Tips for Tackling Your Student Loan Debt

Tips for Tackling Your Student Loan Debt

When I say student loans, one word seems to trump all the rest - overwhelming.  Having thousands of dollars (if not tens or hundreds of thousands of dollars) sit around collecting interest is a heavy burden for any young professional to bear.  Not to mention how tough it is to prioritize paying for your past when you’re just starting to set up your present, and fund your future.

Unfortunately, putting off student loan repayment is a short term deflection that can result in serious long term financial pain including default, destroyed credit, garnished wages, etc.  The best policy, regardless of your financial situation, is to confront your debt head on with these starter steps.

1    Take Inventory of What You Owe and to Whom.

Know what you owe.  It seems simple, but when funding comes from multiple sources, it is easy to lose track of your total.  Once you have a clear picture of the amount that needs to be paid off, make note of the details - terms, deadlines, and interest rates.  Give your lenders a call if you have any questions and while you’re on the phone, don’t forget to flex your negotiation muscles.  Asking for reduced interest rates or lower monthly payments is a far better strategy than letting bills stack up in the corner and keeping fingers crossed for an overnight million.

Once you’ve defined the details of each of your student loans, make a list of all other debts - mortgage, auto loan, credit cards, etc. - and their respective rates as you consider your strategy and select a repayment plan.  

2     Consider your Repayments Options.

The general rule of thumb is to pay down the debts with the largest interest as quickly as possible, while maintaining at least minimum payments on the other obligations.  However, the loan repayment option your loan providers may offer you isn’t necessarily the best.  Do your research to see what loan repayment programs you qualify for and which make the most sense for your current circumstances and future goals - for example, the Income Based Repayment and Public Service Loan Forgiveness programs (among others). There are many great resources for this purpose, please contact us to learn more about them.

The more quickly you are able to pay off your debt obligation, the less interest you will be paying on this loan and the fewer total dollars will be spent to reach your goal.  However, you have to be careful to not direct too much money towards your loans because this can drain your cash reserves and leave you vulnerable in case of an emergency.  In this instance you may have to charge the unexpected expenses onto a credit card with an even higher interest rate, which would set you back again and can cause financial and emotional strains.  

As you can see, there is no one course of action that is best for everyone carrying student loans.  Educate yourself on your options and consult other resources to make the best possible decision for your present circumstances and future needs.

3     Build Repayment into your Budget.

Financial experts often echo the advice, “pay yourself first”.  While payments toward past debt may not feel like much of a celebratory pay day, they do bring you one step closer to zero debt and financial freedom. 

Build a monthly budget to keep your spending on track and make sure student loan payments are part of it - as non-negotiable as rent, utilities, and other bare bones necessities.

Once you establish a clear plan of action for a specific window of time, schedule your debt payments to free yourself of the burden of regularly sending in payments.  Whether it is a 2-year repayment window or a 15-year repayment window, being on a set schedule will give you financial peace of mind. 

New Years Resolutions with Money in Mind

Personal Finances Resolutions for a Prosperous New Year

With each New Year comes refreshed resolve to improve oneself - physically, mentally, and of course, financially.  Despite the overwhelming tendency to abandon resolutions and goals as the demands of day-to-day living take over, a new survey from Fidelity Investments suggests that financial resolutions may have more staying power than others.

Among those respondents who made financial resolutions in 2014, 51% reported feeling better about their money at years’ end, as opposed to the 38 % who did not make a money resolution last year.  Among those who made a financial resolution, 29% reached their goal and 73% got at least half way there.

Despite falling short, there’s no denying that some progress is far better than none - especially considering the long term implications of financial progress like paying down debt, building credit, and boosting savings. 

Take a step in the right direction this year by setting solid financial goals.  Even if you fall short, you’ll still be on your way to a brighter financial future.

Here are some ideas to get you started…

Track Spending.  It’s hard to improve your fiscal future without knowing where you stand in the present.  Commit to tracking all of your spending and all of your earnings in 2015.  Once you have a precise picture of where you are, you can better map out how to get to where you want to be by years’ end.

Reassess Expenses. Reducing expenses, be they required or discretionary, fixed or variable, frees up more money for other financial priorities like funding savings and retirement accounts.  Take an objective look at your spending and make note of patterns of overspending on short-term indulgences that impede the funding of future goals.  Even seemingly “set” expenses like housing can be reduced by moving to a more affordable neighborhood or renting out a room.

Increase Income.  Negotiate a raise, start a side hustle, sell your clutter, etc.  While savings on expenses is finite, the potential for increased income is unlimited.  See what you can do in 2015 to foster additional earning opportunities.  The only way to earn more money is to put more value out into the marketplace, so take action starting today!

Tackle Debt.  Stop deferring your debts and resolve to deal with them head on in the New Year.  Research your options for consolidation, renegotiate your interest rates, prioritize your payments, and follow through so you can stop paying for your past and enter next year with an eye towards the future.

Fund Your Future.  Speaking of your financial future, make a plan to prepare for it in the present.  Build a savings buffer, max out your IRA, enroll in your employer’s 401k plan and fund it to at least the employer-match mark if you have one, and review your portfolio to make sure it properly reflects your priorities and current risk tolerance.

Stay Accountable.  Find a way to stay accountable to your goals.  Too often friends and family members enable continuing patterns of poor financial behavior with peer pressure and justifications.  If you can’t find an accountability partner, try going public with your goals like social media, or using an app or program with incentives to keep you on track.

Even one step forward on a goal leaves you better off than you were before.  Take advantage of the new year to make progress towards a better future!