9 Tips for people who have their student loans figured out

Michael Lux Best Of, Blog, Money Saving Tips, Student Loans 0 Comments

Lots of discussion has been spent on finding the right repayment plan, lowering interest rates, and student loan forgiveness programs.  However, many people find themselves on the right repayment plan, with the lowest interest they are going to get, and still struggling with student debt.  This article is for the people who have their loans figured out, but haven’t quite figured out how they are going to get them paid off.

Tip #1: Pay off the high interest rate loans first.

This means making only the minimum payment on all of your other student loans.  Then, whenever you have some extra cash, put it towards the highest interest rate loan.  Doing this ensures that you pay as little interest as possible on your student loans.  Paying less interest and more towards principal means your debt disappears quicker.

Tip #1b: Pay off your loans with the smallest balance first.

Economically, this approach doesn’t make as much sense as the previous tip.  Psychologically, it makes far more sense.  Lets say you have several loans.  Your highest interest rate loan is at 8%, but you have a much smaller loan at 7.5%.  In theory, putting your extra money towards the big loan will save you more in the long run.  However, if you pay off the little loan first, there is a ton of satisfaction that comes from getting it done.  It is one less bill to pay each month, and a huge milestone.  If you are struggling with your debt and desperate for a win, beating a small loan into oblivion might just be for you.

Tip #2: If you have a 401k, only contribute what your employer will match.

Setting aside money for retirement is obviously a very good and important thing, however, the money you save will likely not earn enough interest to make up for the extra interest that is being generated on your student loans.  If you have very low interest student loans, like 3 or 4%, this advice does not apply to you.

Tip #3: You don’t get raises, Sallie Mae does.

Reading these words hurts.  You worked hard, why should your lender benefit?  Remind yourself that what they really want is for your to make the minimum payment for the life of the loan.  Lenders get far more in interest that way.  If you get accustomed to a certain lifestyle, fight the urge to upgrade your lifestyle until you are out of debt.  A raise means you will get out of debt sooner.  It does not mean a new car or bigger apartment.

Tip #4: Work really hard at your job.

If you stay late at the office, you know what you aren’t doing?  You aren’t spending money.  Obviously this advice doesn’t apply to certain jobs or family situations (neglecting your kids is probably not ideal), but dedicating yourself to your work can mean extra income and it helps you avoid unnecessary spending.

Tip #5: Look at your expenses on a yearly basis.

A cup of coffee and a newspaper may set you back $3, which doesn’t seem like much.  But if you have that same cup of coffee and newspaper five days a week, it adds up to $15 a week.  Do it for 50 weeks in a year, and you have just spent $750.  That is real money.  Anytime you can save money on a daily or weekly basis, the yearly savings will be huge.

Tip #6: Don’t keep your financial leash too tight.

It is impossible to cut every corner and to pinch every penny.  For most, planning your budget at the beginning of the month is simply a creation of your goals for the month.  For some, planning a budget is of the utmost importance because if not done properly it means no food on the table or heat in the winter.  If you are in the first category and simply trying to pay down as much debt as possible, don’t subject yourself to unnecessary stress.  If you can, be sure to set aside a little bit of money each to spend frivolously.  Occasionally treat yourself to a meal that costs a little extra or a trip to the movies.

This advice may seem to run counter to the rest of the tips, but it is a critical one.  If you create impossible expectations for yourself, things can fall apart.  Make goals that you can really stick with.  Putting aside $1,000 in one month is a great thing, but putting aside $500 for 12 months is even better.

Tip #7: Use the two account approach.

Each month give yourself an allowance to pay for your variable expenses.  This would include things like food, gas, entertainment, etc.  Use account number one to pay these bills.  When it runs out, you stop spending.

Account number two pays your fixed monthly bills.  It is also where all the “extra” money goes.  At the end of the month, any balance in account number two can be used to pay down your loans.

Obviously, this system can be altered to fit your individual needs.  Some banks will give you two accounts, or you can use two separate banks.  Bonus Tip: If you are opening a new bank account, see if you can get some extra cash from your new banks.  These days a lot of banks are offering $50 to as much as $200 to open a new checking account.

Whatever you do, be careful to avoid any extra banking fees using this approach.  If you look around, most people should be able to find free banking.

Tip #8: Pay down your debt as soon as you have the money.

For most forms of debt, interest is calculated based upon your daily balance.  This especially holds true for high interest credit card debt.  Don’t wait until your bills are due to make your payment.  If your bill is due the 25th, but you will be using funds from your paycheck on the 15th, make the payment as soon as you have the money in hand.  Here again, we are talking very small amounts of money, but over the course of years, it can add up.

Tip #9: Your debt doesn’t own you.

Whatever you do, don’t get discouraged.  Painful student debt is a reality for millions of Americans, but it doesn’t have to change who you are.  Being rich or even out of debt would certainly be easier, but at the end of the day your self-worth and the enjoyment you get out of life has nothing to do with the numbers in your bank account.  Being in debt doesn’t mean you have to put your passions on hold, it just means you have to be a little more creative and maybe a bit more patient.