There are not many things worse than being in debt.
My husband and I knew we were racking up student loans during college, but we always had the attitude of “we’ll deal with it later.” After graduating, getting married, and moving to another state, “later” finally came. It came on July 17th in a coffee shop where we went to use free internet–with only one of us being employed at the time, there wasn’t room in the budget for internet at home. We took our laptops and stacks of un-opened loan notices with us, and as we began opening the letters and logging into online loan accounts the truth became increasingly harder to ignore. We were in debt, big time. $53,281 in debt, to be exact.
At first we succumbed to waves of horror, but soon pulled ourselves together and came up with a plan. We resolved to pay off the largest loan, an unsubsidized $20,000 whopper with high interest, by the end of the year. We knew that on the salaries of a teacher and an intern this would be a challenge, but on December 31st we proudly accomplished our goal. It wasn’t easy, but by following a few simple guidelines, it was possible. Here are some tips that we discovered in the process:
Decide on a specific plan
The total amount you owe can be overwhelming, so focus instead on a smaller piece. Choose the biggest loan with the greatest interest rate, then set a date that you want to have that loan paid off by.
Start making payments during your grace period
Unsubsidized loans start accumulating interest as soon as you take them out. While you aren’t required to make payments until 6 months after you graduate, go ahead and make payments when possible, even if you’re still in school; you’ll be glad you did. Subsidized loans, on the other hand, can wait–they won’t start accruing interest until after the grace period ends.
Use your savings
The amount you’re earning in interest on your savings account is probably nowhere near as much as the interest your debt is racking up. So take a chunk out of that ginormous loan! Just be sure to leave some emergency funds in savings. We kept about $1500 in our account and poured the rest into loans, which cut down on the interest that was accruing.
Sign up for automatic withdrawal
Not only does this help you avoid annoying late fees, most companies also provide an interest reduction of about .25% when you sign up for automatic monthly debiting. Every little bit helps!
Bring in extra cash
Good at math? Offer private tutoring on the weekends. Have a lot of unwanted items lying around the house? Sell books on Amazon.com and collectibles or brand name clothing on Ebay.com. Crafty? Create your own store on Etsy.com and sell your handmade creations. Have a college degree and some extra time? Try substitute teaching a day or two each week or picking up a class at a local community college as an adjunct professor. Maximize your earning potential, and put the extra income towards knocking out debt.
Slash spending
Ok I know this one sounds obvious, but we all need to be reminded of common sense every once in a while. While that new flat screen TV is tempting, think about how much more rewarding it will be to spend luxury money after you’re debt free! Here’s a few ideas on how to cut back:
Forget movie rental stores and kiosks–rent free movies from a local library Clip coupons and wait for sales on grocery items (it’s amazing how much this saves!) Check the paper for garage sale listings on the weekends. Not only can you find incredible deals on everything from appliances to furniture, it also makes for a fun date. Go out to eat less, cook at home more. Wait to go out till you have coupons or a gift card, unless it’s a special occasion. When you do go out, order water to drink. If you pay for one $2 drink once a day, you’ll spend roughly $730 on restaurant drinks every year–which would go a long way towards getting those loans paid off.
Here’s to a happy New Year of decreasing debt!