If you’re like me, you might have been living in a dreamlike state that is student loan forbearance for the last few years.
Unfortunately, we’re about to come to a close. But if you’re serious about tackling some serious student loan debt like me, here are some top considerations to get you on the road to financial freedom.
1. Consider your long-term goals.
It’s important to consider what your long- and short-term goals are. I always remind myself that once a payment is made towards a loan, the money is gone. I know that statement is seemingly redundant, but to me, it serves as an important reminder that my repayment strategy should be in balance with my personal life goals.
You may have larger lifestyle goals in the near future, which include things like getting married/planning a wedding, purchasing a house, buying into a practice, and/or getting a new car, perhaps before your college 2005 Toyota Camry goes out on you.
If any of these situations apply to you, you may personally require MORE cash flow, and it may not be advantageous to plan an aggressive repayment system. On the flip side, if you can find ways to bring your cost of living down and would prefer to be financially free as soon as possible, an aggressive strategy may be advantageous.
2. Know thyself.
One of my biggest regrets from optometry school is not financially knowing myself. HOW I spend, WHEN I spend, and WHAT I spend money would have allowed me to be better prepared for this next chapter of repayment. Regardless of whether this is something you did or didn’t master then, budgeting is just as fruitful now.
Going through your bank account statements or using financial apps like Mint (a personal favorite) or EveryDollar will help you find spending trends to adjust for appropriate budgets. From there, you can work either backward or forward to readjust how much you can put toward tackling student loans.
Whether you plan to cut up credit cards, rule your purse strings with an iron fist of cash-only spending, or watch cautiously as a virtual budgeter, getting to know your habits as a consumer will allow you to feel a sense of control in the otherwise long marathon that can be student loan repayments.
3. Find your short-term strategy.
Once you know your long- vs. short-term goals and your spending habits, it’s time to find your short-term strategy. My goal is to be financially free as soon as possible. My personal short-term strategy? One that combines tackling the highest interest first using a snowball method to start.
To demonstrate this strategy, I’ve provided semi-fictitious figures to put it into full demonstration. Let’s imagine we have four separate loans with varying amounts of outstanding principles and interest rates.
Table 1 outlines example loans to aid in understanding the “debt snowball method.”
| Loan Number | Principle | Interest Rate | Accumulated Interest to Date |
|---|---|---|---|
| Loan 1 | $90,000 | 5.3% | $15,000 |
| Loan 2 | $50,000 | 6.0% | $2,000 |
| Loan 3 | $26,000 | 7.6% | $0 (student loan forbearance) |
| Loan 4 | $22,000 | 7.1% | $0 (student loan forbearance) |
Table 1: Courtesy of Emilie Seitz, OD.
When tackling large sums of debt, one strategy is the “debt snowball method," made popular by financial expert Dave Ramsey. In this method, you pay the smallest debts first while making minimum payments on other debts. Once one balance is paid off, you continue your same monthly payments toward the next smallest balance. The allocated payments then “snowball” or roll over onto the next goal.
The “debt snowball method” would have you start with Loan 4: the smallest amount at $22,000. However, the biggest downside of the snowball method is that you may not save the most when it comes to interest—which is where my combo method comes into play. My personal strategy is to combine the two methods and tackle Loan 3 first: the smallest loan with the highest interest rate.
My goal is to pay Loan 3 and Loan 4 by September 1st when student loan forbearance is over and interest starts accumulating again. Paying off these small debts builds motivation to keep going and helps reduce the totality that builds from interest alone.
4. Loosen your long-term strategy.
Life and, thereby, financial circumstances are bound to ebb and flow. That’s why I’m keeping my long-term strategy flexible. I’ve considered several factors like refinancing, student loan forgiveness, and amortization schedules and how they may play a role in current and future repayment options.
At one point, I considered LEAVING Loan 3 to be considered for student loan forgiveness, but in the past year, that potential opportunity looked smaller and smaller, and I knew I had to pivot. I likely will leave Loan 1, which has the largest debt with the lowest interest rate, and consider potential refinancing options IF a lower rate is available and IF forgiveness is off the table.
It’s important to remember that long-term strategies may change, but keeping your mindset flexible and moving forward is the best action you can take today.
Conclusion
Whatever strategy works best for you and your lifestyle, remember that it doesn’t have to hold you back from obtaining happiness. I often beat myself up thinking about how naively I acquired over $280,000 of debt.
There are so many things I wish I knew or had thought to change. As upset as it makes me, it’s just as sobering to know I can’t go back, and the only way forward is to rise to the challenge and take hold of my new financial future.
