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Some of these strategies are unconventional, but they WORKED
I didn’t stop investing while I worked to pay off my student loans, and I wouldn’t recommend any of my family to stop investing to pay off a student loan. No way! No student loan is more important than your investment portfolio.
For undergraduates, federal student loans currently have an interest rate of 3.73 percent, while graduate students have interest rates of 5.28 percent or 6.28 percent for unsubsidized loans or PLUS loans, respectively. Private student loan interest rates range from 1 percent to 13 percent and are based on your credit score (Bankrate).
Many investment options will beat all of these percentages if you’re strategic. I always place my bets on prioritizing investing. Do you know why? One thing you can’t ever get back is time. The more you invest earlier, the faster your nest egg will grow.
Dave Ramsey believes in laser-focus, so do I – to an extent. When it comes to paying off your student loans, though, do both.
2. Focus on the objective instead of the mountain.
It’s easy to get overwhelmed by student debt – especially if you’re struggling to pay your other bills, but if you sit down, create a budget, and build out a strategic plan, you will figure out a way to make progress on your student debt. It’s what I have done ever since I graduated college. I knew I didn’t want to hold student loan debt forever, and it would be paid off on my timeline. There are people with tens of thousands of dollars in student debt, and there are people with hundreds of thousands of dollars in student debt (and if you’re lucky, you have less than ten thousand dollars in student debt). Either way, you can escape, but you must have a plan first.
3. I didn’t rush to pay them off.
It’s a mainstream recommendation to pay off your debt as soon as possible, and I agree – to an extent.
Here are three things about federal student loans:
If you die, they die with you.
They have super low-interest rates.
If you focus on paying your student loans off, you won’t have a growing nest egg to build after you pay them off.
Before I paid off my student loans, my primary goal was to reverse my net worth from negative to positive. I wanted to have enough savings and investments to pay off my student loans before actually paying them off. This may not make sense to everyone, but it has remained my strategy because I never wanted to throw away a whole bunch of cash at student loan debt. My reason is that federal student loans have super low-interest rates, and many investment options have high rates. It doesn’t make sense to invest all of my money into student loan debt.
4. Pay on my loans even when they were deferred.
Don’t fall for the deferment trap. Usually, your loans will continue to accrue interest even when they’re deferred (Covid-19 and the current rules have been the exception). If you have federal student loans, you’re probably aware that your loans are in deferment with 0% interest right now. WOAH!! That’s a ginormous gift. This 0% means you can slash your debt with payments without more interest accruing on top of these payments. Don’t take this gift for granted. This is the time to TAP IN.
5. Set up automatic payments to save on interest.
Many places offer a discount if you set up automatic payments; this is a gift. Accept it and don’t take it for granted. Don’t ignore free money and opportunities that will help you pay down your debts faster.
6. Continue to raise my income to invest more AND pay a reasonable amount of student debt.
You don’t have to do this, but I recommend it. Each year, increase your income but don’t increase your standard of living. In fact, whenever your income increases, try and decrease your standard of living, which will add an additional increase to your new income.
7. Always pay more than the minimum payment.
Loan companies know that humans tend to go with the default option because it requires less brainpower – not making a decision. Most people make minimum payments instead of more, which is why most people stay in debt.
If your minimum payment is $100 a month, it might take you 10–20 years to pay off your debt. However, if you pay just a little more, you can slash that time in half.
8. Keep my rent low.
One of my biggest pet peeves is paying my monthly rent payment. I know I need a place to live, but I feel like it’s such a waste of money, which is why I have a boundary in how much I’ll pay. For almost a decade, I’ve kept my rent the same or lower than it usually is. This is by design. Housing is one of our highest costs. If you can keep it low, you’ll save a buttload of money.
9. Spend less than I bring in.
It doesn’t get more simple than this. Live below your means, and you’ll always have money to do what’s necessary. It’s easier said than done, though, which is why most people don’t do it.
It takes discipline and a connection with your future self to understand the value that will come from consistently living below your means.
10. Paid for any additional education I needed with cash only to avoid getting into more debt.
I had to take a few more classes after I graduated. I also completed several certification programs after I graduated. My company paid for these classes, or I paid with cash. By doing this, I ensured I did not accumulate new debt, which would only increase my debt load.
If you’re going to get your master’s degree, doctorates, or another degree or certification of any kind, find a way to get it paid for or pay for it with cash. Take out as little debt as possible so you don’t entrap yourself to an enormous student debt load. The more debt you accumulate, the harder it is to get out.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.