It’s graduation season! As exciting as it can be to walk across the stage and accept your diploma, for many new professionals, it also means the clock is ticking to begin paying down student debt. It is important to make a plan to address your student loans, and there are some strategies you can use to get ahead.
Consider Your Lifestyle
Cutting your monthly expenses can make sure you are able to make your payments every month. Living frugally can also help you pay down debt faster if you apply your savings directly towards your debt. As you are starting your career, explore the idea of living with a roommate, dining out less, or trying a “no-spend” challenge.
Your employer can also have an impact on your loan debt. Public sector and non-profit employees may qualify for various loan forgiveness programs. (Learn more here!) Depending on your industry, some employers will also offer a 401(k) match for student loan payments, rather than just retirement savings.
Strategize Your Monthly Payments
Be smart about how you actually pay off those loans! Take a careful look at what your minimum payment is and your interest rates. Try to pay even a little more than your minimum payment. These extra payments each month pay down the principal loan balance dollar for dollar. This is one of the most effective ways to pay down the principal loan balance quickly.
You should also make sure you are signed up for Auto Draft. Having funds automatically deducted from your bank account ensures you make payments on time, and you may receive an interest rate reduction for enrolling.
Pay bi-weekly!
Consider setting up bi-weekly payments instead of monthly payments. This can help you pay more each year and will reduce the amount of interest paid. This article explains how it works.
(Note: the article references mortgage payments, but the principal is the same!)
Multiple Debts?
Don’t underestimate classic methods! If you have multiple loans, consider following either the Debt Snowball Method or the Debt Avalanche Method. While these strategies don’t technically reduce your loans, they provide a great framework to work towards eliminating your debt.
Debt Snowball
Step 1: List your debts from smallest to largest (regardless of interest rate)
Step 2: Make minimum payments on all your debts except the smallest debt
Step 3: Throw as much extra money as you can on your smallest debt until it is gone
Step 4: Take what you were paying on your smallest debt and add that to your payment on the next smallest debt
Step 5: Repeat until each debt is paid in full
Debt Avalanche
Step 1: List your debts from the highest interest rate to the lowest
Step 2: Make minimum payments on all your debts except the debt with the highest interest rate
Step 3: Throw as much extra money as you can on your high-interest debt until it is gone
Step 4: Take what you were paying on that debt and add that to your payment on the next highest interest rate
Step 5: Repeat until each debt is paid in full
Remember, a financial advisor can help you run the numbers on these debt repayment options! They can help you decide on the best approach and strategies for your lifestyle and situation.
We are here to help, whether by answering a quick question or building an in-depth personalized financial plan. Reach out today!
Garrett Minton
Associate Advisor
A native of the Upstate, Garrett’s mission is to help individuals and families navigate the ever-changing road to achieving their financial goals. By gaining a deeper understanding of what matters most to you, he develops a personalized strategy to help you manage, grow, and preserve your wealth today, while considering the impact it can have for years to come.
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