Student loans are a great investment in your future. By improving your level of education, you can increase your personal skills as well as your earning power. However, education doesn’t come cheap. Some sort of degree or diploma is now viewed as the new high school degree with regards to the educational entry level requirement for many jobs. More and more, a Master’s degree or further education is also required to differentiate yourself in your field. Having these degrees under your belt are valuable, but unless you’ve had the top-end of scholarship opportunities, you’re likely coming away from your graduation day with school debt.
If you’re anything like me, you didn’t realize the full weight of your school debt until after you graduated. Your realization may have come when your bank or lender sent you a nice letter outlining what kind of payment they were expecting since you’ve graduated from school into the real world. That letter usually contains some surprisingly large monthly number for an even more surprisingly large number of years. Sure, we all understand that you’ll need to pay the money back eventually. But that first statement letter is a big wake-up call for adult realities.
First off, don’t panic. Although your student loans can be a big debt to carry, it has been a good investment. Compare it to credit card debt: instead of buying things that devalue very quickly, you bought an education that increases your personal value. Sure, perhaps you could have limited some of the loans, but overall, the investment in education is a good one. Now that you’re out in the real world, you can focus on how to pay down that loan as quickly as possible.
Read the Fine Print
It may have been a while since you reviewed your loan documents, so it’s time to put those college smarts to use and review them. What are the terms of your loan? Is there a penalty for paying it off too quickly? (I know it seems ridiculous to have that as a term, as well as an actual payment option, but it’s still very common.) When you understand the terms of your loan, you’ll have a better idea of how best to pay off your loan. Any particular terms or issues should be included in your pay-back plan.
Prioritize the Student Loan Payment
If you are serious about paying off your student loan quickly, you need to put its payments first. The most cost effective way to do so is to cut down your other monthly spending. Most people’s biggest monthly expenditure is rent. Imagine if you took 30 to 50 percent of your take-home income and instead of passing it on to your landlord, you put it on your student loan. That’s a lot of dollars that will make a significant dent in your loan, especially after one to three years. If you have family with whom you can stay for free or nearly-free, it is a highly recommended option. If you don’t have access to rent-free life, seek out your cheapest option. While you don’t want to live somewhere that requires new debt for a vehicle, a smaller, less HGTV-style apartment will cut your rent and increase the amount you put on your loan. If you’ve recently been a student, shared spaces with ‘character’ may be very familiar. Stick with this lifestyle and you’ll be in a much better place to afford a proper grown-up place of your own down the road.
Yep, it’s a simple task that’s more difficult to put into practice. If you’ve just graduated, it’s important to dig into your employment search. Put your skills to work and pull in that paycheque. If you have a job lined up, then you’re in a great spot. For a lot of people, though, graduating means hitting up those HR hotspots. Good job markets are competitive so don’t waste time getting started. With lots of applications, cover letters, LinkedIn connections, interviews, you’ll soon be bringing in cash to feed your hungry, hungry loan.
And Then Earn More to Pay More Than the Minimum
You read it right. To have the biggest impact on your debt, you need to pay as much as you reasonably can each month. Thankfully, there are so many ways to earn extra cash in-person and online. You can pick-up odd jobs on CraigsList, use your education to tutor local students or online, or freelance and get paid for your skills through sites like UpWork. Take that additional income and put it right on your monthly payment. This will help pay down the principal, which will save you money in the long-run by saving interest and will speed up your debt payment timeline.
Do Your Taxes
Yep, taxes can be helpful when you’re repaying your loan. You may be eligible for a tax deduction for the interest you pay on your student loan. If you meet the requirements, each year you can deduct $2,500 off your taxes. This deduction could put more cash in your pocket at tax time, which can be transferred, as always, to your loan payments.
Consider at Refinancing and Consolidating
Depending on the loan or loans you used to pay for school, you may want to consider refinancing and/or consolidating them. This means you re-work your loans to get a reduced interest rate, and one common way is to combine or consolidate multiple loans into a single larger loan. By paying less interest, you can focus on the principal and pay your loans off faster. An additional bonus is that it simplifies multiple loans, even a maxed out credit card debt, into one loan with one payment. All that fine print that you read on your loan will help you determine what is the best route for you. For many people, though, refinancing for lower interest rate and a simpler loan organization can make your life a lot easier.
Student loans are a good investment in your future. They can be a real-world wake-up call after graduation, but you can reduce the headache by taking a few key steps. Prioritizing your debt, reducing your spending, increasing your earning and reviewing your loan are all important steps. Use your new education to be strategic and smart to get ahead of your student debt.