The first of the year is the right time to reflect on areas of life you wish to improve. Tackling my student loan debt is at the top of my New Year's resolution list. Equipped with my first budget and much determination, this January I am balancing the books to reduce my debt.
As a recent college graduate, I am thankful for my education and the opportunities it affords me. Yet the price I paid to attend is, literally, weighing me down. A recent report by Project Student Debt confirms that I am not alone: the average student debt is $29,400, while the national loan default rate is now 14.7%. Both of these figures have more than doubled in less than a decade.
With student loan debt higher than ever before, new grads must give more consideration to how they will pay off their loans. My personal student loan repayment plan, which I am calling “Project Debt Down”, will mix sound advice with hard work to make financial freedom a mission-possible.
Aundrea’s “Project Debt Down” Student Loan Repayment Tips:
Get to know your debt: Before doing anything to reduce your debt, it is important to find out how much you owe and to whom it is owed. Repayment options may vary between financial institutions. Knowing the terms of your loan will help you make a realistic plan.
Plan and budget: Reducing debt does not need to be complicated, but you do need a plan. Based on your income decide how much money you can put towards your debt each month while keeping a long-term goal in mind. Cut back on the wants of life and find creative ways to earn additional cash. I am trying out a debt reduction budget to make every penny count.
Change your money mindset: Becoming debt-free is as much about self-discipline as it is about money. Cut down impulsive spending and prioritize your loan payments. Ensure payments are on time by scheduling automatic transfers to lenders.
Make the most of deferments and forbearances: Once school is complete students generally have a six month grace period before loans must be repaid. In some instances students qualify for a deferment or forbearance where payments are halted for a limited time but interest still accrues. It is important not to idle during this time. During my deferment I am making small payments on my interest as I build up savings to put towards the principal of my loan.
Don’t forget about government programs: Ideally grads should use the standard repayment options to pay off loans as soon as possible. However, initially, managing large-sum payments can be difficult. Look for programs such as Income Based Repayment where payments are capped at 10% of your income. This plan as well as others may even allow loans to be forgiven if you qualify.
For students not yet in college, the best way to reduce student loan debt after school is to have a solid and realistic financial plan before starting. Weigh school options carefully. Tap every resource possible and look for scholarships and grants. Loans should be a last resort with a repayment strategy in place.
Make the commitment to honor your New Year’s resolution over the next 365 days. Change behaviors, make sacrifices, and work towards a better financially independent you. As I progress towards my goal to be debt-free, look for quarterly updates on “Aundrea's Project Debt Down” and more tips for tackling student loan repayment.
Happy New Year!!
An education policy wonk at the Georgia Center of Opportunity, Aundrea Gregg holds a Master’s degree in Social Policy and Planning from the London School Of Economics and a Bachelor’s in Classical Civilizations and Political Science from Howard University. She also is a nail painting enthusiast and writer living in Atlanta, GA. Connect with Aundrea on Twitter or Google+.
Edited by: Viviana Hurtado, Ph.D.How will you reduce your debt in 2014?