Worried about your college debt? For college students and recent graduates, it can be scary and intimidating to know you have tens of thousands of dollars in student loans that will need to be paid back before you can breathe easy.
You may have tried everything you could think of to minimize your college debt before you graduate. Perhaps you started a full or part time job, created a strict budget for yourself, shared housing or other expenses with roommates, or applied for grants, scholarships, and other financial awards. However, it may not have been enough to leave you completely debt-free upon graduation.
But don’t panic! There’s still plenty of time to make a plan and get your finances in order to ensure your best future moving forward. Here are a few tips that will put you in the driver’s seat.
How To Repay College Debt and NOT Go Crazy
1) Create a Reasonable Budget
If you think that budgets are restrictive, you’ll first need to change your mindset. Contrary to what you may believe, budgets can free you from the shackles of month to month living. It can also help you plan for large and small purchases, and put your money to work for you – instead of wondering where it’s all flying away to each month.
There are various software programs and apps that can help you craft a workable budget. Some of the best include Mvelopes, Mint, and You Need A Budget. They are all phone apps that help you keep track of your monthly expenditures using the smartphone you already have in the palm of your hand.
Some apps will prompt you to sync your bank accounts to ensure automatic tracking, updating, and payments. Others will need you to manually your bills, receipts, and other purchases. The manual applications, while more time-consuming, put you at reduced risk for account hacking and identity theft.
Banking institutions make it very clear that installing third-party apps can put your private data at risk when using your mobile phone for financial transactions. You may decide, however, that the benefits outweigh the potential harms when crafting a monthly budget to help pay off college debt.
2) Use Debt Snowball Repayment Method
The debt snowball repayment method is a way to stay motivated while paying down your college debt.
The way it works is simple. First, you figure out which debt is the smallest. Paying no attention to interest rates, you pay as much as you can each month until the smallest debt is paid off. You also continue to make the minimum monthly payments on other debts.
Once the first debt is paid off (relatively quickly), you do a little dance. Next, you rollover the money you were paying towards that first debt, plus the monthly amount minimum you were paying towards the second (and anything extra you can spare) towards the next smallest debt.
You continue this process, kick each larger debt to the curb, until they are all paid off. This method has the advantage of giving you visible results quickly, while multiplying the amount you are paying towards your debts each month.
3) Know You’re in Control
Even if it seems like your debts are ruling your life, remember, you do have options. You may qualify for Federal Student Loan Forgiveness, a Pay As You Earn (PAYE) plan, or other deferment and forbearance options.
The important thing to remember here is to stay on top of your finances so that you can take advantage of programs while you’re still eligible.
Unfortunately, once you default on your loans, there will be few remaining possibilities. If you suffer a job loss, illness, or other financial crisis, be sure to get in contact with your lender as soon as possible. Reach out to them before they reach out to you. This way, you can avoid any adverse long term effects to your credit score.
Eye on the Prize: Zero College Debt
At the end of the day, you need to remember that you’re paying off these debts to create a stable and stress-free life for yourself. A life where you can afford to save for retirement, own a car, buy a home, and live a decent stable life with your family.
While paying off your loans faster than expected may mean a few years of sacrifices and hardships, the end result will be thousands of dollars less in interest paid over time. Not to mention peace of mind that comes from living a debt-free life.