Reaching a major life milestone like graduating from college is supposed to fill you with joy, right? But in today’s economy, where college graduates start their adult lives with average debt that exceeds $35,000 (very possibly more than they earn!) it can be a nervous time for them, according to CNN Money.
So what’s an ambitious graduate to do with all that looming student debt? How much should debt control your major life decisions? Can you be one of those debt-free people Suze Orman and Clark Howard talk about?
Decide Who’s In Charge – You!
Debt does not have to control your life, even if it is currently a prominent factor. You can take control over it and tackle big debt like student loans by thinking like people who are. Remember, not all the people Suze and Clark like to highlight began debt-free. They made a decision to get there.
Len Penzo, an electrical engineer and personal finance blogger, identifies practices that help people stay debt-free and still live comfortably, even on very modest salaries.
- Pragmatism: People who are debt-free are very practical and have a strong understanding of value. They aren’t materialistic or acquisitive.
- Self-reliance: They make sure to live within their means, save as much as possible and help others going through hard times.
- Patience: They aren’t impulse shoppers and walk away from items they can’t afford right away.
Your student loan was a practical choice even if you didn’t envision its eventual size. Don’t despair. Embracing these qualities can help you close it out sooner than you might think possible.
Creative Approaches to Debt Management
Snowballing is a popular method to address debt. Its appeal is that you see results much more quickly than you might expect. First, list all your current debts — all student loans, car loans and any credit card debt you might have accumulated. Pay the monthly minimum for all your debts except the smallest one, which you should tackle more aggressively. Because it’s small, it will pay off more quickly and voila! You see the results of your efforts sooner than trying to take on all debt at once.
The avalanche method is an approach that focuses on first paying off credit or loans with the highest interest rate. However, more people are successful with the snowball method because it rewards followers by reaching a zero balance more quickly.
While most advisors say to hang onto financial assets, it might make sense to sell off certain types for the specific purpose of retiring debt. If you have a settlement or annuity payment, selling it could be as pragmatic as forgoing cable and expensive cell phone plans.
Companies like J.G. Wentworth can purchase future annuity payments. The lump sum of cash you receive can be used to pay down debt sooner and save you money on future interest payments.