Don’t rely on an easy way out
College students from the Class of 2018 graduated with an average loan debt of $29,800, which doesn’t include the loans their parents might have also taken out to help them. The total U.S. student loan debt now sits at $1.56 trillion and continues to grow every year in tandem with the costs for a college education. Student loan debt is now only behind mortgage debt in terms of the highest consumer debt categories.
Democratic presidential candidates, such as Bernie Sanders and Elizabeth Warren, have proposed canceling most, if not all, of this massive debt crisis and making public universities tuition-free. I won’t be delving into the merits of these plans, although I certainly think they’re feasible, rather I’ll be focusing on how you can actively work towards paying off your student loan debt in a shorter amount of time than you probably thought you could.
Because let’s face it. There’s no guarantee that any of these plans will ever get enacted. Even if Bernie or Elizabeth manage to win the Democratic primary and the 2020 presidential election, their plans could still be stonewalled in Congress and the Senate for years. Meanwhile, you’ll still owe all that money, and unlike most other consumer debt, you can’t file for bankruptcy for student loan debt.
So, assuming that all your debt isn’t going to magically disappear anytime soon, here are some ways that you can alleviate this massive burden on your life and get you moving towards financial freedom as quickly as possible.
Most people don’t keep track of how much they’re spending and saving.
Don’t be that person.
With smartphones and apps, it’s even easier to track how much you’re spending on food, entertainment, rent, utilities, Netflix subscriptions, etc.
First, start tracking all the various things you spend your money on from clothes to food to coffee. Then, create a budget for each spending category and try to stay within that budget each month. I know, easier said than done. But, if you’re able to do this, you can then set aside more money to help get that debt off your shoulders.
This is a mistake I made early on when I first started making payments. If you end up paying the minimum amount each month, you’ll barely make a dent in the principal as you’ll be struggling to just pay off the interest (which your loan servicer will love) and you’ll potentially pay over double the principal over the course of a decade or more!
If you budget correctly, paying more than the minimum amount owed should be more than reasonable to do but will depend on the total principal owed, the loan interest rates, and how much you’re currently earning.
You may need to make some sacrifices and maybe don’t go out to the bars as much, but you’ll thank yourself later when you’re trying to buy a house and don’t have to worry about all the debt you still owe.
As you gain work experience, keep increasing the amount that you’re paying much like how people tend to invest more money into their 401k as they get older, which leads me to my next point.
This one may seem obvious, but it’s incredibly important. Not only do you have a lot to prove as you enter the working world after graduating, but the harder you work and show that you’re capable of taking on more responsibility, the more likely you’ll be promoted (assuming your employer actually cares about their employees).
The more you’re promoted, the more you’ll make that you can then allocate towards paying off your debt, which becomes a sort of positive feedback loop with the end result being you pay your loans off even faster.
Speaking of work, if you can budget your time wisely, then picking up a side hustle can be a lucrative option.
As the gig economy continues to grow, it’s becoming easier to find temporary work that can provide additional income whether it’s being an Uber driver, tutoring, or various freelance work you can find on sites like Upwork.
You can utilize those skills you learned in college for more than just your day job. And this can be especially helpful if your day job doesn’t pay much.
One course colleges should really require as a General Education (GE) requirement is Investing 101, because so many people don’t know what to do with their money once they have it, especially right out of college. Investing in stocks and other financial instruments can rapidly accelerate your wealth if you know what you’re doing, but you also need to determine your own “risk appetite” or risk tolerance.
Regardless of whether you want to play it safe or not, creating an investment portfolio is a wise strategy where you can weight your assets towards higher risk (e.g. stocks) or lower risk (e.g. bonds). This is how the wealthy elites of the world have made much of their money, and there’s no reason why you can’t as well.
My personal strategy was to invest in higher-risk assets that offered greater potential returns, since I was young and a long ways away from retirement where I would need to rely on my savings and investments for income.
Whatever you do, don’t leave all your money sitting in a savings account of a bank that pays you 0.01% interest, because then you’re actually losing the value of your money over time due to inflation.
Investing early and wisely was one of the most important factors in helping me pay down my student loans.
When I graduated from college, I had a hefty $50,000 loan debt to take with me and I embarked on a 25-year repayment plan. I was determined to pay it off much faster than that though.
I went to work utilizing the tips mentioned above and was able to pay off my debt in 4 years saving me thousands of dollars of potential interest in the process.
I now have the financial freedom to do what I want without worrying about that massive debt I once had weighing me down.
Honestly, the best advice I have is to not sit on your loans and take them seriously as soon as you have to start making those payments. Budget accordingly, pay as much as you can towards the principal, work diligently and pick up a side hustle if you can, and invest the extra money you have to grow your wealth over time.
If you do all these things, you’ll be well on your way to financial freedom and you won’t be waiting for someone else to free you. Best of luck!