This post was written by Drew Cloud, founder of The Student Loan Report. Take it away, Drew!
It feels good to beat student loan debt.
It can take some hard work, but it is well worth it to be able to use your income for life’s milestones, such as buying a car or a house. On top of this, many borrowers are completely blindsided by the interest they are required to pay on their loans.
For many, student loan debt hanging over their heads means that they can’t achieve these major steps in their lives. Despite this, there is a way out. I am beating my $22,371 in student debt so I can pursue very important financial goals sooner rather than later.
Motivate and Negotiate
First, you have to motivate yourself to pay off your student loans. This can be difficult because the thought of paying more than the minimum payment can be daunting. Take-home pay disappears fast as it is, so you have to buckle down. This can include getting a second job. The only way you are going to have extra money to pay is if you give your earnings a boost.
Having a part-time job on the side can be difficult, but just a few hundred dollars per month can make a significant difference in your student loan balance. The second job can also be used to gain more work experience that could benefit you in the future.
You can also negotiate better salaries on your job or jobs. In fact, negotiate everything. Try to get more money at work and also negotiate things like credit card fees. Anything is worth trying to negotiate so you can save some money. When you save money, you can do what I did and pay more money toward your loan so you can eliminate it as quickly as possible.
Automate Your Finances
I established a budget and then automated my finances. One rule of thumb is not to use your checking account balance as your budget. It is easy to look at that balance and think that you have that much money to spend. The fact is that you don’t have that much money to do whatever you want with.
When establishing a budget, write down your living expenses and then the minimum amount of your student loan payment. Subtract this from the amount of money you make each month. Determine how much of the money that is left can be applied toward student loans, how much will go towards savings, and how much you will keep. Stick to this budget.
One way that will help you stick to this budget is to set up automatic transfers from your bank account to the student loan lender. I did this and it kept me from spending the extra money I wanted to apply toward my loans. I also used automatic bill pay for monthly expenses so I wouldn’t put off paying my bills.
When establishing my budget, I also decided what I would do with extra money, like raises from work or if I took on more hours at my second job. I divided it up into percentages. I put 50% of my extra money toward student loans, put 25% in my savings account, and kept 25% for me.
I also cut expenses. Did I really need that premium cable package? I really didn’t.
I was working so much that I didn’t have a lot of time to watch TV. This saved me $50 per month. Instead of going out to eat every weekend, I made it every other weekend. I had to get my priorities straight and cut down on the things that weren’t important. I even clipped coupons.
Refinance Student Debt
I did all the other things, but I also had to take the refinancing route. I wanted a lower rate so I could pay off my loans even faster and for less money.
I know people who have gone ahead and paid their student debt, forgetting that refinancing is an option. They realized later that they could have saved a chunk of money by exercising this option.
I didn’t want to be like them, so I asked questions. I asked if it was the right thing for me and if it was worth the risk. Fortunately, I secured lower interest rates, and that allowed me to save money and pay off even faster.
Of course, there are some pros and cons to refinancing student debt. One con is the loss of federal protections if you refinance federal student loans through a private lender.
You also lose any shot at the federal loan forgiveness program. If something would happen to one or both of your jobs, you won’t have the option to claim a financial hardship that would keep you from defaulting on your student loans.
There are plenty of risks related with transferring your student debt from the federal government to the private market, and knowing these risks early on is essential. To learn more, it may be worth your time to review a resource on private student loan refinancing at my site, The Student Loan Report. Also, you should avoid extending the repayment term of your loan through a federal consolidation loan since you will undoubtedly end up paying more.
Nonetheless, someone with a stable income situation who is paying high interest on loans can benefit from refinancing. The monthly payment can be lower, and that means more money can go toward paying down the principal instead of a significant amount of the payment going toward the interest. If you combine refinancing with the money management tips that I mentioned previously, you can pay down your student debt as fast as I’m paying down mine.
If you decide refinancing is right for you, you can take advantage of many options on the market. You can secure a fixed rate loan. People have saved thousands of dollars doing this, making it worth their while to go through the refinancing process. I know it was right for me.
I’m Doing It, and So Can You
It comes down to the fact that I’m paying off my $22,371 in student debt, which means you can too. You have your entire life ahead of you, but you don’t want to spend a significant portion of it dealing with a debt that keeps you in chains.
I couldn’t stand the thought of being stuck in an apartment for the next 10 years driving a car that could break down at any moment. I decided that I wanted to have the money needed to make life’s biggest milestones happen before most of my life passed me by.
Drew Cloud is the Founder of The Student Loan Report – a site dedicated to keeping student loan borrowers and their families up-to-date with the latest student loan news and information. In his free time, you can find Drew playing basketball, reading other blogs, or playing with his Great Dane named Rudy.