I am so pleased to share a brilliant post contributed by amazing writer – and my fantastic soul sister - Claire Murdough of Ready For Zero! Claire is one of those people that has made me extremely grateful I started blogging and got a chance to meet everyone in our amazing personal finance community & blogosphere. Without further ado, I’ll let Claire take it from here!
Immediately after my college graduation, I moved back home to live with my parents, was unemployed for the next several months, and received my very first student loan debt bill in the mail. I also ate a lot of Kix cereal and entertained the idea of moving to a farm and starting a basil & strawberry jam company. In other words, I was a classic Millennial. When I wasn’t fretting over job applications or dreaming up new ventures, I felt guilty for failing in my job search. When I wasn’t worried about my emotional and creative sanity, I was bitter towards the high cost of an education that seemed to be getting me anywhere. I shook my fist in the air a lot too.
But damned it all if I was still totally and unabashedly idealistic! Optimism: the silver lining of the millennial generation. And though it doesn’t exactly pay the student loan bills, it’s a great motivator to inspire you to boot student loan debt out of your life as quickly as possible. We have big dreams to pursue, right?
So here are my top 10 tips to get rid of student loan debt so you can get on to other important things in life (like traveling, inventing, and jamming).
1. Make friends (or at least amends) with your debt
Student loan debt is currently hitting the US in a huge way (as in over a trillion owed). Being part of such an enormous sum can be weirdly uniting and comforting. It’s terrible, but it also means that you aren’t alone. But while it’s nice to share a certain camaraderie over your debt, it’s easy to spend more energy on feeling defeated than on actually paying it off. That’s why it’s essential to focus on your personal numbers and come to terms with what that means for you. Engage with your student loan debt, make peace with the fact that it’s a part of your life. That means opening bill statements and doing research that allows you to truly understand your options and how to pay off your debt even more quickly.
2. Understand the terms of your repayment plan
Next up? Understanding what the heck is going on with your student loan debt repayment. I was (rightly) intrigued by all the federal loan repayment plans when I was in college. It seemed like they were there just for me… the low earner and high debtor! Under an income-based repayment (IBR) plan, 25 years of consistent on-time minimum payments meant the remaining balance is just forgiven. Plus I would get to push off repayment for a good year via grace period, forbearance, and deferment? Psh, that doesn’t seem too bad…said the 22 year old with no real concept of time or how interest works.
25 years is indeed a long time – I’ve since realized. And I’m not that interested in being chained to debt for quite that long if I can help it. It’s a lot of time for compounding interest (and not the good kind) to accumulate. I’m definitely not interested in paying tens of thousands of dollars in interest.
It’s not that these programs don’t make sense – anyone who is struggling financially could (and does) benefit from any one of them. But they’re also not the end-all be-all of your debt repayment. I went straight-shot to a plan where I paid the least amount each month because I thought it was my most feasible option. And honestly, at the time it was. But I didn’t really understand what my repayment should look like over time and I stuck to paying minimums even as I started to make more money. I was just happy to be following a plan! Unfortunately, it was one that put me on the slow track to debt free. Do some homework (ahhh, never thought I’d say that again!!) and carefully consider what each repayment plan means. Take into account the length of repayment, how you might accelerate your plan as you continue to increase earnings, and even just consider what it means to pay student loan debt for so many years.
3. Create a personalized repayment plan
Once you’ve figured out exactly what repayment plan works best for your present (and your future) circumstances then it’s time to put your sweet college skills to good use! Creating your very own repayment plan will help you to keep track of your payments and ensure that you’re going about repayment in the most efficient way possible. Decide on your timeline, how much you can sensibly pay into your repayment plan, and how you want to go about paying off your student loan debt most effectively. Visuals that highlight your repayment timeline are particularly useful to help you really picture the trajectory of your repayment. When I first started using ReadyForZero, I was a bit appalled each time I saw my principal balance creep up on the graph when I was accumulating interest. It was motivating!
4. Make your payments work FOR you
Micromanage your debt! There are so many sneaky tactics that could be keeping you in debt for longer than necessary. To pay off your student loan debt you’ll need to keep your wits about you – especially as you sort out your initial payment plan. Ultimately, you want to make sure that you’re paying off your higher interest rates first while paying minimums on the rest, and also that your payments are actually applied to the principal balance! Be diligent with your payments or the entire process will go on for longer than anyone would probably like.
