Tackling Student Loan Debt with a Plan — Step 1 of 4
Congratulations!! Your countless hours studying, writing papers, and preparing for exams over the last number of years have finally paid off.
The financial burden of your loans can certainly prevent you from doing what you want to do. They can also prevent you from accomplishing other important financial goals. Buying a car, saving for a down payment on a house, or affording that dream wedding. These kinds of goals regarding finances hardly ever get less expensive. That’s why it’s so important to understand your financial situation and then attack your student loans with a plan. Throughout this 4-part series, we’ll lay out the following key areas to better equip you to tackle those student loans.
- Budgeting (Micro-level)
- Increasing your income (Macro-level)
- Refinancing your student loans (Macro-level)
- AlumSum as your student loan management tool
We’ll start with smaller, micro-level changes you can make and then address larger, macro-level changes that can dramatically speed up paying off your student debt. First up, budgeting.
1) Budgeting (Micro-level)
If you’re not already budgeting through budgeting apps like Mint or your own Excel spreadsheet there are a few major reasons why it’s wise and necessary to start ASAP:
- You get a thorough understanding of your financial situation: money coming in and money coming out every month
- Gives you a framework to live within your means
- Knowing what spending areas you need to rein in
- Having a roadmap to achieving your financial goals
Budgeting is an ongoing process that’s meant to give you detailed look into how much money comes in and out of your finances. As you assess your financial situation through budgeting you’ll begin to see a clearer path on what you need to do to achieve your financial goals, one of them being to pay down your student debt. I look at tackling this large financial burden by approaching the solution in two ways:
- Cutting your expenses
- Increasing your income
Everything should fall under these two categories and your strategy to pay off your student debt will involve tackling either one or tackling both.
Weak areas in your budget will also emerge in terms of spending too much in certain areas. Find ways to trim your expenses where you can so you’re able to put more towards your loan payments. An expense definitely worth exploring other options is your car/home (rental) insurance. Shopping around can potentially save you hundreds of dollars a year. Those savings, along with some other tweaks to your budget can have a sustained positive impact on your budget. Can you cut out cable or downgrade the service? Do you have any subscriptions that are rarely used that can be canceled? What about eating out less? Changes like these in your spending and applying those savings can help pay down your student loan debt more quickly.
Lastly, as you become more aware of your finances I highly recommend that you do two things if these apply to you:
- Build your cash reserves for emergency savings
- Focus on paying off debt with higher interest, like credit card debt
If and when unexpected medical expenses come up or your car is having issues, you’ll be glad that you have something set aside for them. If you have to tap into your emergency savings, keep contributing to it to replenish what you’ve spent and build it up to at least having 3 (preferably 6) months’ worth of living expenses.
For those who want to increase your income, we’ll take a deeper dive into the next article of this series. Increasing your income will be the most significant way to pay down your debt as quickly as possible while lowering the overall amount you’ll end up paying in interest over the life of your loans.
Disclosure: Opinions, recommendations, and analyses provided in this article are those, solely of the author and have not been reviewed, approved, or endorsed by any financial institution. The contents of this article are also not provided or commissioned by any financial institution.
