I get questions about this all the time – people are always wondering what the best way is to pay off their student debt (or if student debt should even be a priority). To put it simply, paying off your student debt isn’t a task that should take you a lifetime, and it certainly isn’t impossible either. If you use the right strategies, and stay consistent, you’ll see great progress. As with most everything else in personal finance, the real key lies with your own discipline, rather than any niche knowledge or exceptional luck. Without further ado, let’s discuss how you can tackle student debt!
Make Your Minimum Payments
I hope this goes without saying, but your first goal should be to make your minimum payments. If you miss a payment there can be tons of repercussions, and it can even tank your credit score. We want to avoid any negative consequence associated with missing payments, and we also want to make sure we stay on track to eventually pay it off.
Once you’ve met your minimum payments, you’ll be able to figure out what else you need to do. This is the lowest bar, and hitting it just gives you the basic information you need to make the rest of your debt repayment decisions.
Budget
I’ve gone over budgeting tons of times before. Your budget will be one of your best financial tools. It will help you make the most of your money and keep you consistent in your personal finance journey. If you’re brand new to budgeting, start here. If you aren’t new, but want to refine your budget and make sure you aren’t missing anything, go over these items. Alternatively, zero-based budgeting is a good advanced strategy to use if you’re interested.
I wrote a complete guide to budgeting already that has just about everything else you might need to create a good budget and stick to it. I even made a free budget template, which you can get for free by signing up to the Bitter to Richer newsletter!
Cut Expenses
Once you have your budget in place, you’ll know how much money you need to trim. Remember, everything you save can help you with your debt. The best places to start trimming expenses are:
- Housing/shelter
- Transportation
- Food
Your house may be more than you can afford. Do not be afraid of downsizing. Avoid new cars and buy used instead. For food, you can cut a lot of expenses by cooking at home instead of eating out. These 3 categories aren’t the only areas you can cut expenses in, but cutting one or more of them will usually give you massive savings. Every bit of effort counts!
Use The Additional Savings To Pay Off Debt Faster
As I said, everything you save can help you with your debt. With the extra money you now have, you can toss more money towards your debt. This can increase your progress exponentially and cut several years off of your total repayment time. Don’t underestimate the effect making additional payments can have.
If you don’t want to use absolutely all of your savings for your debt, that’s okay – especially if the debt has a low interest rate. Instead, you can use the money for an emergency fund or to get started investing in ETFs and index funds. If you don’t invest already, try M1 Finance – it makes it super easy!
Use The Best Strategy For You
If you have a lot of discipline when it comes to money, the debt avalanche method often works out to be the better financial decision. If you think you’ll need help to stay on-track, the debt snowball method is a great choice – and arguably the most common. Everyone has a different mindset and financial situation. Pick the method you think works best for you. For a full break down of both, check out my article on them here.
Snowball
A common way to get rid of debt is the method know as the debt snowball. It’s a strategy used to rapidly eat away at your loans, from the smallest to the largest, which helps you gain momentum towards eliminating all of your debt. When the debt on the smallest loan is paid off in full, you then use the money you were putting towards that for the second smallest loan and so on.
The reason the debt snowball works is because it is more about the psychology behind paying off debt, rather than financial aptitude. With all the smaller loans paid off, and that money going towards the larger ones, a snowball of sorts has been created and you’re able to pay several hundreds of dollars (or more) extra towards your largest debts by the end. Remember, it’s all about consistency. Patting yourself on the back after you’ve eliminated one or two loans won’t help you get rid of the larger debts if you quit there.
Avalanche
The debt avalanche strategy tackles high-interest loans first. It’s not exactly the reverse of the snowball method. Rather your focus is on eliminating high-interest payments and ignoring the overall amount of the loan. It doesn’t provide many victories for a while usually, but your victories will be massive, like an avalanche or landslide.
Automate Your Payments
Just like I recommend automating your investments, you should try to automate your debt payments as much as possible. Automating it makes it so you don’t have to micromanage it constantly, and you can rest easy knowing it’s taken care of for you. A huge positive of this is that it makes it even easier to stay consistent while you’re trying to pay off debt. It removes the human factor – you don’t need all the discipline, or the routine, anymore – so you can focus on more important things. If you don’t believe me, try it out and see how much easier it makes your life.
Don’t Rely On Loan Forgiveness
I don’t want to naysay this, and it may happen for you, but don’t wait for the government to just take care of your debt for you. That’s not likely to happen, and if you rely on that and wait, you’ll just end up in a much worse position. Take your finances into your own hands, immediately, and build yourself a better tomorrow. You can’t expect anyone else to bail you out.
Make Use Of Loan Forgiveness Programs If It’s Applicable
Of course, with all of that said, if you have any loan forgiveness opportunities available to you – take them. There is no reason not to, and it can put you years ahead of where you would be otherwise. When you get a break you should take advantage of it, don’t ignore it or let pride prevent you from using every resource at your disposal.
Conclusion
I hope this article helped you get on the right track to start tackling all of your student debt. If you encounter hurdles along the way, and you probably will, remember not to get discouraged! The key to this is to stay consistent and keep going no matter what. Consistency and discipline are what will help your reach your long-term goals. For more content like this, and a free budgeting template and financial goals worksheet, be sure to sign up for the Bitter to Richer newsletter.
