For many of us, student loan debt can seem insurmountable. We hear about it from friends, the news and even presidential candidates. Simply put, it can be stressful or even frightening. In fact, a new study shows that one in three Millennials exhibit PTSD-like symptoms due to financial stress.
This type of stress manifests itself as denial and avoidance, and it can lead to a lack of planning. This avoidance is especially troubling when it comes to student loan debt. Just a little bit of time spent planning and understanding your options can sometimes lead to thousands of dollars saved over the life of a loan.
It might sound obvious, but with some careful planning and some self-reflection, you can chip away at your student debt and reduce the stress it brings to your life.
Here are five tips to pay off your student loans that can keep you sane:
1. Be honest about how you feel, and acknowledge your debt.
I'll be the first to say what we're all thinking: Student debt sucks. Now that that's taken care of, the next step is to acknowledge what's behind the anxiety with student debt.
We're hardwired to avoid pain, and student debt can be painful. It's also easy to hide behind its magnitude. The graduating class of 2015 had the most student loan debt in history, averaging at around $35,000. That can seem overwhelming at first glance, but rather than admitting defeat, try to reframe the issue into bite-sized pieces so it's a part of your monthly routine.
Recognize that your student loan payments are just like your utility bills. You probably never forget to pay your electricity bill each month, so you shouldn't neglect your student loans, either. Plan accordingly, and add it to your monthly budget.
To build momentum, make a commitment to repay your debt. Take action and start to optimize and improve your situation. You don't want interest to pile up because you've been avoiding the issue.
2. Start with a plan to repay your student debt.
Two of the most popular strategies for paying off debt play on some psychology. So, depending on your personality and patience, either the avalanche or snowball plan may be right for you.
To start the avalanche plan, first look up the interest rates for each of your student loans. Yes, the amount of interest you pay can be different for each of your loans. Once you've figured out what you're paying for each of your loans, work on paying off the student loan with the highest interest rate, while continuing to pay the minimums on your other loans. Lather, rinse and repeat. By paying down your most expensive loans, you'll be keeping your loan balances from compounding as much interest, which allows your savings to build over time.
If you're someone who likes to feel a continuing sense of progress, try the snowball plan. While making the minimum payments on each of your student loans, direct any extra money toward the student loan with the lowest balance each month. After each loan you pay off with this method, you'll be one loan closer to being debt-free. This will provide you with some needed confidence in knowing you're chipping away at the debt.
3. Take advantage of the help that's available for repaying student debt.
Dealing with student loan debt can be overwhelming and frustrating. The good news is, you don't have to do it all yourself. If you have federal student loan debt, the government offers a variety of repayment plans, so your monthly payments can be more reasonable.
A graduated repayment plan starts your current payments off low, increasing after every two years. Most people may want to consider this plan as your income will likely rise in the future as you become more established in your career.
If you need more time to repay your student loans, you may be able to stretch them out. An extended repayment plan generally lowers your monthly payments, but you will likely pay more over time when you factor in the compounding interest.
If your student debt makes up a large part of your current income, you may be eligible for income-driven repayment plans. Your options include income-based repayment, pay as you earn repayment and income-contingent repayment plans. With each of these plans, your monthly payments will be based on your income and will change over time as your income changes. To take advantage of one of these plans, you'll usually need to provide proof of your income to your federal student loan provider every year.
Lastly, while it may seem awkward at first, consider asking whether your employer has or would consider implementing a program to help with your student loan debt. Many companies now offer student debt assistance as an employee benefit.
4. Consider deferment, the pause button for federal student loans.
If you can't repay your student loans because you're in a rut or can't find work, don't let your loans fall to the wayside. You don't want to default on your loans and potentially damage your credit score, it matters.
Let your loan servicer know immediately if you can't make your payments, so you can see what options may be available. You may be able to defer your federal student loans for as much as three years.
During a deferment, your federal student loan provider agrees to stop collecting payments. In some cases, interest may also be put on hold. While you are still responsible for repaying your debt after the deferment period, postponing your payments can take some weight off your shoulders until you can get back on your feet.
5. Stop juggling all of your student loans at once, and consider refinancing or consolidating.
Refinancing your student loans can make your debt cheaper and easier to manage each month. For many, refinancing or consolidating your student loans can make your student debt less overwhelming. Being able to keep track of one less thing each month can make the difference between manageable and stressful, after all.
Student loan refinancing may save you thousands of dollars if you're able to take out a new loan with a lower interest rate. You may even be able to lower your monthly payments. But remember, when you refinance a loan, you're taking out a new loan to pay off all of your current student loans, so you'll generally need good or excellent credit for the best rates.
The Department of Education allows you to consolidate your federal student loans without a credit check or application fee. Consolidating your federal student debt fixes your interest rate for the rest of your loan, which may make your payments easier to plan for. Your new interest rate will be a weighted average of each of your previous loans' interest rates.
Before you rush to consolidate, make sure you don't lose out on any benefits that are offered with your original loans, like eligibility for federal repayment plans or even interest rate discounts. Also, keep in mind you'll likely pay more in interest because you're often extending your loan when consolidating.
When it comes to paying back your student loans, try not to stress. There are so many options for repayment, as well as the possibility of refinancing or consolidating your loans. What's important is you evaluate your options and determine what will work best for you. Remember, if you have managed your student loans and other credit accounts responsibly by paying on time, the impact on your credit score will likely be positive.