Student loan debt. What our advisors recommend.

Advice from our expert advisor with his own experience paying off Student loans, Ray Brown.

There’s no such thing as a “good debt”

Society tends to tell us the myth that “everyone has student loans”, or “You can’t graduate without borrowing money for college”, or “Student loans are OK because you’ll make more money after you get your degree”. The reality is that holding on to student loan debt is very costly and it should be eliminated as quickly as possible – alongside any other consumer debt. Nothing creates more peace than freeing up your monthly cash flow so you can focus on other goals and priorities – like investing for your future.

Focus on the Debt Snowball approach

Dave Ramsey says it best: List your debts in order of smallest to largest, pay the minimum amounts due on every debt except for the smallest one, eliminate them in order of smallest to largest, and keep on rolling. The amount you pay toward debt each month will be the same as you continue to knock out the smallest debts and allocate more toward the next one in line. Feeling the quick “win” or victories as you eliminate the debts will provide psychological encouragement to stay on the journey and help you to keep making progress.

Pause all investing except one

We recommend temporarily pausing all investing so that you can free up more cash flow each month to allocate toward your student loans or other consumer debts. The one caveat is that if your employer offers a 401(k) match, it is acceptable to contribute up to the amount your employer matches to your 401(k) so that you’re not leaving any free benefits on the table. Otherwise, all extra cash goes toward your debt snowball.

Interest on student loans resumed on September 1st

Be aware of the various repayment options that are now available, but don’t get so caught up in the options that you lose focus. Some options allow you to extend payments for 25 years! Could you imagine a world where you make 300 payments for an education? The goal here is to not necessarily choose the option that will require you to pay the lowest monthly amount. Let’s pick the option that will motivate you to kick these loans out of your life. Perhaps you choose the option that will “force” you to pay a little more than you may otherwise be comfortable paying each month. This is essentially like choosing a 15-year mortgage over a 30-year mortgage to force yourself to pay it off faster. Remember, the faster you clear the debt, the less interest you’ll pay overall, and the faster you get to move on with your life.

Focus on your monthly budget

Any expenses you can reduce will allow you to contribute more toward your debt snowball. Look for areas to cut – it’s not forever. If you have trouble sticking to a budget and tracking your expenses, consider a commitment to an extra student loan payment each time you get paid. If your loan is due monthly, there’s nothing stopping you from sending a payment each Friday. Paying the loan first gives you the freedom to spend what remains. This can be a great technique if you struggle with self-control or find yourself falling short of being able to pay the amount you intended toward your monthly snowball. A good budgeting app that we recommend is YNAB, and you can read about it on our blog, “Does Your Budget Stink. No More Mint. Try YNAB.” Or, listen to our podcast on the subject, “Why You Need A Budget. How To Get Started.”

When will you be debt-free?

Lastly, just for a bit of extra motivation – calculate your Debt Free Date! As you design your debt snowball, knowing a payoff date will help keep you motivated and moving forward. After all, a goal without a deadline is just a wish. Put that date on the calendar and shout it from the rooftops because the current sacrifice is not forever. Look forward to making those extra payments each month (or each paycheck) to get on the other side of this. Hit it with everything extra you’ve got (or you can squeeze out of the budget) to get closer to the finish line!

Resources we recommend

This “quick read” by Anthony O’Neil is a perfect resource for extra motivation when attacking student debt. His advice is centered around Dave Ramsey’s Baby Steps and encourages one to attack student loans with a vengeance so you can move on with your life.

Work with Justin Pitcock, a CERTIFIED FINANCIAL PLANNER™ Professional and one of our Wealth Advisors, to help you get started to pay off your student loans. He will help you look at your finances, ensure you are making the next best decisions, and be there for you when you need him.

Do you need help getting out of debt?
Do you want help making financial decisions?
Do you need help reaching your financial goals?
Do you want help knowing what to invest in?
Do you need a guide to help you navigate a specific financial situation?

You can schedule a session with him for $275.00 an hour and he can help you with your financial plan and reaching your goals.

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If you are in the process of getting out of debt, you might not be ready for coaching or to hire us yet. Another resource you might want to check out when you are ready is our Investor’s Guide to your first $100,000 in Investable Assets. Don’t forget to download the printable checklist that goes with the guide.

Disclosure:

The guidance and ideas shared above are based on our current understanding, and should NOT be considered as tax or legal advice. You will need to consult with your tax advisor and attorney to get detailed information pertaining to your specific situation.