Most of us pursue college degrees as a means to secure financially-stable futures for ourselves. But who would have thought that actually getting a degree would have to be so expensive that we’d have to take out massive student loans just to finish our studies? How are we even supposed to manage all the student loan payment?!
Well, if you’re one of the 44 million Americans owing an average of $37,172 in student loans at 4.53% interest (for undergraduates in 2019-2020), then we at Academy are here to offer you some tips to upgrade your student loan payment strategy:
1. Pay more than the minimum amount due
Whenever you have extra cash, try to make it a point to pay more than the minimum amount due on your loans, even if it’s just 5-20 dollars more—everything counts!
Every little extra can help you pay off your student debts much earlier, and therefore save you hundreds (if not thousands) of dollars on interest payments alone.
Let’s be real, you wouldn’t want to still be burdened by student loans 20 years after college, so try out these approaches when you find yourself dealing with more than one student loan on a limited monthly budget:
- Get the loans with higher interest rates out of the way as soon as possible, so you can be left with all the less expensive and more manageable debts to deal with.
- Aim to pay off the loans with smaller principals first, to build up your confidence and momentum to chip away at progressively fewer, but also larger, student loans.
2. Consolidate or refinance your student loans
If you have a steady income and good credit, it’s never a bad time to canvass for private lenders who might be able to provide refinancing options for your loans at interest rates significantly lower than the average rate.
You might not have thought much about interest rates when you first took out your student loans, but you should realize how these really pile up on your debts the longer you hold on to them.
Consolidation packages make it easier to get a handle on your student debt by allowing you to focus on one larger loan instead of several smaller ones. Plus, if you have a good debt repayment history, you may also want to check out if you’re qualified for debt forgiveness programs offered by your state.
3. Create a budget and prioritize your expenses
Budgets are supposed to help you keep track of your money. Something that might help you pay off your loans is treating your payments as a monthly fixed expense, just like your rent and cellphone bill. If you start each month by setting aside $200 for loan repayments, then you might find it easier to live within your means, avoid building credit card debt, and develop the habit of routinely making timely payments on your loans.
As for your variable expenses, try to distinguish between your “wants” and “needs.” For example, you obviously need food to survive, but is eating out everyday actually good for your wallet (or health)?
You can apply this type of thinking toward the rest of your spending, one key being investing more in items that bring longer-term benefits. The more wisely you spend your money, the more free cash you should be able to allot toward your student loans.
4. Use extra cash to increase your student loan payments
When you get a raise at work or come into a significant amount of extra cash (perhaps through an inheritance or a well-judged investment), remember that your day-to-day expenses do not have to grow with your income. Instead, think of this as an opportunity to allot a slightly larger amount of your funds toward your monthly student loan payments, or if not, then maybe simply stashing away more cash as additional savings for a rainy day.
Yes, this means trying not to immediately spring for a larger apartment, nicer car, or upgrading to all the latest gadgets and gizmos. But of course, these decisions depend on the actual amount of additional cash you have on hand and the type of investments you want to make with it.
Don’t think it’s wrong to use the money you earn to go shopping, have fun with friends or family, or even go on holiday once in a while. Just remember to try to make responsible decisions while considering how to better and more quickly pay off your loan obligations.
5. Work a side gig to repay your loans
With students and graduates in the US collectively owning a whopping $1.5 TRILLION in student debt, it’s easy to understand why millennials (and younger) are working more side hustles than older generations ever did.
The gig economy can provide you with a flexible way to supplement your income, while also allowing you to control your time and maybe even have some fun at the same time!
Technology has made it easier than ever to earn a few extra bucks from the resources you have, like a vehicle for ride-sharing, an empty room for vacation rentals, or simply your time to help others learn new skills or share your hobbies. The income you get from these odd jobs may not exactly compare to what you receive from your day job, but everything still adds to your savings (and hopefully, your loan payments).
Bonus tip: Don’t stress about your student loan payment
We understand that there may always be changes in your financial situations (like career changes or starting a family) and obligations (like housing or car loans) that can affect your student loan payment behavior. Realistically, you might find yourself making larger payments on some months, while perhaps also not being able to make a monthly payment, at all.
Relax, you are not alone in this.
Statistics show that only 54% of student loan borrowers are actually able to make consistent payments on their debts. For perspective, some 2 million graduates have student debts amounting to more than $100,000.
Paying off student debt isn’t fun, but everyone’s journey is different, and nobody will ever fault you for deciding that your money will be better used to deal with a family emergency, for example.
Remember that as long as you understand your financial situation and are willing to put in extra effort (or sacrifice) in making consistent payments, then it shouldn’t be too difficult to make up for a few short payments here and there. Don’t be afraid to step back once in a while to re-evaluate where you stand, because in the end, you’re in control, and there will always be resources to help you find the right mix of strategies that work for you.
