If you’ve recently graduated college, then you’re probably eager to be free from classes, assignments and exams and finally embark on your career. Yet, the most recent generation of college graduates faces a unique challenge, as an increasing number are unable to free themselves from the burden of student loan debt.
While student loans help you afford higher education, they are causing many problems for today’s newest workers. The average college graduate in 2016 owes about $37,000 in loans, which in some cases is more than a new grad’s starting salary. This amount may seem insurmountable, but with smart planning, discipline and a few helpful tips, you can rid yourself of student loans and achieve financial freedom.
Go Beyond the Minimum Payment
Whenever possible, pay off more than the minimum amount due each month. Often, just making the minimum monthly payment will only cover your loan’s interest, and will hardly make a dent into paying down the principal. Even if you can only contribute an extra $10, $25 or $50 more a month, this extra bump can add up quickly and will help you pay down your loans much faster. Typically, the longer it takes you to pay off your loan, the greater the total amount you’ll ultimately end up paying. This is particularly important if you have a variable interest rate loan, which makes it more difficult to nail down exactly how much your loan may cost you in the long run.
Many plans offer the option to set up automatic payments, so you can figure out your budget ahead of time and know exactly how much you can afford to pay toward your loan each month. This option can encourage you to be more aggressive, as it removes the choice of how much money to pay each month.
Pay Yourself First
Not only should you treat your student loan payment as a monthly bill, you should view it as the highest priority bill. If you’ve already set aside that extra $100 for your loans, you might just avoid the urge to splurge on that new pair of shoes. Another tip is to commit any extra money you receive throughout the year—such as your tax refund, bonuses or any part-time income—toward your student loans.
Stick to a Firm Budget
The first year after college is often when you’ll be employed for the first time and when you will begin making payments towards your loans. You’ll likely be excited to receive your first full-time paycheck, but it’s important to have solid understanding of just how far your dollars go. Keep a keen eye on your budget, and develop a strategy of how you will allocate your income—making sure to put as much as you can towards your loans. As you work to pay them off, you will likely have to make sacrifices—so remember to celebrate small milestones to keep you motivated towards your goal of becoming free from the overwhelming burden of student debt.
Securities offered through M.S. Howells & Co., Member FINRA/SIPC. Advisory services offered through Jemma Investment Advisors, LLC, a registered investment advisor. M.S. Howells & Co. and Jemma Investment Advisors, LLC are not affiliated.