Thanks to the credit crunch, the recent economic recession and the rising cost of education, student debt is more prevalent than ever. Between credit cards and student loans, many graduating seniors will have as much as $50,000 to $60,000 in debt that has to be repaid.
Here are a few strategies that can be used separately or together to curb your debt and get you on track to financial stability and better quality of life.
1) Get a free debt consultation.
There are tons of services such as Credit.com’s free debt consultation service that match you up with a licensed and certified financial professional. We always recommend that you consult with an industry professional because they will know all options available to help you get control of your debt.
2) Budget, budget, budget!
While most of us have a negative knee-jerk reaction to the word “budget”, the truth is it is ESSENTIAL to managing and reducing debt. Even something as simple as plotting out how much money you are willing to spend on basics like food and entertainment can free up a surprising amount of money in a month to go toward your debt.
To give a quick example, I recently decided that I would buy lunch no more than 3 times per week (I usually buy every day.) I’ve already saved about $50 per week (more if you don’t count groceries) — that’s $200+ a month!
3) Make small overpayments directly to principal.
If you aren’t familiar with loan jargon, “principal” is the physical amount of money you borrowed. Interest is figured out based on how much principal you have remaining, multiplied by the interest rate.
Thus, if you pay more than your minimum, the raw total the interest is based on goes down quicker and you pay less money overall. It’s a win-win.
Note — always specify that you want extra money going directly to principal. Otherwise, some banks will sneakily apply it to “future interest” and you won’t be slimming down your payments like you want to.
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