Debt Consolidation

4 Ways to Stop Student Loan Debt from Ruining Your Financial Life

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Your college education impacts every corner of your financial life. And sometimes it can really put a damper on things. Freedom Debt Relief recently conducted a survey in partnership with Atomik Research to get a pulse on how student loans impact people’s lives.

More than 1,500 U.S. adults were surveyed and many survey respondents said they can’t save money, go on vacation, or save for retirement because the student loan burden is overwhelming. While a degree can help you move up the corporate ladder, the price tag can make it hard to keep up with normal living expenses.

Plus, you more than likely have other financial goals. Perhaps you want to buy a car or a new home. You might also want to save for your children’s education so they don’t have to brunt tuition costs as you did. How can you still do the things you love to do and pay off your student loan debt?

Understanding your student loan terms is a great way to get started. But there are other ways you can manage your student loan debt that can help you feel organized and less stressed. Take a look at these ways you can get back on track with your finances.

How Student Loan Debt Affects Your Finances

First, let’s figure out how student loan debt affects your finances. The total balance for outstanding student loan debt in the U.S. is a staggering $1.6 trillion. An overwhelming 93% of college attendees and graduates surveyed think this number represents a financial crisis.

The term “financial crisis” can feel very macro, but think about how it impacts your life. Nearly half of survey respondents said that student loan debt limits their choice of where to live. It’s not uncommon to stick around home or an area with a low cost of living simply because student loan payments make it hard to move anywhere else.

The average monthly student loan debt payment is $393, according to the Federal Reserve. Add this payment to everything else you juggle: ordinary bills, credit card payments, car payment, and a mortgage. Not everything is doom and gloom, though. You have options to create a healthy financial life and pay off those pesky student loans.

Create a Concrete Budget

The top three categories that create the most financial stress for survey respondents are student loans, housing costs including mortgage and rent, and credit cards. A good way to combat financial stress and anxiety is to write out your financial life.

This usually takes shape through the form of a budget. Budgeting doesn’t have to be bland. There are several creative ways to track your income and expenses. Start a financial journal by creating two columns: one for income and one for expenses. As you receive money and spend money, write down what the expense is and how much it costs.

Another way to create a concrete budget is to track it with an app. There are plenty of money-saving apps available for download. Look for one that allows you to categorize expenses so you can lump like expenses together. The visual makes it easy to see what you value most with your money.

Spreadsheets are great, too. Be sure to not overcomplicate things so you can make budgeting a healthy habit. Start by listing out your fixed expenses. These are expenses that are fairly predictable that happen each month, like rent or mortgage payment, cell phone bill, utilities, and cable and internet. Then you can list out discretionary expenses, like eating out, shopping, and entertainment. Don’t forget that you should be making room in your budget to cover your debt payments.

No matter how you slice it, a written budget can help you see how you spend and save money. It can help you make decisions to cut back on eating out and automate a plan to save for your next beach vacation.

Write Out Your Financial Goals

While it’s important to write out what you spend and earn, it’s equally important to set financial goals. Not sure where to start? Break it down into yearly, monthly, and weekly goals. Think about it like learning to play guitar for the first time. Perhaps you want to learn a new song by the end of the year. In order to learn the song, you’ll need to learn a new chord each week and a new section each month. You can set up your financial goals the same way. 

For example, you could have a goal to put together a three-month emergency fund within the next year. The first step would be to understand how much money you need for a normal month of living expenses. Then once you have the amount to aim for, look at your budget and determine how much you need to set aside each month to hit your goal.

If saving is important to you, automate your savings contributions. Most banks offer automatic transfers between checking and savings accounts. Set your schedule and you won’t have to worry about transferring funds manually.

Have an Accountability Partner

so, you have your financial goals and a budget in place. How do you hold yourself accountable? An accountability partner can help you stick to healthy financial habits. It’s important to find a partner that you feel comfortable sharing your financial history with, so make sure it’s someone you trust. If you are married, this will be your spouse, but you could also include someone that has a good financial compass.

You could invest in a budget coach or licensed money counselor to help you stay on track. You could even solicit someone you know and trust that has a good reputation with money. Regardless, an accountability partner can help you make better financial decisions.

A great way to use an accountability partner is to set up recurring monthly budget meetings. Review your income and expenses for the previous month. Identify financial accomplishments and areas that you can improve on within the month. Together, you can set goals with your accountability partner for the following month.

You can also set spending limits with the help of an accountability partner. Let’s say you want to be more mindful about making online purchases. Any time you want to online shop, tell your accountability partner first. This could help you slow down and think about that purchase first instead of haphazardly clicking the “order now” button.

Make a Plan to Pay it off

Financial order at home makes it a lot easier to pay off student loan debt. You could stay on the traditional 10-year repayment plan if you have federal student loans, but there are other ways to pay off student loan debt.

DIY Your Student Loan Debt Payoff Plan

Roll up your sleeves and tackle your student loan debt on your own. Start with the debt avalanche or debt snowball method. The debt avalanche method helps you organize your debt by paying off the loan with the highest interest rate first.

You will make minimum payments on everything except for the loan with the highest interest rate. Any extra income needs to be thrown towards that debt until it is paid off. Then you can move on to the next highest interest rate loan and so on until you reach a zero balance.

The debt snowball method can also work for student loan debt. Start by making minimum payments on all loans except for the one with the lowest balance. The idea here is that you can pay off the smallest balance a lot quicker which can motivate you to pay the next smallest debt.

One important thing to note, if you are working with a student loan servicer, you may need to manually allocate your extra payment towards a specific loan instead of to the total balance. Otherwise, your payment may be split across all of your loans instead of the one you want to pay off first.

Use a Debt Consolidation Loan

Student loan consolidation takes your federal student loans and combine them into one loan with one monthly payment. You can consolidate through the U.S. Department of Education at no additional cost if you have multiple federal loans, or you can work with a private lender for a fee. 

If you have a combination of federal and private student loans you can consolidate your student loans with a private lender. This is also known as student loan refinancing. While you can get a lower monthly payment through consolidation, it doesn’t help you pay off the debt quicker. In most cases, you extend the loan term and the amount of interest you pay.

Refinance Your Student Loans

Student loan refinancing gives you a brand new loan with a new interest rate and a new term. If you choose to refinance, look for fixed or variable rate loans. Fixed rates are generally preferred as the interest rate does not change over the loan’s terms. Variable rates can fluctuate, meaning the interest rate can go up or down during the life of the loan.

In most cases, you can refinance both federal and private student loans. When you refinance federal student loans, you could lose special benefits like public service forgiveness or economic hardship programs.

No matter which method you choose, be sure you understand the pros and cons to each one before you make a decision.

Have More Debt than Student Loans?

If you struggle with high-interest debt, including credit card debt, medical bills, and more, you might want to pay off that debt first. High-interest debt could cost you more in the long run than student loan debt. Once your high-interest debt is paid off, you’ll have more money to throw towards your student loan debt. 

One way you could get out of high-interest debt fast is through a debt settlement program, like the one Freedom Debt Relief offers. Through debt settlement, you could reduce your overall debt, have more money left over at the end of the month, and be debt-free in 24-48 months. To learn more about our program and see if it’s the right solution for you, request a free debt evaluation today.

Justine Nelson is the founder of Debt Free Millennials, an online community to help millennials eliminate debt and live a debt free lifestyle. As a freelance writer and YouTuber, Justine enjoys creating upbeat and educational personal finance content. This Midwest millennial paid off $35k in student loan debt and now resides in San Diego with her husband.