After all your work in college and applying, you’ve finally nailed your first salaried position. Congratulations! You may have a modest income or have hit it big, but either way, student debt is likely something you are worried about. The more you pay for a degree, the more you have to pay back thanks to interest.
The more you earn, the more lenders expect you to pay, especially if you have federal loans. Although it’s a stressful subject, student debt is manageable, even if you’re only earning an entry-level salary. These tips will help you not only budget for your monthly payments but also lay the foundation for a flexible budget that allows you to save, reach milestones and work toward your goals in life.
It’s the most obvious tip, but it has to be said, because far too many recent graduates do not realize how important it is to save as much as they can with their first paychecks. The ecstasy of having your own full-time, steady stream of income can cause you to impulsively spend on things that you really don’t need.
Hundreds of dollars wasted ultimately set you further from freeing yourself from the constraints of student debt. It will last a lifetime if you don’t seriously start addressing it from the moment you’re able to financially do so.
Budgeting doesn’t have to be a bore, either. There are plenty of free apps that make it easy to keep track of your spending, set reminders for bills and even set and monitor savings goals. It’s a good idea to look at how much you have left over every month and dedicate at least 25 percent of that to savings. When you start to build up a decent amount, you’ll be able to divvy it up further, allocating some to pay back your debt quicker.
Keep Your Priorities Straight
If you can automate your essential payments, like car insurance, internet and your phone bill, do so. This ensures they’ll always be covered, and you’ll be less likely to take money out of your account when you know it’s going to be deducted at a certain time each month.
For people who struggle with overspending, automated payments can help reduce temptation and keep you more accountable. Some companies also offer discounts to customers who sign up for automatic payments. You can earn a discount on your car insurance or bill just by agreeing to let the company take what they’re owed on a set day every month.
Just make sure you keep a note on your phone or in your calendar so you are fully aware of when each payment is deducted. The last thing you want is to forget and have a bill come out and overdraw your account. Then, other payments could bounce, leaving you with a slew of fees and penalties from both your bank and the companies you owe.
Consolidate Your Debt
Student loan consolidation is one management option many hear about but few really understand. It sounds complicated, and no one wants to wind up accidentally getting themselves into even more debt through a long-winded financial process. Don’t worry, it’s not as hard as you might think.
Consolidation is the act of trading your debt with one lender for a loan with another. You don’t owe less on your principal balance, but the consolidation process can significantly reduce your interest rates or even shorten your repayment period. There is a free guide that carefully explains what student debt consolidation entails and how you can explore all your options.
Borrowers need to be fully educated on the subject before they ever agree to new loan terms, and this guide makes it easy to inform yourself and know your choices. Consolidation can also help you avoid negative amortization, which happens when the amount of interest owed now exceeds the amount of the loan itself. When this happens, you become trapped in debt because you’re always paying more than you actually owe.
Choose a Payment Style
You can approach your student debt repayment in one of two ways. You could pay off the loan with the highest interest rate first to avoid as much added debt as possible. High interest rates compound the quickest, so addressing the principal amount first is the best way to lower future debt and reduce the amount of time you stay trapped in the repayment cycle.
The second option is to wipe as many smaller loans off the table as quickly as they can, regardless of their interest rate. Paying the minimum on other loans allows them to clear more principal debts quickly, which then allows them to dedicate more money to paying back larger debts later.
You can also explore refinancing, which alters your interest rates and how much you pay per month. If you’ve landed a solid job, then you may not be concerned about a longer repayment period if it means you ultimately pay less interest overall. Others might want to tackle their debt head-on and get it paid off as soon as possible.
In this case, refinancing can lower interest rates while simultaneously creating larger monthly payments that get the principal balance repaid faster.
Don’t Lose Focus of Other Life Goals
No one wants to be in debt, but owing money on student loans is a normal part of life for the majority of Americans. As long as you’re in good standing, there’s no need to force yourself to pay more than you can afford to get out of debt quicker.
While it might be nice to imagine your adult life without any bills, owing money doesn’t have to stop you from working toward big milestones like buying a house or paying off your car. Like everything else in your budget, student loan payments should be a component, not the main focus.
If you balance them with everything else in your life, then you can build good credit, put away savings and make the most out of your first salary while working toward repaying your balance.