continue living within your means.
“After graduation, try to keep your living expenses as low as possible. This will allow you to pay off your student debts faster.” He continues, “If you’re willing to make some sacrifices during your first few years of college (and afterwards), you can quickly make a lot of progress towards paying off your loans.”
We completely agree with Marc’s point here about making critical sacrifices early to minimize expenses. This can also lead to better financial habits down the road.
“This is a time in your life when you may have more flexibility than you’ll have later on, so decreasing your living expenses and prioritizing debt payoff is likely a more realistic goal now than it is ten years from now.”
Tip 6. Create a plan to pay off your debts
The best plan is having one to begin with. This is something that we cannot stress enough. While it’s certainly true for your overall financial picture, it also applies to specific areas such as managing your loans and debts.
Nick from FIRE The Family talks about how having a strategy before taking on debt is the optimal approach to managing that debt.
“To pay off any debt, I recommend first getting a zero-based budget in place. This gives every dollar of income a purpose and prevents subscriptions and wasteful spending from slowly draining your checking account.” Nick further adds, “Next, determine your savings rate (savings/income). Once you have that, you can calculate the amount of time it will take to pay off your loans.”
Both a zero-based budget and understanding your savings rate are essential tools for pretty much anyone to better prioritize and reach their goals.
Tip 7. Focus on the principal amount and consider refinance options
Last but certainly not least, it comes down to effective loan management. Focus on paying the principal and look for options to refinance or consolidate your loans.
The bottom line here is that it’s always in your best interest, pun intended, to explore your options and minimize the impact of any loan.
Clint from The Wallet Wise Guy shares some words from his own experience, “Like any other loan, paying a little extra towards principal each month can make a big difference in how much you pay in interest over time.” Next, he mentioned something that is too frequently underutilized, “Second, do your research to see if you qualify for any student loan forgiveness programs. Even if you don’t qualify for federal programs like Public Service Loan Forgiveness (PSLF) or Teacher Loan Forgiveness, your state may have forgiveness plans in place designated for residents that work in certain professions.”
Unfortunately, most of us shy away from looking into these programs. They’re either confusing and getting started is frustrated, or the time commitment is too much of a burden. This approach is entirely wrong. Would you spend a few hours researching those programs if it could save you thousands of dollars? I’d hope your answer would be yes.
“Finally, you may be able to pay off your student loans faster by refinancing to a lower interest rate. However, you should tread carefully with this option if you have federal student loans as this may disqualify you for federal benefits like Income-Driven Repayment (IDR) plans.”
Start paying off student loans and managing your student debt with confidence
No matter how you put it, student loan debt is an overwhelming burden. Truthfully speaking, putting it in any other way would be sugar-coating it. While that is certainly true, what’s also true is that you have options and you’ll be fine.
Thanks to your guest experts, you now have seven proven tips you can use to start paying off student loans and efficiently manage your student debt. The best part is that these tips can be taken and applied to many other areas of your financial life, giving you the confidence you need to make sound financial decisions that will set you up for success.