Want to know how to get out of student loan debt? Alexa von Tobel is the founder and CEO of LearnVest.com, a website dedicated to helping women manage their personal finances. She shares her tips.
Tip #1: If You’re Still in School, Keep Searching for Scholarships
Scholarships may have been on your mind when you were applying to school, but remember to keep searching throughout college for scholarships that match your academic and extracurricular accomplishments.
Talk to your school’s financial aid office to inquire about funds specific to students at your school. Beyond that, check out free services like FastWeb, Scholarship.com, or ScholarshipExperts.com. Applying may take some time, but it’s worth it. This is basically free money!
Tip #2: Get Organized
To tackle this debt, you first need to get your finances in order. Run your financial life like you run your social life. This means:
- Calendar alerts for key financial dates (bill payments, tax time, etc.)
- Using a tracking tool (like LearnVest’s free Money Center) to connect your accounts and track every dollar you spend
- Set up a separate email account just for your bills (e.g. email@example.com)
Tip #3: Create a Game Plan
Determine how much you’ll owe in minimum payments across all loans. When prioritizing payments, focus on private loans first. Most private loans have variable interest rates, and private lenders aren’t obligated to work with you in financial duress. If you get hit with a financial emergency, having your private loans paid off will give you more flexibility.
Next, order your federal loans from highest to lowest interest rate, and of course, focus on paying the high-interest loans off first.
Tip #4: Budget, Budget, Budget
A budget is critical for a healthy financial life and done right, it will give you the funds to pay down that debt. LearnVest loves the 50/20/30 method:
- 50% of your take-home pay goes to your Essentials (rent, utilities, groceries, transportation)
- 20% goes to your Future (here’s where debt repayment fits in!)
- 30% to your Lifestyle (the fun stuff)
Tip #5: Earn Extra Income
Is your budget limiting your ability to pay down your debt? There are loads of creative ways to earn extra income on the side. Considering picking up jobs via websites like Taskrabbit, Elance or Sitters.
Tip #6: Know Your Repayment Options
Repaying your loans is not one-size-fits-all; both private and public loans have varying repayment schedules to choose from. Do your research so you can find one that fits with your life.
For example, if you really can’t afford your monthly loan payments, consider Income Based Repayment (with payments no more than a certain percentage of your income).
Tip #7: Tackle Your Loan Principal
You can pay off as much of your loans as you want early, with no penalty. So whenever you find yourself with extra cash, consider putting it toward your loans.
Here’s the trick: if you pay more than your minimum, that payment will automatically be applied to future interest payments and not to lowering your loan principal. Be sure to include a note telling the loan processor to treat that extra cash as a reduction of principal. Reducing your principal not only lowers your overall debt, it helps lower your future interest payments!
Tip #8: Reap the Tax Benefits
Don’t forget to deduct your student loan interest come tax time! You can deduct up to $2,500 (that’s the 2013 amount) or the total amount you paid in student loan interest, whichever is less (as long as your income is below the IRS limits). Deductions allow you to decrease your tax liability, which is a good trade off for having to pay interest in the first place.
Tip #9: Be Rewarded
There are a few loan rewards programs out there that you should know about. Check out SmarterBucks and LoanLink Program by Upromise—both of which allow you to apply rewards from everyday spending towards your student loan payments.
Do you have tips for geting out of student debt?