Preparing for Student Loan Repayments: Expert Offers Four Steps to Ease Transition
As the federal government’s pause on student loan payments comes to an end in October, more than 37 million borrowers are set to resume their monthly payments after a hiatus of over three years due to the Covid-19 pandemic. The imminent addition of $1.75 trillion in total student loan debt has raised concerns among individuals already struggling to make ends meet. To assist borrowers in preparing for the resumption of repayments, a financial coach who successfully paid off $300,000 of debt, including $72,000 of student loans, has provided four simple steps to alleviate financial stress and foster a path toward financial independence.
The first step recommended is to establish a consistent monthly budget to review the progress of student loan repayment. With an average debt of $28,950 per borrower, tackling the issue head-on is crucial. Rather than postponing the inevitable, individuals are advised to initiate a regular monthly budgeting routine, allocating an hour each month to analyze their financial situation and strike a balance between other bills and student loans. Emphasizing planning ahead, the financial coach suggests dedicating the majority of the budgeting session to future planning rather than dwelling on past expenses.
Next, borrowers are encouraged to focus on the lowest loan balance first rather than fixating on the total amount owed. Millennials, in particular, have been profoundly impacted by student loans, with their median net worth 20% lower than that of previous generations. To maintain motivation and stay on track, adopting the debt snowball method is suggested. By starting with minimum payments and directing extra funds towards the smallest loan balance, borrowers can tackle one loan at a time, gradually building momentum and avoiding financial decision fatigue.
To reallocate more money toward student loans, consolidation of other accounts is advised. Many individuals are unaware of the exact amount automatically deducted from their accounts each month. Clearing high-interest credit card debt, canceling unnecessary subscriptions, and consolidating checking, savings, and investment accounts can increase monthly cash flow. Streamlining finances and reducing the number of accounts to monitor allows borrowers to identify funds previously spent on interest payments and unnecessary expenses.
Lastly, the financial coach advises borrowers to give themselves six months to readjust to repayments and anticipate unexpected expenses. Flexibility is essential for long-term success, as initial plans may not unfold as expected. Taking the first six months to organize finances, read loan documents, communicate with loan service providers, and research repayment or consolidation options can help borrowers ease into the repayment process. While immediate additional funds may not be available, embarking on these four steps will set individuals on the right path once the student loan pause concludes.
With October approaching, borrowers are encouraged to proactively prepare for the resumption of student loan repayments. Implementing these strategies will empower individuals to take control of their financial situations, alleviate concerns, and work towards a debt-free future.
