Whether you’ve already been through college or are staring down that first semester, you’re probably no stranger to the concept (or reality) of the dreaded student loan. These loans have burdened millions of young Americans with bills for hundreds of dollars a month. So, how do you avoid becoming one of those college grads who gets buried in debt for years? This millennial personal finance expert’s real-life advice about paying down student loans will inspire you do take charge of your situation.
More than 44.7 million Americans collectively hold about $1.56 trillion in student debt, according to Value Penguin, with an average loan balance of over $32,000. And millennials under 30 are shouldering quite a chunk of of that national total, with nearly $384 billion in debt as of 2017. At the individual level, it’s rough too: Per CNBC, as of 2017, the average 20-something had $22,135 in student loan debt and was paying $351 of dollars a month on it. The side effect of this major financial drain: it can affect your ability to finance a home, a car, and other large expenses that require down payments. But it is impossible to manage? Not according to this expert, who put her literal money where her mouth is.
Whitney Hansen, 30, is a financial coach and the host of The Money Nerds podcast, a self-funded podcast reaching about 50,000 people monthly, per Hansen. When it comes to debt, she knows what she’s talking about — she paid off her $30,000 student loan within 10 months. How’d she do it? (Hint: She’s not a magician or a trust fund beneficiary.)
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"My parents divorced when I was 16 and we then experienced poverty, as my mom tried to support the family on $7.25 per hour with six kids," Hansen tells Elite Daily. "I knew paying for college would be my responsibility, so I went to cosmetology school to help me pay for my own living and college." At $4,500 tuition for cosmetology school — paid in installments — the fees were ultimately an investment in her future education.
So when Hansen was faced with paying off $30,000 in debt from college, first things first: the college grad enacted a pretty frugal lifestyle.
"When I was paying off debt, I decided to reduce my expenses as much as possible," she tells me. "This included renting out my home and moving in with my boyfriend, allowing my housing costs to be cut. I completely eliminated eating out, coffee runs, and anything that was outside of the necessities."
It’s a running joke of sorts that all millennials would magically be able to own homes if they simply cut back on all the fancy coffees and avocado toast. But all jokes aside, while research has shown that making financial progress is a combination of a number of factors, budgeting is also a hard-to-ignore numbers game, and a pretty effective one at that. For Hansen, while cutting out non-essentials wasn’t everything, it definitely helped. The other pay-down tactic for Hansen was maximizing her income.
"I was working as a staff accountant during the days and a nail technician nights and weekends," she says. "This meant putting in 70-80 hour workweeks, but it gave me enough income that I could survive off my nail technician income and put all my accounting income towards debt," she says. While not everyone can work multiple jobs or move in with an S.O., Hansen recommends focusing on the little ways you can improve.
Second, she recommends making the most of the grace period you have between when you graduate and when you have to start making loan payments, which is typically six months for federal loans. "Use that time to your advantage and make as much progress as you can by paying them down," Hansen says.
To kick your loan-payment inspo into high gear, Hansen says to buckle down and focus on paying down the smallest loan first. This is known as the snowball approach. The idea is that as you start to eliminate the smallest loans first (and fast), you’ll be more motivated by seeing the progress you’re making, and continue focusing on the larger loans, paying off one at a time until they’re all gone.
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Knowing just how the math adds up can serve as a great motivator to prioritize paying down your loans quickly. Student Loan Hero has some handy calculators to show things like how much you’ll save over time and how much faster you’ll pay off your loans if you increase your monthly payments, or what impact it’ll have if you can reduce your interest rate.
Of course, it’s helpful if your debt is small to begin with. One big way to avoid the massive debt crush is simply to avoid taking out as much in loans in the first place. If you haven’t already committed to loans, Hansen advises taking your time to save up money before starting and working while in school. (And of course, apply for those scholarships.) This might take the form of doing work-study, and/or taking fewer units to maximize the time you can work an outside job while in school, though the trade-off is that you don’t graduate as quickly. Still, that might not be a bad thing at the end of the day.
"If you aren’t able to complete your degree in four, five years because you are going part-time in school and working a full-time job to pay for college, good for you! We are all in different places, so never feel bad if you don’t fit into societies typical college plans," Hansen says. "The lesson here is to give yourself options instead of just immediately defaulting to student loans to pay for school.
But as most students need some form of loan to cover the high cost of tuition, there are a few things Hansen says every soon-to-be borrower should look out for that are easy to miss. First, be choosy about which type of loan you’re getting. Federal loans come with their own list of advantages, including loan forgiveness, lower interest rates, income-based repayment plans, and tax breaks for the interest you pay — none of which you’ll get to enjoy if you refinance to a private loan or take out private loans to begin with. Plus, many federal loans don’t begin accruing interest until you graduate, whereas private ones may start the moment you take the loan. So, federal loans are often more beneficial overall.
Mindset is everything, Hansen says. "If you don’t believe you can pay off debt or deserve a better financial life, you won’t get those results." She suggests reading and listening to financial podcasts for guidance ,and to hear from similar folks who were successfully able to pay off their loans as motivation.
"The more you can find reasons to believe it’s possible for anyone, the more likely you will hit your financial goals," Hansen adds. "But it all starts with your personal beliefs and mindset on if you can do it."
If getting a handle on your loans is on your list for 2019, at least you have some ideas and inspiration on where to get started.
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