There is no doubt that student loan debt has become a bigger and bigger problem in recent years. According to College Board, about 57% of public, four-year college students graduate with debt. So if you have student loan debt, you are not alone. I also fall in that group of college graduates with student loan debt. And though I ask myself each day when I look at my student loan balance if college was worth it, I always repeat the same words to myself. “Stop procrastinating and pay off that debt!”
I would like to help you pay off your student loan debt as well so I’ve come up with 9 clear steps to take after graduating with student loans. And in an educational fashion, each step takes us through the first 9 letters of the alphabet.
Assess the Situation
I have a friend that told me how she was scared to look at her student loan balance. She only cared that she did not yet have to pay them. Well, the day will come when she will have to start paying those loans back. If she asks for my thoughts I will recommend starting with this first step of assessing the situation. Figure out what student loan servicer has your loans. You’ve likely received an email or letter from them that lists your loan balances and due dates.
If you have multiple loans, like I did, then look into consolidation. Often, making one payment is easier than trying to make 7 different payments. Head over to StudentLoans.gov and login to your account if you have no clue where to start. If you have private loans then contact your private loan servicer. You can be sure they have contacted you.
While you have been assessing the situation, you’ve also been looking for a job right? Hopefully you had internships and made a great impression. You’ve compiled your resume and you interviewed like a pro, landing your first career job. You’re earning the expected entry-level salary for your major and you can’t wait to get your first paycheck.
Now it’s time to celebrate! I always think getting a new job deserves a happy dance but maybe that’s just me. Grab your closest friends and head out for a night on the town. Enjoy the moment and revel in your success because after this night of enjoyment, it’s time to buckle down.
Determine a Budget
The first budget that you create based on your brand new job is going to be pretty simple. Check out your employer sponsored retirement plan and see if they offer a matching program. Many employers will offer to contribute 50 cents for every dollar that you contribute to your retirement plan. They will typically do this up to a percentage of your pay, usually 3-6%. Your first step in budgeting for student loan debt repayment is to take advantage of this free money.
Next you will determine how you want to live. If you can bring home a decent pay but still manage to live like a college student, you will have no problem paying off your debt.
A general rule of thumb is to allow for 31% of your paycheck for debt repayments. That includes credit cards (which you hopefully do not have), student loans and miscellaneous debts.
If you have started your budget and you determine that 31% of your take home pay is not enough to cover the student loan payment, start evaluating your payment options. Public loans offer Income Based Repayment, Income Contingent Repayment and Pay as You Earn as ways to lower your payment. If you realize that you truly cannot begin paying immediately, look at deferment or forbearance as an option. These options will allow you to stall your payments though you may have to pay interest that accrues.
Figure the First Payment Date
Now that you have your options fully locked into place it’s time to decide when you are going to begin paying your loans. When I graduated college, student borrowers were allowed a 6 month grace period before we had to start paying back our student loan debt. I decided to use deferment and forbearance time to stall even more. Once you have your budget and your payment plan, you can begin paying right away if you choose.
Grow Emergency Savings
Congrats on paying your loans! Each month that you pay, remind yourself that your college degree was worth it. But don’t neglect your savings. If you have extra cash that you can contribute to your loan pay off, I encourage you to put that into an emergency fund instead. Paying off student loans is a worthy endeavour, but keep in mind that emergencies may pop up as well. Make it a point to stash some cash for a rainy day.
Halt Lifestyle Inflation
As you continue to work in your brand new career, you are likely to receive an increase in pay. It’s easy to take these increases and inflate your lifestyle. A small apartment turns into a bigger apartment. One night out a week turns into happy hour each day after work. Keep an eye out for these budget busters!
I used a very simple method to combat the lifestyle inflation creep. Each time I received salary percentage increase at my company, I simply increased my contributions by the same percentage increase to my company sponsored 401k. I saved more and because they were pre-tax contributions, my paycheck was roughly the same.
It’s easy to look at your student loan debt balance and feel like it is insurmountable. Instead, surround yourself with supportive friends and family. A strong support team will make paying off that debt much easier. I know you can do it! You made it through college, right?
This post originally appeared on Mint.com.