7 Tips for Getting Out From Under Student Loan Debt
With college students graduating and starting to look for jobs, many of them are facing the reality of paying off thousands of dollars in debt. According to The Institute of College Access and Success, the average amount of debt per student in Texas is more than $26,000, and many students accumulate debt into the hundreds of thousands of dollars, especially if they get a graduate degree.
The high debt coupled with low starting salaries, can make being in your 20s and 30s stressful. But, with the following tips, you can avoid making mistakes with your money and get ahead in saving for your future.
1. Take control of your money making decisions.
Being young and trying to become a financially stable adult can be frustrating. Remember to protect the money coming into your bank account by not adding new debt, like a new car or financeable furniture. The less debt you have, the less likely you are to get in a situation you can’t control.
Even though money is tight, remember to save for emergencies (short-term) and retirement (long-term), even if all you can afford is pennies each month.
2. Don’t focus too heavily on paying off your student loan fast.
This may seem counter-intuitive since everyone wants to get out from under debt, but student loans are usually low interest and tax deductible, so they are lower risk than other forms of debt. Put together a realistic budget and see how much you can afford to pay on your student loan each month while still saving for short- and long-term goals. The worst mistake you can make is paying your loan too fast and then getting caught in higher-interest debt, such as credit card debt.
3. Get disability insurance.
If you are young and healthy, you may think you don’t need to worry about disability insurance. But, suffering a disability that makes you unable to work is far more likely to happen than premature death. According to the Social Security Administration, 1 in 4 of today’s 20-year-olds will become disabled before they retire. And, in December 2012, more than 2.5 million disabled workers were in their 20s, 30s, and 40s. Getting disability insurance coverage could be the difference between you being able to pay your student loan and other living expenses and having to file for personal bankruptcy.
Additionally, obtaining disability insurance is easy and reasonably priced for young people. Many companies will provide a way of getting disability insurance for their employees, but purchasing coverage outside of work may help fill in any gaps should you become unemployed or exhaust your limit.
4. Have enough life insurance.
Even if you don’t own a home, don’t have children, and are single, getting life insurance is important. For millennials, one of the most reasons to get life insurance is it will help pay off student loans and funeral expenses. Without life insurance, the debt could be left for a spouse, parents, or other loved ones. Obtaining life insurance could significantly alleviate the costs you will leave behind.
5. Take advantage of your employer’s benefits package.
Many 20-somethings are not thinking about retirement because it is decades away. But, saving for retirement now could help you retire earlier later in life. If your employer offers 401(k) matching contributions, you should contribute at least to their matching limit. Even if you leave the company, do not cash out; roll it over into another account or an IRA so that the money can grow over time. Your future self will thank you.
6. Take advantage of your grace period.
Most loans have a type of “grace period” with the agreement (usually six months). Depending on your loan, you may want to start paying on your loan before the grace period so you can lower your interest payments overall. If your loan doesn’t start accruing interest until the end of the grace period, take this time to start saving up and forming a habit of budgeting around your loan and retirement plan.
7. Do your research.
Learning about your options is a big asset. Some companies and originations have student loan forgiveness, such as the Peace Corps and Teach for America. If there is a company or organization you have in mind, check their website to make sure you meet their requirements and to see if they have a cap on how much they will pay back.