Forbes reported that student loan debt has reached a new high in 2019 – $1.5 Trillion. And if you’re someone who has pursued higher education in the past ten or even twenty years, you’re probably not shocked to know there’s no indication that student loan debt will be decreasing anytime soon.
Student loan debt can feel absolutely crippling. Even with unemployment rates remaining fairly low, many people with degrees are still underemployed. However, no matter how dire your situation may seem, there’s still hope.
Creating a strategy for tackling your student loans isn’t as hard as you might think. In fact, by implementing a solid financial strategy, you can even start to build wealth while paying off your student loans.
If you want to get ahead financially despite your student loans, here are some tips to get you started. Start by finding your income level, and then work your way forward through our suggestions.
1. Low Income
Having a low income won’t prevent you from getting ahead. However, it will make your options a little different.
Just because you’re not making a million bucks a year doesn’t mean you have to be crippled by your student loans. On a low income, your best bet when it comes to your student loans is to adjust your repayment option. You can read more about different federal repayment options here.
In general, someone with a low income may be able to apply for an income-driven repayment plan for student loans. There are a few options available for different types of situations, from temporary hardship to a more long-term low-income situation.
Also Read: What to Do If You Miss a Student Loan Payment
If you’re not sure where to start, consider signing up for Docupop. They can help you figure out what programs you might qualify for at no cost to you! Then, if there’s an application to file, they can help make that process simple and pain-free.
In addition to your student loan structure, you might also want to consider these other strategies for budgeting and building a solid financial foundation:
Increase your income
Being stuck in a low-paying day job doesn’t have to limit your income. Consider starting a side hustle. You could become a driver for Lyft or Doordash. You could even start a business on Etsy. Any of these will help you increase your monthly income. Even taking odd jobs on the side like dog walking or freelance photography can have a big impact on your monthly budget.
Track your progress
Nothing is more motivating than knowing you are making progress toward your goals! Use a comprehensive dashboard like Personal Capital to get real-time updates on your spending and your net worth.
I love using Personal Capital for my budget but I have friends who swear by Quicken and some of the other budgeting software available.
Slash your spending
The less money you spend, the more money you can put toward paying off your student loans and reaching your other financial goals. Do as much research as possible to ensure that you’re not overspending in any area of your budget. Get updated insurance quotes (check out Lemonade for renters insurance), cut your entertainment budget (consider cable alternatives like Sling TV), and do as much at-home meal prep as possible to avoid the costs of eating out.
2. Moderate Income
If you’re able to pay your student loans without significant worry, then you’re in a good spot. However, there are a few options that might help make your life even better.
When it comes to your student loans, you’re probably making enough that you don’t have to question your repayment plan. However, you could be wasting money if your student loan interest rates are too high.
Some other strategies to think about as you work to get ahead financially:
The debt snowball
This is a popular method for tackling all kinds of debts, from student loans to credit cards to medical bills. People with a moderate income can easily find themselves overwhelmed with debt since it’s so easy to get big lines of credit with a solid income stream. Consider tackling all your debts with the debt snowball method, which makes it easy to stay on track and stay motivated for long-term success.
Focus on the highest interest rate first
If you have less than five sources of debt, then this method is the best for you. Rather than using the debt snowball, focus on tackling your debts in order of interest rate. This strategy saves you the most money over time on your interest rates. It’s simple: you make the minimum payment on all your debts except your highest interest rate debt, which you throw as much extra money at each month as possible. Once you’ve paid off your highest interest rate loan, move on to the next one. This strategy can be a little less psychologically rewarding than the debt snowball, but it’s more financially rewarding in the long run.
Using your credit card strategically
When you’re able to pay off your credit card in full every month, it can be a fantastic tool for earning rewards. The right credit card can help you get cash back, travel rewards, and more. Do your research and see if there’s a better credit card out there for earning the maximum rewards for your daily purchases. That makes it easier to balance your financial goals with your more fun goals – like taking a vacation or buying the latest smartphone.
3. High Income
Even people making a high amount of income need to be savvy about tackling their student loans. Creating positive financial habits is the key to success, no matter how much money you’re making. Having a high income gives you not only great potential for building wealth but great potential for wasting money if you don’t have the right strategy.
One of the most important factors for tackling student loan debt is the interest rate. Even if you can comfortably make your monthly payment, you could be wasting hundreds of dollars over time due to high interest rates. Consider refinancing your loans with a lower interest rate through a service like SoFi. A lower interest rate will save you money, which can free up more of your income to achieve other financial goals.
A few other strategies for high income earners to consider:
Optimize
Many people with high incomes start investing early, which is always a good idea. However, they may overlook ways to optimize their investments. If you have a 401(k), consider signing up for a service like Blooom that will analyze your investments and re-optimize them automatically over time to help you achieve your investment goals.
Diversify
Another mistake high income earners make is putting all their money in one place. This puts your money at a high level of risk. Instead, consider spreading your investments across multiple areas – your 401(k) is a great start, but you should also have independent accounts through a broker or a self-managed tool like Ally Invest. To keep track of your diversified investments, use a tool like Personal Capital that can give you real-time updates across all your accounts.
All Income Levels
Regardless of your level of income, one key aspect of financial success is investing. The earlier you invest, the longer your investments have to gain value. That’s why everyone should begin investing as early as possible.
The first place to start is with your employer’s retirement program since there’s usually an employer match. That means free money. Even if your employer’s match program doesn’t seem like a lot of money, it’s worth participating so that you can get every dollar possible.
There’s no excuse to delay setting up a retirement account, even if your employer doesn’t offer one. Services like Acorns allow you to start investing with as little as $5. They can help you build long-term savings habits to build your wealth over time.
The key is to start saving as much as possible as early as possible to harness the power of compounding growth. And with all the great options out there, you can start now – even if you have a low income and piles of student loan debt. Your future is too important for you not to take advantage of these easy, yet effective strategies!
