There are a thousand articles out there about grads who couldn’t pay their student loan payments, and unfortunately, I was one of them. Upon graduating college, I had a great internship lined up that would eventually turn into a full-time position with an excellent, above average salary. I wasn’t worried about money at all.
I didn’t know that I would hate the job I was interning for so much that I would reject the full-time job offer when it was offered to me. So there I was, underemployed and underpaid with no one to blame but myself. My first set of student loan bills equaled around $600 – nearly 50% of my monthly income. I knew there would be no way for me to live on my own – or even with a roommate, if this continued. Something had to be done.
After my slight mental meltdown, I went to work on a strategy that would allow me to make my payments while still giving me enough to pay my other expenses. Those initial student loan payments polarized my life so much in the beginning.
1. I swallowed my pride.
This was the first thing I had to do to change how I felt about my life. I realized I couldn’t keep up with appearances that everything was going just fine for me. I didn’t want to move back home, though I would have if it had been absolutely necessary. Fortunately, I had a good friend who also had bills to pay, so she let me sleep on her couch for $100 a month. I did this for nearly 7 months before I found a job in St. Louis and Mike and I moved into together. Talk about embarrassing, but it helped me scrimp and save up for some emergencies.
2. I consolidated my federal loans.
Most of my student loans are through the federal government, so I had several options available to me to help reduce those payments. The first step involved consolidating six student loans with varying interest rates into one big lump sum with a single payment and single rate. This averaged the rate to around 5% and reduced the payment to about $250 a month. Unfortunately, that still wasn’t low enough for me to make ends meet when combined with the payments I made to the private student loan companies.
3. I switched to a graduated repayment plan.
To further decrease my federal loan payment – I switched to the graduated repayment plan. That changed my standard 10 year repayment plan to a whopping 25 years and reduced the monthly payment to $136/month. The goal of the graduated repayment plan is to help new grads afford their payments without defaulting, forbearance’s, and deferments. It is the government’s hope that as the graduate obtains more experience, they will make more money, so the payments increase every two years and the person will be able to keep pace with them.
This was a great alternative for me, even though the payments are barely covering the interest of the loans. As of today, I am still on this plan, because other things have taken my focus. Fortunately, you can deduct your student loan interest on your taxes, so I’m not too upset about it. I have a plan to pay them off before 25 years, so I’m not going to stress about what I’ve lost so far.
4. I began reading personal finance blogs.
Finally, to help me on my debt journey, I started reading personal finance books and blogs. This has helped me in more ways than one. It taught me to actually save for retirement and to prioritize my debts. It showed me that living with copious amounts of debt isn’t “normal.” And it made me realize that a debt-free life is POSSIBLE.
No, I’m not perfect. I have a lot of debt and will probably attain more if Mike and I buy a home, but we have a plan. We know what we need to do. It just takes time.