8 Ways to Prepare for Student Debt Repayment

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Student loan debt is a huge burden. We can all probably agree on that. So how do you handle your student loan debt repayment in a timely and effective way? The answer: strategically.

According to PEW research center, Americans owe more than $1.4 trillion in student loan debt.

The average person has approximately $40,000 in student loan debt and owes around $350 per month to make their minimum payment.

To put these numbers into perspective, there is now more student loan debt than there is credit card debt. In fact, student loan debt has surpassed credit card debt by approximately 3 billion dollars.

I think it’s safe to say this is an epidemic.

So, what do you do about your student loan debt repayment?

First, a little bit about my story with student loan debt. When I graduated college with my undergrad degree in Communication, Public Relations, I was $30,000 in debt and my monthly minimum payments were over $500!

While most people would panic at those numbers, I had been prepared. As soon as I graduated, I crafted a plan to pay off my debt within 2 years so that I could live life financially free.

Through dedication, stinginess, and a ton of savings, I successfully paid off my loans in my 2-year goal. That meant that I was financially free by the age of 23.

I’ll be the first to admit that I am still impressed with my accomplishment. But, the truth is, I saw the bigger picture of how harmful debt can be.

While many people tried to convince me that student loan debt is “good debt”, I still recognized that debt is debt. I didn’t want to live the next 10 or so years owing money to the government. I wanted to be able to spend my money knowing that I didn’t have to pay $500 at the start of each month to a balance that only covered the intended interest.

Since becoming financially free, I have loved telling others in student loan debt how I achieved freedom in such a short amount of time.

With that being said, here are 8 ways to prepare for student debt repayment.

For more shocking student loan debt statics, click here and here.

1. Assess Your Loans

First things first, how much do you owe? I’m not talking about the overall number. I’m talking about each individual loan.

The majority of my success came from my understanding of each individual loan I had. In total, I had 7 loans all at different amounts and interest rates.

Instead of trying to pay off all $30,000, I decided to pay off individual loans in full (while still obviously making my monthly payment).

The reason I chose to pay off my individual loans in full throughout my 2 years was for many reasons:

  1. When an entire loan has been paid in full, the monthly minimum lowers.
  2. Paying off a loan in full saves you money. Basically, if you aren’t being charged the interest of a loan, you’re saving money.
  3. Saving for an individual loan is way more doable of a goal than saving up for the entire student loan bill.

Once I figured this out, my student debt repayment plan became foolproof.

I was able to start saving for the loans with the highest interest rates and knocking those out every few months. By the time I had one more loan to save for, my monthly payment was down to less than $50 and I had literally saved thousands of dollars in interest fees.

Now, you might be thinking, should I consolidate? No. Here’s why.

The only reason I was able to pay off my debt in 2 years was because I focused on my individual loans and paid them off.

By consolidating loan debt, your interest becomes one. That means your monthly payments go to your interest first and if there is money left over, then it goes to the principle. This is why it takes people 10 years to pay off loans.

By leaving loans as individuals, like I did for my 7 loans, I was able to pay down one loan at a time while still making my monthly minimum payment.

Recommended: Millennials May Have a Serious Debt Problem

2. Figure Out Your Interest Rate Per Loan

Hopefully, you understand what interest means. Basically, when it comes to student loan debt, interest is very bad. The higher the loan interest rate, the more money you will owe in the long run.

Each loan you take out has a different interest rate attached to it.

My loan interest rates varied from 3.4% to over 10%. Since I decided to not consolidate and just pay off my individual loans (while still paying my monthly dues), I saved up to pay off the loan with the highest interest rate first.

Once I had enough money to pay off that loan, I began my saving process all over again by paying off the loan with the next highest interest rate.

Each time I paid off a loan, my monthly payment decreased and so did the interest. This was better on my savings and helped me not have to spend so much on my monthly payment, which began at almost $500 a month.

Also, if you are still in school you’ll want to familiarize yourself with the difference between subsidized and unsubsidized loans.

With a subsidized loan, you don’t start paying interest until you get your bill. That makes subsidized loans great to have because of that aspect.

