I wrote an article discussing 5 common mistakes recent college graduates make (you should read it, it was awesome), in this article I'll again be taking on a list of five that’s relevant to recent college grads.
This time the subject is paying off debt. To be more specific, how to pay off debt FAST!
If you've read some of my previous articles, you already know Yahoo Finance is one of my favorite resources. However, for this particular article I turned to another aforementioned well-liked resource of mine; bankrate.com.
Now back to the topic of discussion.
Most of us are familiar with the concept of paying off debt, whether we've experienced it or not. Quite frankly, it's an obnoxious pain in the ass.
As a matter of fact, it's mentioned at the beginning of the bankrate article that as of 2016, the average student loan debt reached $37,172, which was a 6.05% increase from the year before. These statistics were provided courtesy of the vice president of strategy for college scholarship website cappex.com, Mark Kantrowitz.
1. Treat the loan like a mortgage. This can be done by simply making larger payments in order to cut out the principal more quickly. For example, if you have a $25,000 student loan with a 6.8% interest rate and a 10 year payback period, you'd be making (at least) a $288 a month payment. Kantrowitz makes the hypothetical suggestion of paying $700, this would take you just over three years to repay the loan. Katz also suggest adding payments and sending in checks every other week instead of just once a month.
2. Create a 3 to 5 year plan. Wealth manager of A&I Financial Services, Clayton Shearer, highly suggests using this method as it will give a sense of comfort knowing exactly how long it will take you to pay the loan back. Shearer also adds that clients “have a goal in place, they're committed to it and they know exactly what to pay monthly.”
3. Set aside money specifically for the purpose of paying off your debt. Having a portion of your earnings automatically put in a savings account is effective because it’s forced. Doing this will enable you to have money set aside that can grow as opposed to it being spent on eating out or online shopping. Everyone on earth knows you don't do anymore of that. It's important to mention that if you decide to set aside money to repay a loan that you open a new account as opposed to using one you already have.This way you're less likely to use that money on something other than paying off debt.
4. Get a part time job while in school. By having a job, you can then put aside a certain amount of your paycheck for the purpose of paying off your debt as we mentioned in the last step. To go about this successfully, it's important to make a plan and put together a budget. Getting a head start and already having money ready to pay off your debt before you even graduate will feel infinitely better than not.
5. “Avoid the usual traps.” We all have those “instant gratification” temptations we contemplate foregoing our financial goals to indulge in. For most, this could be by far the toughest action on this list to take. If you're one of these people, it's important to have a big sit down with yourself (perhaps while drafting a budget) and decide what you need money for, and what you could cut back on. Discipline is crucial.
So when it comes to debt, we already know it's a guaranteed pain in the ass. Therefore, the best way for dealing with debt is just sacrificing now and getting the nonsense done and over with as quickly as you can.
