In this excerpt from Laura's new book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, you'll get solid tips to manage student loans wisely and use lesser-known strategies to make education debt much more affordable.
3. Use windfalls to pay down debt.
As tempting as it can be to quickly spend a bonus, gift, or tax refund on a luxury item, remember that using a windfall to pay down debt is the absolute easiest and most effective way to get rid of debt faster. When you get a raise or promotion at work, consider it a windfall as well, and make sure you use additional income to accomplish important goals like building an emergency fund, saving for retirement, or paying down debt.
I recommend attacking your highest-interest debt first because it’s costing you the most. If you have debts with higher interest rates than your student loans, such as credit cards, personal loans, or payday loans, always pay off those first.
4. Explore loan forgiveness programs.
Some types of federal student loans come with a forgiveness program that allows some or all of your debt to be eliminated. This might be the case if you work full-time in certain industries, such as teaching or medicine, or if you do public service work for a certain amount of time.
However, be aware that some types of forgiven student debts are considered income, so you may still be on the hook for taxes on amounts you don’t repay. For example, if you earn $40,000 and have $10,000 of student loan debt forgiven, you’d owe income tax on $50,000 instead of $40,000 that year. So make sure you understand the future tax consequences for any forgiveness programs.
5. Find out if your employer has student loan benefits.
Helping workers to pay down their student loans is an innovative benefit offered by some large companies. Check with your human resources department to find out what may be available.
If your company hasn’t created a student loan repayment benefit, propose it as a solution to stay competitive, retain the best talent, and help workers reduce financial stress.
6. Automate your loan payments.
Many lenders offer to automate loan payments by drafting them from your bank account on a given day each month. They know you’re less likely to miss a payment this way. And in exchange, your lender may offer a slightly lower interest rate, which helps you pay off your student loans a little bit faster.
Your options depend on the type of loan you have—and you can learn more at StudentLoans.gov. Just remember that if you reduce your monthly student loan payment or lengthen the repayment period, that increases the amount of interest you pay over time.
When you borrow from the government to pay for school, they expect you to pay the loan back on time every month. Defaulting on a federal student loan is very serious because the feds can use everything in their power to collect money from you, including garnishing your wages, keeping your tax refunds, and withholding benefits, such as Social Security retirement payments.
So, if you ever find that you can’t make a student loan payment, contact your lender to explain your situation before they’re forced to contact you. And finally, if you have a lot of student loans, don’t get anxious about them, simply make smart decisions about how to handle them going forward. Taking control of your debt is ultimately what gives you power over it.
This post is an excerpt from my new book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, an Amazon #1 New Release. If you're dealing with student loans, you'll get solid tips to manage them wisely and use lesser-known strategies to make education debt more affordable.
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