On the other hand, unsubsidized loans charge you interest from the moment you take it out. That means if you took your unsubsidized loan out freshman year, you have been charged interest every single day and will continue to be charged interest until you pay that loan off in full.

3. Establish Your Student Debt Repayment Plan

Now that you know how many individual loans you have and the interest that comes with them, it’s time to craft a plan that works best for you.

As I already mentioned, don’t consolidate. Instead, come up with a savings plan that will allow you to pay off an individual loan every few months.

If you are still unsure where to start, list your loans in order from the highest interest rate to the lowest. That is the order they should be paid.

Once you have that decided, then you can figure out how much you need to save to make a payment in full for that loan and still have enough money for your minimum payment. Trust me, it’s possible.

The only time this student debt repayment plan wouldn’t work is if you have that $22,000 loan from Sally Mae along with other smaller loans. In that case, it might be best for you to work toward paying off the smaller loans in interest rate order and then tackling the Sally Mae Loan after that is done. 

Recommended: Millennials May Have a Serious Debt Problem

4. Save Aggressively

A solid student debt repayment plan only works if you are willing to save aggressively. The more aggressive you save, the sooner you are debt free.

During the two years, I was paying down my debt, I gave up many luxuries such as eating out, getting Starbucks, getting manicures, shopping, getting my hair done, and any other costly thing that can add up. Yes, people teased me and called me uptight and frugal. No, I didn’t care because now I am debt free and I can do all those things that I gave up for those two years.

For me, the aggressive savings was necessary and worth it. I could not have made my goal of 2 years if I had not done so. In fact, my aggressive savings taught me many lessons about what I did and did not need in my life.

There was also immense satisfaction when I had saved up enough money to knock out an entire loan.

So, if you want a successful student debt repayment plan, you have to be willing to save aggressively. There is no way around it.

5. Make a Budget

The tough thing about student loan debt is that it is not the only thing you will have to pay for in a month. The reality is that we still have bills and necessities to purchase each and every month.

If you struggle with figuring out how to balance your money, having a solid budget can really help. Budgets not only keep you on track for your goal, but they also keep you accountable.

There is no shame in needing a little accountability.

To learn how to create a budget, head on over to my blog post: Create a Monthly Budget to Kickstart Your Savings

6. Establish a Repayment Timeline

With a budget in place, you should now have a better idea of how much time you will need to save up for your first loan.

Give yourself a deadline to have that amount saved.

During this step, it is important to be realistic about how much you owe and how much you can actually save. While you should definitely save aggressively, you should also be realistic.

If you know that you have a lot of other payments to make each month, it wouldn’t be wise to use all your money to pay off a loan and jeopardize your livelihood.

Instead, establish a realistic timeline that you can have the money saved and comfortably make the payment.

Also, give yourself a deadline to have the entire bill paid in full. For me, that was 2 years. It may be different for you. However, whatever you decided, stick to it and work extremely hard towards it.

7. Be Mentally Prepared for Minimal Living

I’m not talking about minimalism. I’m talking about living with the minimum you need to get by for the time being.

Just like I gave up shopping and manicures, what are you going to give up in order to save more money?

For a successful student debt repayment journey, you need to be prepared to put your loans first. Say no to unnecessary purchased and focus on getting out of debt.

Trust me, a few years without buying the newest tech gadgets won’t hurt you.

It may seem hard at first to pass up on expensive opportunities, but when you are debt free it will all be extremely worth it.

8. Start Cutting Down Personal Expenses

The goal is to save money and get out of debt sooner. For some, that may mean switching to a cheaper phone plan or canceling various subscriptions.

A few dollars extra goes a long way. When you add up how much interest you are being charged per day, per loan, the amount will shock you. By cutting down on various monthly expenses, those extra dollars can help work toward your interest rate and overall payment of that loan.

Remember, the more you can save, the faster you will be financially free.

Recommended: Millennials May Have a Serious Debt Problem

Final Thoughts

Student debt repayment doesn’t have to be a headache. With a proper understanding of how it works and a solid plan in place, you can achieve financial freedom within a few years.

Best of luck to you in your journey to pay off your student loan debt!

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