It?s no secret that higher education is a great way to get ahead in life. But it?s also no secret that many students find themselves beneath a pile of debt by the time they hold that degree in their hands. What are students to do? Graduating in debt is a situation that needs to be addressed sooner rather than later.
It?s a fact that people with higher degrees make more money in their lifetime than those without one. Unfortunately, the cost of that degree is rising every year. The good news is that if you plan correctly, you can pay off your student loans quickly without having them follow you around for 20 years. Here are a few things you can do after you graduate to help manage that student loan debt so you can live the life you want.
Never Pay the Minimum Payment
While the monthly payments may be a little cheaper, if you only pay the minimum amount, it can take nearly two decades to pay off your loan in full. Plus, you?ll be paying a lot more money toward interest than you would if you pay the loan off early, making the total cost of college even higher than it already is.
The best part is that you don?t even have to pay a lot more than the minimum amount to make this strategy effective. Sure, the more money you can pay each month the better, but even $20 extra a month can help make a dent that can lower your total term by years.
It?s simple math. Imagine adding an extra $100 to your payment each month. This means that you?ll have put an extra $1,200 toward your loan each year. After just 10 years, that?s an extra $12,000. That can be as a quarter or so of a large student loan!
Put Any Raises Toward Your Student Loans
Hopefully, you?ll land a job that you enjoy and can advance in once you graduate. That is, after all, one of the biggest reasons to go to college. And if you want to really pay down your student loans faster, you can opt to apply any raises you receive toward your loans.
According to some studies you may be able to expect around a three-percent raise to your base salary each year on average. This means that if you make $40,000, you can expect an additional $1,200 or so each year on average. If you want, you can apply this to your student loans. If you?re hurting for money, you can put every other raise toward your debt so you can use the extra cash for other things if you need to. In reality, it?s about $50 extra every two weeks, so you may not even miss it if you apply it directly to your debt.
Consolidate Your Loans
If you?re like most students, you probably have a few different loans that you?ve taken out over your college career, each with a different interest rate and terms. Certain websites can help you consolidate all of those loans into one lump sum, not only giving you a better overall interest rate but making payments easier as well.
Loan consolidation companies will usually work with you to determine a good monthly payment that you can afford and may offer flexible payment options and terms. Of course, a lot of these conditions will affect your credit score, so if you have a bad score, you may end up paying more than if you have a good one. But, one of the benefits of consolidation is that it usually helps your credit score because the payments are easier to make.
When Graduating in Debt, Create Additional Sources of Income
There are different ways you can do this.
Get a part-time job. This is certainly the simplest way to create an additional income source. But the downside is that it will eat up a lot of time, since your income will be commensurate with the number of hours that you work. To minimize that problem look for part-time jobs with above average pay.
Gig work. This is fast becoming a “thing” in the 21st Century. As traditional employment arrangements break down, gig work is becoming the new normal. It could include ventures such as driving for Uber or working from your home computer as a virtual assistant. The advantage is that you will have control over both your time and your income.
Start a side business. A side business offers probably the greatest chance of paying off your student loans. Not only is it a chance to earn more money, but you could be building the business of your future. My journey into freelance blog writing started out as a side business, but quickly grew into my main gig. Think about what you like to do, and what your good at, and how you can monetize it. If you can, you’ll have the start of a viable side business.
The key to this strategy of course is to dedicate the additional income source(s) specifically to paying down your student loans. Is you simply blend the new revenue into your regular spending, it will be a complete waste of your time.
Apply Any Cash Windfalls to Your Debt
If you are ever lucky enough to win a decent amount in a lottery or if you come across a good-sized inheritance, think about applying some or all of that money to your student loans.
Throwing a large sum of cash at your debt can really help reduce the length of the loan and help save you money because you won?t pay all of the interest if you just make regular payments. It?s a good idea because many spend slowly waste their windfalls and are soon left without anything to show for it in a few years. By applying some or all of the cash to your loans, you are setting yourself up for success in the future.
Don?t let the fear of debt stop you from getting a degree. There are many ways to manage your loans and pay them off early.
Francesca Hayward is a financial advisor who works primarily with families. She is always looking for new money tools and tips, and when she finds them, she loves to post her discoveries on a variety of finance and family websites.