Degree Rich, Cash Poor
By Alison Hinson, AlisonHinsonMBA.com
Congratulations! You've finally finished college and are now looking for your dream job. Unfortunately, your student loans are now looking for you - it's repayment time! This should be the best of times, but your student loan payments can also make it the worst of times.
More and more college grads are graduating with large amounts of debt. While you may have happily borrowed money to pay for the college of your choice, the financial impact of your monthly student loan payments can be draining.
Here's some advice from someone who's been there:
The Debt Needs to Be Paid Back
Like it or not, the money you borrowed to go to college needs to be paid back. Start by making a list of all your monthly payments. As much as it hurts, at least you know how much you owe each month.
You can't outrun debt, so stop trying to avoid it. In fact, avoiding your creditors only makes things worse, not better. You signed on the dotted line when you took out the loans, so they will do everything possible to collect the money that you borrowed.
Know Your Payment Options
There are two different ways to lower your monthly payments: either find a lower interest rate for your loan or ask your lender to adjust your monthly payments.
Lower Your Interest Rate
You need to pay back the money you borrowed, plus interest. So if you borrowed $10,000, you need to pay $10,000 back (i.e. the principal), plus the cost of borrowing the money (i.e. interest and fees). Your goal is to pay as little in interest and fees as possible. Any decrease in interest and fees will help you in the long run, especially if it will take years to pay off your loans. Check to see if loan consolidation or refinancing would make sense.
Ask Your Lender to Adjust Your Loan Payments
Contact your lender if you know the current loan payments are too high to handle right now. They may have other options that would fit better with your current income. The downside to this is that lower payments could drag out your loan payments for years or force you into a higher payment later on. The longer you take to pay back the loan the more money it will cost you, since compound interest and fees can really add up.
Avoid the Temptation to Add More Debt
As tempting as it is, try to avoid using loans to buy things unless you absolutely have to. Buying ramen noodles is an okay reason to whip out your credit card, but taking on a car loan to buy a Dodge Ram truck is not. Moving home, sharing an apartment with three other people or continuing to drive your old car is probably not the post-college life you dreamed about. Borrowing more money would definitely make your life easier and more fun today, but additional debt will just make things harder tomorrow.
You got through college thanks to all of the money that people lent you. Like it or not, it's now time to literally repay the favor.
Alison Hinson has over 20 years of experience helping companies with their business finances and individuals with their personal finances. She hosts an award-winning radio show and is a published author. For more information about her business coaching and financial wellness programs, visit AlisonHinsonMBA.com or call 207-671-1491