Saturday, September 8, 2012

How to pay off student loans now

If you’re a recent graduate already carrying an over-sized student loan balance, is there hope for you?

Absolutely, but it won’t be easy.

Exactly how difficult that will be will have a lot to do with how much debt you have; the larger the loan balance the tougher the choices you’ll face.When you finish college it’s natural to want to get on with your adult life as soon as you can. You want a new car, a place of your own and to begin experiencing some of the adventures you couldn’t afford when you were in school. A few years later you might be looking at marriage, buying your first home, and for some, having children or starting a business. All will cost money, and some will require new loans.
In addition, careers and jobs aren’t as stable as they once were. Even though you have a job upon graduation, it’s hardly inconceivable that you might be unemployed just a year or two later. If that happens, you’ll need all of your financial resources to deal with the crisis at hand.
Student loans will interfere with all of that, and that’s why you should pay them off as soon as possible. Not only will they be a drain on your future cash flow and your ability to deal with a job loss, but they could also limit your ability to borrow money to buy a home or finance a new business.
How quickly you’ll be able to pay off student loans will depend on both the size of your debts and on your personal situation upon graduation.

Loan size

Though the average student loan debt is just over $25,000, the amount owed can vary by individual, anywhere from a few thousand dollars to well over $100,000. If your debt is at the lower end of the range, you can manage the pay off without making too many sacrifices. But if your debt is into the tens of thousands, you’ll need to make sacrifices, some of them life changing.
The bigger your student loan is, the greater it’s ability to interfere with your future plans, and the greater the need to get rid of it as soon as possible. You may be able to blend the pay off of a $10-20,000 student loan into the rest of your financial life, but if you owe more in student loans than you earn in salary, you’ll have to step out of your comfort zone to make it go away.

Your employment status

We hear and read a lot these days about graduates having student loan troubles, and though much of that has to do with loan size, employment is a more common problem. Let’s face it, it’s hard to pay back a large debt when you’re either unemployed or under employed. And more grads are falling into either category than ever, which is yet another strong reason to pay off student debt as soon as possible.
If there’s no work in your field of study, or you can do no better than minimum wage, there are certain student loan relief programs that may help you. It’s a long shot that you’ll qualify for any of them, and if you don’t you’ll have to be prepared to roll up your sleeves and get busy.

Strategies to pay off student loans

The best time to accomplish this is when you first get out of school. Life becomes more complicated as the years pass and as they do your ability to pay off the loans will decline. Here are ways to make that happen. You should easily be able to find an extra $10-15,000 per year to pay toward your student loans.
Housing on the cheap. There are several choices here: 1) move back in with your parents, 2) rent a room close to work, or 3) share a house or apartment with one or more roommates. If the choice is renting an apartment by yourself for $1,000 per month, or sharing a small three bedroom house for $1,200 with two roommates at $400 each, you’ll have an additional $600 per month, or $7,200 per year, to pay toward your student loans.
Employment plus. Take a second job and dedicate it entirely toward the pay off of your student loans. Even if you only make $8 an hour, if you work 20 hours per week, you’ll earn $160, or about $8,000 per year. Even allowing for taxes you’ll still have a good chunk of money to put toward your debt. And two bonuses: 1) with a part-time job you’ll spend less time at home with your parents or roommates, and 2) since you’ll be working, you won’t be out spending money!
A “beater” to the rescue. Buy the cheapest car you can afford to buy without taking a loan. If that’s a $2,000 beater, then that’s’ what you buy. While a new car may be very desirable after graduation, buying it with a loan will just add more debt to an already substantial pile, and cut down on the amount of income you’ll have to devote to paying off your student debt.
Staying out of other debt. The last thing you want to do while paying off your student loans is to run up your credit cards or take other loans. That’s just a matter of exchanging one form of debt for another.
You can use all or a combination of several. How far you’ll have to go will depend on how large your student loan debt is and how much you want to make it go away. But the sooner you do, the better the rest of your life will be.

This article is by: Kevin Marcadante.


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