Debt Consolidation

How to Manage Student Loan Debt

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Your college education impacts every corner of your financial life; and sometimes it can really put a damper on things. Knowing how to manage student loan debt until it’s paid off can help you live a better life. A survey of more than 1,500 U.S. adults conducted by Freedom Debt Relief, in partnership with Atomik Research, gauged how student loans impact people’s lives.

Many of the respondents said they can’t save money, go on vacation, or save for retirement because their 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 or achieve longer term financial goals, like buying a new home.

Understanding your student loan terms is a great way to get started. But there are other ways to manage student loan debt that can help you feel organized and less stressed.

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 United States is a staggering $1.6 trillion. An overwhelming 93 percent of college attendees and graduates surveyed think this number represents a financial crisis.

Nearly half of survey respondents said that student loan debt limits their choice of where to live. It’s not uncommon to stay home or in 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 was $393 as of May 2017, according to the Federal Reserve. However, you have options to create a healthy financial life and manage student loan debt. You just need a plan.

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 in the form of a budget. Start by creating two columns: one for income and one for expenses. As you receive and spend money, write down what the expense is and how much it costs. You can also track your expenses with a mobile app. 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.

You can also use a spreadsheet. Don’t over complicate things, since you want to make budgeting a healthy habit. Start by listing out your fixed expenses, 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 and savings.

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. With a clear picture of your finances, both present situation and future goals, you’ll be better equipped to manage student loan debt. Not sure where to start? Break it down into yearly, monthly, and weekly goals.

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, 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 with recurring, automatic bank transfers.

Have an accountability partner

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.

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 is crucial to learning how to manage student loan debt (and pay it off). 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 snowball method.

Using the debt avalanche method, you make minimum payments on everything except the loan with the highest interest rate. Any extra income needs to be put toward 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 help you manage student loan debt. Start by making minimum payments on all loans except for the one with the lowest balance, with the goal of paying off the smallest balance as quickly as possible. This can motivate you to pay the next smallest debt and give you momentum.

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.

Use a debt consolidation loan

Student loan consolidation takes your federal student loans and combines 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. Loans with fixed rates are generally preferred as the interest rate does not change over the loan’s terms. Loans with 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.

Make a financial plan for your future

Managing your student loan debt, a job, and a life is hard, but controlling your debt and planning for a bright future doesn’t have to be. We have developed a simple to follow guide to help you find the tools you need to move into your financial future. Get started by downloading our free guide right now.

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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.