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6 Tips to Effectively Reduce Your Student Loan Debt

Updated on November 20, 2015
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Congratulations on graduating college! Now the real work begins.

The Economist has reported that student debt in America has exceeded $1 trillion. With the rising cost of higher education, student loan debt is increasingly becoming a widespread issue. While 5 and 6-figure debt obligations are daunting and can be difficult, here are 6 tips to help expedite paying off college debt:


1. Create a monthly budget and stick to it

Did you create a budget during college? If not, now is the time to start. Include all sources of income (ideally, after taxes and retirement contributions), expenses and the amount in your bank account broken out by month. You should be able to find template online that can be used as a starting point or create your own in Microsoft Excel. The budget should be as realistic as possible. I was able to project how much money would be in my bank account at the end of every year.

Next, go through the budget and ask yourself if there any expenses you can cut down or out? The goal is to live within your means. Depending on your income and assets, this may mean living like a college student. Using coupons, cooking more dinners at home, outdoor activities, and reading books from a public library will typically keep you away from money-spending temptations and help save money in the long-term. When is the last time you visited a free museum?


2. Evaluate loan payment options

Once you understand all of your payment options, select the best option based on your unique situation. If you are paying student loans, familiarize yourself with the student loan details by scrutinizing the interest percentage being charged per loan as the loans may have different rates. Focusing on the paying higher interest loans first will help avoid paying more interest in the long-term. Do some research or give your loan servicing company a call and ask if this is possible. They may be able to retro-actively apply you payment towards higher interest loans first. If you are now responsible for your student loan debt, you might as well be making wise monthly payments.

Keep in mind that you may qualify for an annual tax deduction of up to $2,500 for the interest paid on your student loans subject to income limitations. Your lender should send you information during tax season or you can look it up online.

Can any of your monthly earnings be set aside for making more than the minimum required loan payment? If so, account for that expense in your monthly budget.


3. Assess your living situation

Rent is typically the highest monthly cost in post-graduation budgets and reducing this cost could mean saving thousands of dollars per year that could be allocated to paying down your student loans. Living with your parents or guardian, especially if the area has great career opportunities, will go a long ways towards helping you save money on rent, utilities and other items. Is living with your parents not the best option for you? If possible, consider getting a roommate to reduce your annual rent and utilities cost.


4. Evaluate daily commuting options

Taking public transportation is a "no-brainer" if your city offers great options to get around. You will avoid the costs of paying for a car and its related expenses such as insurance, maintenance, and gas. Also, you will gain time to read that book you've been wanting to read or study for an upcoming exam. If employed, check with your employer for incentives on taking public transportation as certain employers will subsidize all or a portion of the annual cost. Lookup the public transportation routes in your county and city and determine if you have to walk from a train, subway or bus stop to the office. If possible, enjoy the benefits of walking to work or carpooling with a colleague or roommate.


5. Increase your income and use it wisely

For many of us, a raise or a part-time job on the weekend will not mean a brand new Ferrari. If feasible, allocate all or a portion of the additional monthly income to making larger monthly loan payments. If you have 5 or 6-figure debt and want to expedite the loan-paying process, extra income may mean sticking to your budget and making more than the minimum payments your student loans require. You are saving yourself interest payments in the long-run. Do it for your future debt-free self.


6. Invest in yourself

Many industries, such as in Engineering, Public Accounting, Human Resources, Asset Management, and more, offer professional certifications where once you have completed the required work experience and coursework, you may sit for an exam or exams. Look into whether your employer offers a bonus to employees for passing. Also, employers sometimes pay for exam study materials and fees. Once you earn the professional certification, consider negotiating a higher salary or a higher raise with your employer.

While studying might be the last thing you want to do after graduating keep in mind that, like your degree(s), you will have this professional certification under your belt for the rest of your life making it a great investment.

Note: Aside from paying down student debt, it is important to build an emergency fund in case of a "rainy day." Perhaps start with a goal of 6 months of income (whatever that may be). Place the emergency fund in a high-interest savings account. Under current conditions, you will not earn much annual interest but something is better than nothing.

It is possible to expedite the number of years you will be paying back your student loans, decreasing the total amount of interest paid along the way.

Tips to stay motivated:

1. Write-down your progress as you go. It feels good to check off short-term goals in the process of hitting a long-term goal.

2. Imagine the feeling you will have once all the money you earn will be yours to keep! The money will be going straight to your bank account and not somewhere else.

3. Reward yourself along the way with a massage, fancy dinner or a minor modification to you standard of living. You deserve it! Just remember to include the additional cost in your monthly budget.

4. Paying your student loans on-time will likely boost your credit score.

Do you have any great tips? Feel free to share them in the comments section below.

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