5. Bi-weekly payments
Making bi-weekly payments is a fun “trick” to share and it also happens to be an awesome way to accelerate your repayment plan. If you’ve never heard of bi-weekly payments before they essentially add an extra payment each year. It works like this… instead of making one single payment each month, you take your monthly payment and divide it by two. Then you pay two half payments every two weeks, instead of one full payment at the end of the month. Since there are 52 weeks in the year, that means you’ll have an extra payment on your debt repayment. It’s fairly simple and the result is pretty awesome. Punch in your numbers to see how it works for your numbers using this calculator!
I know, it’s a crazy cool trick! And it’s not even magic.
6. Track your daily interest…
… because you will be traumatized into action. I remember the moment that I truly understood just how much interest I was accruing on a daily basis. Let me tell you, it was a doozy of a panic. The only thing worse was seeing how that translated into monthly interest charged, and then from there, the yearly interest.
Keeping track of interest paid is one of the most effective motivators when it comes to paying off your student loans. It hurts to see how much interest you’re paying on a daily basis, even if your loan is attached to a slight interest rate. Even years into repayment it pains me to see my daily interest charges. On the same token, these numbers have motivated me to throw more force into my repayment plan.
7. Pay above the minimums
Yet another must for millennials who want to dig out from under student loan rubble… pay above the minimums! If you pay the suggested payments you will be stuck in the student loan payment wheel for a long time. Much longer than if you paid even a small amount above the minimum payments. That’s because minimum payments are often largely a representation of the interest accumulated over the previous month. It’s essential that you boost your payments above the minimums, even if it’s just 20 dollars a week.
8. Tweak your spending habits (or create good habits that will help speed up your repayment)
One of my favorite tricks to connect with my spending is to preface every “extra” purchase with… “are you willing to buy this AND match the amount in your repayment?” So for instance, if I see something that I want, but don’t need I’ll challenge myself to match whatever I spend on that item and put it directly into my student loan debt payoff. Sometimes, that stops me from making the purchase. Other times, it incentivizes me to put more into my repayment plan. It’s a great way to add a bit of thought to my purchasing – especially since it’s so easy to swipe more than I intend to when I’m hangry at the grocery store.
9. Use accountability
Talk about your student loan debt! Tell people about your student loan debt! Sharing is a great tool to help you stick to your repayment plan and stay accountable to your goals. I’m not saying you have to live-tweet, snapchat (I’m trying to sound hip by using these references) or paste your numbers on your resume, but sharing your student loan payments goals with someone you trust and who will kick your butt when you’re distracted is extremely valuable. And remember when I talked about the camaraderie over student loan debt in the beginning of this post? It can work for motivating each other’s repayment too!
10. Have common sense (AKA, hone in on your inner Kali)
I’m not stretching in the least when I say that Kali is one of most inspiring millennial financial bloggers I’ve come across. She’s done an amazing job at securing her finances by using a powerful, but simple tool: common sense. And even better - she’s spreading this common sense and sharing tips that are simple and easy to implement. By making good financial habits widely applicable, she’s shown that this is not something that people have to struggle with alone and that much of financial wisdom can be boiled down to making informed and sensible decisions.
She’s a smart cookie – I’d listen to her.
Bonus: Open up a retirement account
OK, I know I said 10. But here’s a “bonus” tip, if you will…
If you don’t already have a retirement account, get thee to a computer/bank/financial advisor/friend and go about opening one!! I was practically forced to open up a Roth IRA and it was one of the best decisions of my young life. Not only did I start to build up savings for my eventual retirement kingdom, the biggest benefit came around tax time when I realized that I qualified for the savers credit! $500 into my retirement savings and then $500 dollars returned at tax-time. Millennials are winning in one area… we’re young enough to benefit from compounding interest in our retirement accounts. Start today!
Student loan debt can carry a stigma but finance is a part of life. It isn’t something that you have to turn into a dry, boring topic as evidenced by some of Kali’s creative posts. There are tons of resources available to help you out. If you want to optimize your life and happiness you’ll need to lock-down your repayment so that you can free up more of your attention and funding to pursue personal goals. Get your student loan repayment together and you’ll be all the closer to your dream job of traveling the world while spearheading your own startup! Or, in my case traveling to New Zealand to take the Lord of the Rings movie tour.
About the Author: Claire is a writer at ReadyForZero. She’s a Bay Area native with an affinity for travel (yay!) and food (yum!). She loves sharing financial tips and tricks that help people achieve their personal and financial goals.
Editor’s Note: Claire is also a super awesome, super sweet, and all around super person. If you’re wanting to meet her at FinCon, you’ll have to get in line. Me first!