Extreme Makeover: Student Debt Edition
You graduated from college with student loan debt and you want to pay it off as quickly as possible. These tips will help you tackle your student loans and get them under control.
Assess Your Circumstances
1. Realize that why you took on debt no longer matters. Focus on what you can do to deal with the debt. You control your destiny.
2. If you are in default on your student loans, use the Fair Debt Collection Practices Act (FDCPA) to stop the harassment from debt collectors. Do talk to the lender about rehabilitating your defaulted student loans, since that can reduce your costs by eliminating collection charges.
3. Increase your awareness of your student loan debt. At least once a month, check your progress of paying down the total loan balance.
Tip: Note how much of your payments went to interest, instead of principal. Divide your monthly loan payments by 30 to 40 and your prepayment by that figure to estimate how many days you save by making extra payments on your loans.
Claim Any Discounts
1. Sign up for auto-debit, where your monthly loan payments are automatically transferred from your bank account. This will help you avoid late fees. Some lenders give you an interest rate reduction as an incentive, saving you money.
2. Claim the student loan interest deduction on your federal income tax return. The student loan interest deduction lets you deduct up to $2,500 in interest on federal and private student loans, even if you don’t itemize. This can save you hundreds of dollars on your federal income taxes.
3. Use your income tax refunds to pay down your student loan debt.
Sell Assets to Repay Debt
1. Sell everything you have of value and use the proceeds to pay down your student loan debt. Some items can be sold through eBay, Craigslist or Letgo. Sell everything you haven’t used in a year.
2. Sell your car and use public transportation or a bicycle instead. If you need a car for work, get a cheaper used car instead.
Reduce Your Spending
1. Live like you’re broke. Until your debt is paid off in full, you have negative net worth, so you really are broke.
2. Cut your spending as much as possible. Eliminate all expenses that aren’t really necessary. Drop your gym membership, cell phone plan, and cable/satellite TV service. Stop shopping for new clothing.
3. Move back in with your parents to save on rent or get a roommate to split the costs. Reduce the thermostat setting by at least 10 degrees in the winter and raise it by 10 degrees in the summer.
4. Do not go out with friends. Stop eating out and don’t participate in paid entertainment, unless someone else is paying.
5. Eat less to save more. Stick to the recommended 2,000 calorie diet. Not only will you be healthier, but you also will be giving your debt a diet at the same time.
6. Avoid temptation. Don’t visit shopping malls or stores, not even to window shop, as you will be tempted to spend money. Do not go on shopping sprees, as you can’t afford them.
7. Stop buying birthday and holiday presents for friends and family. You can’t afford to spend money. Send them a card or a letter instead.
8. A vacation can cost thousands of dollars. If you get married, skip the wedding and honeymoon. A wedding can cost tens of thousands of dollars.
9. Ask friends and family to take responsibility for Fluffy and Fido. Taking care of a pet can easily cost hundreds or thousands of dollars per year.
Increase Income
1. Ask for a raise or change jobs. Each time you change jobs, you should get about an 8 to 10% increase in income, if you’ve improved your skills.
2. Get a second job or start a side business. There are many opportunities for part-time jobs, such as Uber, Lyft, Handy, TaskRabbit and Amazon Mechanical Turk. If you have artistic tendencies, you can create items to sell online through eBay or etsy. An added benefit of a second job is that you’ll have less time available to spend money.
3. Ask friends and family for help paying down your debt instead of giving you birthday and holiday presents. If they still give you presents, sell them to get money to pay down your debt. The sense of freedom when your debt is gone will be the greatest possible present.
When financial aid and federal student loans aren't enough to cover all college costs, consider financing the gap with private student loans. Shop around to find the loans that best fit your needs.