In the coming weeks thousands of college graduates will be entering the workforce armed with new degrees. However, these fancy new degrees came at a higher cost than ever. The average grad has $37,000 in student debt. That is a record level and a 6% increase over last year.
If we had to pick one suggestion as our top student loan suggestion, it would be to make a plan.
A Common Mistake
One of the most common mistakes that we see is a failure to think long-term. This mistake is understandable. Student loan bills, especially the first ones, can be large and overwhelming. Faced with these bills, many people try to find a way to get by each month. This can lead to selecting temporary solutions that do not fix the actual problem. For example, some opt to go on a forbearance when they can’t afford the bill. This might help for one month, but it just kicks the can down the road a bit and the student loan problem remains. Another common mistake is making payments with resources that are not available each month. If you have to sell stuff on eBay or raid your savings account to make the payment, you have a real problem. It may pay some of the bills, but long-term it is destined to fail.
The Perks of a Plan
Putting together a plan can help you identify issues long before they ever happen. If you are weighing three job offers, an understanding of how you will be handling your student loans is critical.
Planning also helps with better decision making in other financial matters. As a recent grad, you are likely at the very beginning of your six month deferment. It is only after these six months have passed that you will be expected to make payments. Far to many people make the mistaking a signing a lease or purchasing a vehicle that they cannot afford once the student loan bills roll in. The plan prevents financial blunders.
The biggest advantage of putting together a plan is that it forces you to learn. All borrowers should have a basic understanding of the payment plans available as well as the forgiveness programs that are out there. An understanding of financial concepts, such as compounding interest is also critical. If you are creating a well thought out plan, these topics will have to be explored.
A plan is not set in stone. Instead, it is a map. You can identify the route you think is best, but be prepared for detours and delays. Just like the smart hiker who studies the terrain before heading out, a student loan planner understands the obstacles and the resources that are available. A plan will not make student debt disappear overnight, but it will reduce the stress, and good planning will make the debt disappear as fast as possible.