You remember this well. College was a great time, but six short months after the ornate graduation ceremony where you felt like you were on top of the world, it was time to start paying off your loans. That day, you discovered that you were not on top of the world—it was on top of you.
A big issue
Personally, I’m very concerned about our current higher education systems. They’re becoming jaded and archaic—not nearly as relevant in today’s culture. But, young high-school graduates are still being convinced that they need a college degree even though the job market isn’t asking for one.
Two-thirds of all students are taking on massive debt—on average, twice the amount of most credit card debt, usually between $22,000 to $30,000. Currently, 15% have defaulted on their loans, 30% end up dropping out of college and 40% of borrowers become delinquent in their payments (see infographic below).
Simply put, a degree no longer guarantees an advantage in the job market, but most of the time results in debt that will give you a disadvantage.
Student loan debt sucks, but if you are in a pickle (or will be soon), here are a few smart tips I’ve learned to help you pay off your student loans quickly and painlessly.
1. Start paying early, real early
This takes hard work, but it’s so worth it! When you are in school, you can actually choose to start paying your student loans right away—you don’t have to wait. And like compound interest, the earlier you start, the better off you’ll be.
Here’s how it worked for me: I took a $4k private loan outside of student aid to pay for some extra classes during Freshman year of college. Instead of getting and forgetting, I made a commitment to pay $50/mo., right away, which covered interest plus a little more. They gave me five years to pay it off and it only took two!
If you can, start paying something now, even if it just covers interest. In the long run, you’ll be saving yourself from a pretty large compound headache.
2. Do you get a tax refund? You know what to do…
Another habit I started during college was to use my entire tax refund to pay off debt. Every year since, whether it’s been $500 or $5,000, I’ve paid off debt first. This allowed me to pay off thousands of dollars in debt during and right after I left college.
While most of my peers were using their refunds to buy fat TVs and gaming systems they didn’t need, I chose to pay off debt. Boring? Maybe, but after paying off thousands, I don’t regret it one bit.
3. Live lean so you can live large
You may have read the famous quote from Dave Ramsey's Financial Peace University, “Live like no one else, so that you can live like no one else.” What he’s saying is that by living lean today, you’ll put yourself in a place to build tons of wealth in the future, and live like no one else.
The key principle to remember is to spend less than you make. Or make more than you spend. For me, it helps to think in terms of living a profitable life. My net worth (assets – liabilities) needs to be green, if it’s not, then my life is not profitable. If we are in the red, either we need to cut spending, or increase income. And depending on your lifestyle, sometimes it’s easier to increase income.
4. Start a side business
The best way to increase income AND live the lifestyle you want is to start your own business. Doing so allows you to work on something you actually care about and something that can grow with you.
Try consulting, blogging, web design, or personal assisting. You could even make something and sell it on Etsy like my wife did. There are dozens things you could do and all you’ve have to do it start.
Even if you just do 10 random jobs for $30 each, that’s $300 you could use to pay student loans.
This is exactly why I started blogging and consulting after I left college. The question that kept me going was, what could I do with an extra $400 each month that I’m currently paying toward student loans, plus the money from my business?
Check out this infographic below that I pulled while researching this article. It’s got some crazy stats on Student Loans that you should be aware of.
What are your thoughts? Leave a comment below.