Student loans are notorious for fucking up everyone’s life between the ages of 18 and 35. You’ve bought into some sick lie people told you and now you’re in tens or hundreds of thousands of dollars in debt while still making the same amount you were making at your dead-end job in high school and not having any health insurance.
Even if you do have a better-paying job with benefits, chances are student loans still sucks you down, so here’s what you can do.
First of all, you have multiple loans. You do not have one. They all have different interest rates and there are two ways to pay them off. You can either consolidate your loans so that you’re paying them all off at once with the same interest rate through a third party (what you thought you were doing this whole time), or you can pay them off in a specific order, to decrease interest as much as possible. If you can barely make the minimum payment, you might need to go with the first option or you’ll never pay those loans off.
When you go with the minimum payment, you are only paying interest on your loans, which apparently accrues DAILY. This means that you’re not paying off your loans at all. You’re merely paying $200-$1,000 a month for no reason. Your loan will stay the same. Even paying $50 extra means mostly nothing because that $50 will spread out evenly among your loans. You might have 5 or 30 different loans in which case you would be paying off only $1-$10 per loan. For tens of thousands of dollars, that’s not much.
This is why you need to pay hundreds more than the minimum payment so that your minimum payment goes down over time and you can actually start paying off your damn loans instead of just the interest.
Look at your separate loans (I know, it’s scary) and figure out which loans have the highest interest rate. You need to pay these first to tackle your interest. Make a list of the loans with the highest interest and lowest sum in succession. Here’s an example from my own set of loans, which are “low” because I went to state school:
Loan 1: $810.26 6.550% interest
Loan 2: $1,708.94 6.550% interest
Loan 3: $2,338.16 3.610% interest
Loan 4: $1,907.13 3.150% interest
Loan 5: $2,933.17 3.150% interest
Why do we pay the lowest sum first? In that way, we’ll pay off that loan faster and take down that interest rate. Once they’re all at the same interest rate, it doesn’t matter which loan you pay off first because they’ll accrue interest at the same pace, but it’s still important to allocate all of your extra payment to one loan. Otherwise, your loan servicer is making money off you for no reason and you’re not really paying anything off.
Follow these steps to ensure that you’re not further screwing yourself over by putting yourself into more debt and paying money for no reason… like I’ve done for the past two years.
That said, if you can only afford the minimum payment because your money needs to go to more important things, like rent and food, first of all, get off your high horse and apply for food stamps. It’s okay. Secondly, maybe you should look into consolidating your loans. I haven’t consolidated my loans because I feel accomplished paying my loans off this way. It might cost more money to consolidate loans… not sure how they figure out interest or anything. I’m assuming they take the average of all your interests, which might be worse, but I’m really not sure. They must take a fee for doing this. Regardless, I know nothing about this. Feel free to do your own research.
I just want people to be aware that they are in a financial hole and that there is a way out if they manage their debt responsibly. Good luck out there, fellow debt-ridden amigos. It’s a rough road, but we’ll make it out okay… maybe.
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