How to Get Out of Debt
Not all Debt is Bad Debt
You don't have to major in finance to understand the basics of how to get out of debt. This first bit of news should loosen you up a bit. Not all debt is bad debt. While debt is never good, it's not always a huge blight on your credit. Most financial institutions give you a six month head-start on your loans. So right out of college you'll find that you have half a year to find a job.
Also, college loans have a lower interest rate than most loans, which means your debt won't increase at the same rate as a straight loan. Theoretically, now that you spent all that money on a degree, the degree should help you get you a higher paying job to pay off that loan.
Volunteer Your Way Out of Debt
There are certain volunteer jobs out there that will deduct from your loan. For example, if you sign up for the Peace Corps, your loans will be deferred and also possibly reduced. There are several volunteer, teaching, and military programs that do the same. If you like philanthropy, you should check out this an avenue.
Paying Your College Loans
There are several methods of payment for your college loans that should accommodate your income. As long as you pay on schedule it shouldn't affect your credit history. Just remember the longer your term of payment, the more you'll eventually pay. Here are the industry standards:
- Standard Payments. The lender asks for the highest payments, but if you have a steady job and you can pay them monthly, you'll have the lowest interest rate. Generally, you can look forward to being out of debt within 10 years.
- Graduated Payments. These payments start off small but graduate. The lender assumes that your income will increase over the years and raises payments incrementally.
- Income-based Payments. This works best if you work on commission. The payments are made as a percentage of your monthly income.
- Long-term Payments. This allows you to pay your loan over an extended period, up to 30 years. However, because of the interest accruing, you may in the end pay more than double the original loan.
The problem with college debt is that we tend to end up borrowing money outside of our college loans. If you bought your college books with a credit card and never paid it off, those books could now have bought you a small library. Debt snowballs. If you're not paying off serious chunks of your debt, it'll continue to grow into an overwhelming avalanche of bills. Remember: Debt that accrues at interest rates higher than eight or nine percent can potentially be very dangerous. Consider doing the following:
- Spend Less Money. Budget yourself. While you don't necessarily have to live in a place the size of a shoebox and subsist on rice and beans, you'd be wise to cut out any lavish expenses until you're debt-free.
- Cut Up Your Credit Cards. If you're buying stuff on your credit card, it means you probably can't afford it. It's time to cut your cards up. However, save the one with the lowest annual interest rate to be used for emergencies only.
Paying off you college debt, isn't fun or easy, but the sooner you do it, the less it will cost you. The best advice is not to let that debt keep on growing. Stop the flurry of bills before the debt begins to tumble down on you and enjoy the post-college phase of your life.