70% of college students are graduating with student loan debt.
If the ever rising cost of higher education is any indication, that’s not going to change any time soon.
For members of the class of 2016, the average student loan bill was $37,172!
How are twenty somethings surviving on unpaid internships and crummy starter salaries supposed to shoulder five figures of interest bearing debt on top of affording a place to live and a steady supply of ramen noodles?
Here’s your guide to getting started…
Use NSLDS (The National Student Loan Data System) to track your Federal student loans.
Your credit report is a good starting point for tracking down your private lenders.
Use the data from these sources to answer the following questions…
Start by doing your research and simply writing down the numbers.
[clickToTweet tweet=”You can’t make a plan to pay off your student loans until you know exactly how much you owe.” quote=”You can’t make a plan to pay off your student loans until you know exactly how much you owe.”]
I know this process can be hard.
Debt of any size and of any kind can bring up overwhelming feelings of shame, fear, guilt, helplessness, depression and anxiety.
And these feelings can be all consuming, paralyzing us and keeping us from taking the kinds of proactive steps that will actually help us break free of our debt.
Which is why it’s critical to understand and accept that…
You are not your debt. Your net worth does not dictate your self worth. And where you stand today is not permanent and it does not control where you can go in the future.
Debt does not have to be forever.
We’re here to create a plan to help you push through it and pay off your student loans, so that you can live your life empowered and excited about your future, instead of feeling trapped by your past debt.
In order to do that, we need to become proactive – pushing past the overwhelm and past the paralysis to open the bills, confront the numbers and get aggressive with our debt repayment plans.
Being proactive about your debt means that your goal to pay off your student loans has to go from being something you procrastinate to something you prioritize.
A priority is something you build your life around, not something you fit into your life if you can find space, time, energy, money, etc.
Rather than trying to squeeze student loan payments into your monthly spending plan, consider an alternate approach where you build your budget around what you owe.
Use the income leftover after meeting your monthly payment obligations to dictate what you can afford to spend on other recurring expenses – rent, transportation, etc.
So don’t just plan to pay off your debt, actually build the monthly payments into your budget and schedule them into your life with precision and intention.
If you find can’t afford to meet your payment obligations, be proactive. There are alternatives if you can’t afford to pay your student loan bill – learn more about them here.
Whatever you do, don’t blowoff your student loan bills!
Student loans cannot be discharged in bankruptcy, so those balances aren’t going anywhere unless you deal with them head on.
if you have multiple debts, your first question is probably, what debt do I pay off first?
When it comes to debt payoff strategies, there are two popular options – the debt snowball and the debt avalanche. The key is finding the one that will work best for you.
In both strategies, you must make the minimum payments on all of your debts each and every month to avoid default, late fees and hurting your credit.
Using the debt snowball strategy, you pay the minimums on all of your debts, and anything more you can afford to put towards your debt repayment each month, you pay toward the debt with the lowest balance first.
Once that debt is paid off, you don’t reduce the amount you put towards your debt pay off each month, rather you put the total force of your debt repayment towards your minimum payments and the debt with the next lowest balance, gathering momentum as you pay off each small debt and are then able to make more and more progress toward paying off your larger debts.
The alternative debt repayment strategy is the debt avalanche, and similarly, with the debt avalanche you pay the minimum on all of your debts each month, but you put anything over and above the minimum payment toward the debt with the highest interest rate first.
Once you eliminate that debt, you focus on the debt with the next highest interest rate, then the next and the next until you get all of your balances down to zero.
The key differentiator here is the order in which you pay off your debts.
By tackling the debt with the lowest balance first, as you do in the debt snowball, you get the psychological boost of progress and momentum when that debt gets paid off, keeping you motivated through the debt repayment process.
But the debt avalanche is the more cost effective strategy, because you tackle the debt with the highest interest rate first, and the higher the interest rate, the more expensive the debt is over time. So when you pay off debts with high interest rates first, you end up saving money in the long run.
If managing money was a purely rational process, I’d say debt avalanche all the way, pay off the debt with the highest interest rate first.
But money isn’t all rational, it’s emotional, it’s psychological, it’s messy, so you might be more motivated to pay down your debt if you get an early momentum boost by eliminating a small debt early on, as you might with the debt snowball.
The key is to implement the strategy that works best for you. As long as you’re making progress, making more the the minimum payment on all of your debts, you’re moving in the right direction, so don’t get stressed out or stuck on picking a strategy – just pick one, stick to it and you’ll be better off.
Every time you send in an on time payment, every time you pay more than the minimum on your debts, every time you take a step towards building your net worth, that’s a win.
Recognize it. Track your progress visually in a place that you see every single day, like your refrigerator. And celebrate each step in the right direction.
Don’t go out and blow a bunch of money on a celebration that’ll completely undo your progress, but give yourself credit with a small indulgence. Even if it’s just setting aside the time to take a hot bath and read your favorite book. Small rewards can help you stay motivated by providing milestones to look forward to.
If you need more inspiration, read books and listen to podcasts to help you stay on track.
Follow your biggest inspirations on social media. Read the stories of other people who’ve gotten out of debt.
You can do it all too and pay off your student loans if you make that same commitment not to be thrown off course!