"Go to college, get good grades, and get a good safe job." They told us this, but they didn't warn us about student loan debt.
This is something you probably heard from your friends, parents, and teachers when you were younger, right? You listened and now you're stuck with six figures worth of debt working a corporate job you hate. Yikes!
Don't worry, unfortunately this is a very common story among a lot of young men. A lot of people are in the same situation and feel hopeless.
The question is, is it possible to escape this crippling debt, or are you going to be stuck in this rut forever?
Everyones situation is different, however, I believe that if you use these following steps, then you can crush your loans and find the freedom you are looking for.
Let's take a look.
How to Pay Off Student Loans as Quickly as Possible
Assess Your Debt
The crazy thing about the student loan debt problem is that a lot of people don't even know how much money they owe. Most people were 18 years old and signed a bunch of papers without realizing what they were getting themselves into.
The first step you need to take is to become organized and assess the situation you are in. If you don't know how much you owe, then how are you going to come up with a plan to get out of it? Duh!
This part is the boring part and can be a little overwhelming, especially when you see those large numbers. With that being said, you have to face your financial problems whether you like it or not, and the sooner you attack it the better.
Creating a plan means you have to dive into the numbers, the interest rates, and the monthly minimums. This is the only way to evaluate your situation and gain clarity on what you need to do in the future.
Along with this, it is important to set up specific goals that you can achieve within a specific timeframe.
"I will pay off my loans in 2 years," is way more specific than "I will get out of debt." Creating these goals will help you stay disciplined in your repayment process.
Consolidation and Refinancing
As mentioned earlier, diving into your interest rates is one of the most important parts of your process. Determining which loans to attack first can have a dramatic impact on your financial future.
Along with this, you also need to figure out how many loans that you have. Some people only have one loan, some people have 3 or 4 from different lenders. Everyones situation is different, so thats why you need to figure out your details.
Depending on your situation, it is possible to consolidate or refinance your loans.
Consolidation is a process that happens through the Federal Government
This combines multiple federal loans into one new larger loan, that way you’ll only have one payment at the end of the month instead of several.
Your new interest rate will be the weighted average of all the loans.
Refinancing combines your multiple loans using a private lender, that way you’ll only have one payment at the end of the month instead of several.
Your new interest rate will depend on the company you use and your creditworthiness. There are several different companies, so make sure you do your research!
Invest or Pay off Debt?
Student loans that have an interest rate greater than 7% are considered to be on the high side, while loans with an interest rate lower than 7% are considered to be on the low side.
If your ultimate goal is to be debt free fast, I believe that attacking the higher interest loans first is the way to go.
However, in certain situations, it actually might be better to invest your money instead of paying off debt, because the returns can be greater from the investments. Investing in the stock market can actually pay larger dividends that can help you build wealth faster, and ultimately let the loans pay for themselves.
With that being said, do your research!
Debt Avalanche vs. Debt Snowball
Once you figure out the numbers and create a timeframe, you can now decide on which repayment strategy you want to use. The two most popular strategies are the “Debt Avalanche” and the “Debt Snowball.”
The “Debt Avalanche” will save you the most money on your student loan debt. The first loan you want to pay off entirely is the one with the highest interest rate. After the highest interest rate loan is paid off, you will continue this process with the remaining loans.
- Organize your debts from largest to smallest interest rate
- Make minimum payments on all debts EXCEPT Highest Interest Rate
- Pay as much as possible towards Highest interest rate loan
- Once paid off, add what you were paying to the next highest interest debt
Let’s say you have an extra $300 a month to put towards your loans. You take that extra $300, add it to the minimum payment and use it to attack the largest interest rate loan. Once it is paid off, you take that $300 along with the monthly minimum and put it towards the next largest interest rate loan.
The chart is organized from greatest to smallest interest rate.
$152, $81, and $114 represent each loans monthly minimum:
The Debt Snowball is a great strategy for people who need quick wins for motivation. The first loan you want to pay off is the one with the smallest TOTAL AMOUNT, then continue that same process once it is paid off.
- Organize your debts from smallest to largest total amount
- Make minimum payments on all debts EXCEPT smallest one
- Pay as much possible towards smallest loan
- Once paid off, add what you were paying to the next smallest total
Let’s say you have an extra $300 a month to put towards your student loan debt. You take that extra $300, add it to the minimum payment and use it to attack the largest total amount loan. Once it is paid off, you take that $300 along with the monthly minimum and put it towards the next largest total loan.
The chart is organized from smallest to greatest total amount:
Do your research and pick a strategy that works for you.
Increase Your Income
Obviously, if you're trying to get out of debt, you need money to do so. The more money you make, the faster you can invest, or pay off your loans.
Money won’t solve all your problems, but it will solve your money problems.
Budgeting and monitoring your expenses will obviously help, however finding a way to make more money will drastically change your financial situation.
Nobody wants to work a second job, I get it, but if you want to better your situation then you are probably going to have to make some sacrifices and do some things you don't want to do.
With that being said, not all side hustles or second jobs are that draining. My advice is to take what you are good at and monetize those skills.
If you're good at sports you can teach the fundamentals to younger kids and charge hourly. Say you had college basketball experience and you need the extra money. You could easily charge $25-$50 an hour giving out lessons.
Making money while you're having fun doesn't sound too bad right?
Along with this, there are easy side hustles you can take part in, such as refereeing sports leagues or Retail Arbitrage, better known as Flipping.
Flipping is where you find items for cheap and then sell them for a higher value. Garage sales and thrift stores are perfect places to find items to flip.
Some people even take it to the extreme and start their own Amazon FBA business, where they buy products in retail stores, such as Walmart and Target, and then flip them on Amazon.
Along with this, don’t be afraid to put some work in on the weekends. If you don’t, you're missing out on 104 days (28% of the year) to put more money in your pocket.
Remember, these sacrifices will help you with your future, and they won't last forever, so take advantage.
Managing Your Finances
Whatever your situation is, being more intelligent with your financial decisions will help propel you out of debt. Some people make a lot of money, but make poor financial choices that hinder their future.
Create a budget for yourself and a plan for your money. You need to know exactly what is going in your pockets and exactly what is coming out of your pockets.
Becoming more conscious of your finances will help you drastically on your path to freedom.
- Write Down Expenses
- Figure Out Income
- Do the Math
- Review Your Status and Adjust Accordingly
The 50/30/20 Rule will help you budget correctly
Your income should be delegated as follows:
50% for Needs (Rent, Mortgage, Bills, Cars, etc.)
30% for Savings/Investments (Emergency Fund, Stocks, Bonds, etc.)
20% for Wants (Shopping, Restaurants, Activities, etc.)
Changing you financial situation is easier said than done, but if you want to have a different and better life, then you need to start making some better decisions.
Student loan debt hurts, but it isn't going to magically disappear.
Just start. If you want to learn more on this subject, grab a copy of my course, The Student Loan Cheat Code.