While graduating from college without any student loan debt isn’t impossible, it’s certainly getting harder to avoid. A Pew Social Trends study recently found that, 37% of people under age 40 have student debt, with the median debt load starting at $13,000. Student debt has surpassed credit card debt as the second largest type of debt owned by American households, after mortgages.
What Does This Mean for Us?
The study also found that young adults with student loan debt are lagging behind their peers in terms of wealth accumulation. Households headed by young, college-educated adults without student loan debt have 7 times the typical net worth of households headed by young, college-educated adults with student loan debt ($64,000 compared to $8,700). This holds true even with nearly identical household incomes in each group.
If there’s one thing you should know about Young Finances, it’s that we want to help you succeed in accumulating wealth! So what can you do if you’re like me, and have some significant student loan debt? Here are some ways I am digging myself out of the student loan debt hole and getting back on the wealth accumulation track!
Tackle Student Loan Debt: Time to Get Proactive and Not Reactive
Before we get further bummed out that we don’t have as much money in the bank as our peers who graduated without loans, let’s look first at our situation. It is possible for us to be successful, even if we have student loan debt. We just have to be proactive about our situation. So what kind of student loan debt do you have?
All Federal Loans
If you have all federal loans, you’re in luck! Check out the student loan forgiveness and repayment website. If you qualify, you may be able to consolidate your debt and have a more forgiving repayment plan. You could qualify for income based repayment, or a graduated plan that allows you to pay less per month over a longer period of time.
If you have private loans, you’re still not out of luck. If you’re not able to make your monthly payment, call up your loan providers and ask what you can do. Trust me, loan providers want you to pay, so they will work with you to get your loan repayment down to a manageable monthly amount.
Once you’ve gotten your loans down into a manageable monthly repayment amount, it’s time to tackle your loan with the highest interest rate first. What does this mean? It means you will pay off your highest interest rate loan first – loans with higher interest rates mean you pay more in interest, and all interest is is bonus money the government/private lenders get because they loaned you money over a period of time. Don’t give them any more money than you have to!
Once you have your first loan paid off, keep going on to the next one with the highest interest rate. This is known as ‘debt snowballing’, and it’s a great way to get some momentum started!
Now that you’ve got your debt repayment snowballing, make sure not to take on any additional debt, especially credit card debt. Don’t derail your awesome success – keep your debt repayments snowballing, and you’ll be on your way to serious wealth accumulation!