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Updated on Thursday, June 25, 2015
If you’ve taken a college class at some point in the last decade or so, there’s a good chance you have (or had) some student loan debt to your name. You’re not alone — 40 million Americans are in the same boat
And many of those people don’t just have loans. They have a lot of student loan debt. The average balance hovers around $30,000. That’s about 66% of the average starting salary for grads, which doesn’t leave much left over for taxes, living expenses, and everyday bills, much less cash savings and investments for retirement.
It seems like a dire situation, but there is hope for those currently struggling with this burden. You can map out a plan of attack for your student loans, and take control of your financial situation. These three graduates did it — and they’re sharing their stories of how they successfully rehabilitated their student loan debt.
Taking on That $30,000 Worth of Debt
Dominic Alessi graduated from a public university with just over $30,000 worth of student loan debt. While he originally went to school to be a teacher, he later decided to get into sales — but still needed to deal with the loans he took on for his education.
“I took out the loans to pay for school because my parents couldn’t afford to foot the bill,” says Alessi. “They helped me out with books and things like that, but for the most part I was on my own. Like almost everyone else that started college from 2008 to 2010, the recession took a nice little chunk out of the money my parents did have saved up for school.”
He moved back home with his parents and started his own business, Box of Detriot, on the side of his full-time job. So far, he’s paid down $15,000 of his student loan debt. “Hopefully,” Alessi says, “by the end of the summer this second stream of income will get me debt-free or close to [it.]”
He admits that living with his parents hasn’t always been easy, and he wants to move out. But his priorities lay with finding success with his financial situation.
“I knew I had to repay my loans from the very beginning. What I didn’t realize though was how much interest was accruing while I was in school and the first few months before I started my repayment!” Alessi explains. “I figured if I moved home I could sock away as much money as I could to pay back my loans and created a timeline with a goal of 24 months to pay them back.”
Alessi suggests that for those with student loans, continuing to educate yourself is key. “There’s lots of programs out there you may qualify for depending on your situation but you’ll never know until you look into them,” he says.
A Master’s Degree and $130,000 in Student Loan Debt Later…
“I made a huge mistake and took out student loans over and above tuition amounts to cover my living expenses, and help out my significant other at the time,” says Mike Sturm. “At one point, I was receiving 5 to 10 collections calls per day on my loans. It was a mess.”
This is a scary situation to find yourself in, and Sturm knew he needed to take action as soon as possible. His earliest payments went mainly toward interest, which didn’t make much of a dent in the overall balance.
After landing a good job with upward mobility, he started using Mint to create budgets and set goals to repay his student loans. “After that,” Sturm says, “I consolidated my student loans for a slightly lower uniform interest rate, which will save me money over the long run.”
“The key thing that helped me was that the servicers are willing to work with you, because they want some money, rather than no money,” advises Sturm. “You can use that to your advantage. It is a sales process, like anything else.”
How a Husband and Wife Knocked Out $100,000 Worth of Loans
Kevin Benson of Bold Move Coaching & Consulting says that both he and his wife chose to earn their undergraduate degrees from private liberal arts universities. While their families supported their decisions and they each even received financial aid, that type of education didn’t come cheap.
“My wife and I began paying off our student and consumer debt when we got married,” Benson says. “Combined, we paid off nearly $100,000 in debt, and were able to pay cash for a masters degree over a 6 year period. It wasn’t pretty, but we gutted it out.”
They decided to tackle their student loan situation about a year after they got married. They wanted to as free from their debt as possible before starting a family.
“A family friend turned us on to Dave Ramsey’s Financial Peace University,” Benson explains. “We went with it because it was the first thing we were given. Luckily for us, it worked.”
The couple started budgeting down to the last cent, before it was spent. “We sit down on [the] 1st and budget the upcoming month,” says Benson. “For many years that meant that we would allocate a certain dollar amount every month to debt repayment.”
For those dealing with student loan debt, Benson advises consistency. “If you want to get out of debt, make it your number-one financial priority. That means that you might not buy a new car, take an expensive vacation, or upgrade other items like electronics or appliances,” he says.
“It’s not easy, it’s uncomfortable, but it works. It took our family 5 years of really hard work, but we were able to pay off all our student loans, buy a new home, and have much less stress about money.”
Have Student Loans? Take These Steps Now
Now that you’re properly inspired by these stories of successful student loan rehabilitation, it’s time to use that as motivation to get your own debt situation under control. It is possible — ready to make it happen?
“Borrowers should target the loan with the highest interest rate for quicker repayment,” says Mark Kantrowitz, Senior VP and publisher at Edvisors.com. “[They also] need to consider not just their student loans, but also other forms of indebtedness, such as credit card debt. Paying off a 4% student loan while continuing to maintain a balance on a 14% credit card does not make sense, since the latter costs more.”
Focusing on the debt with the highest interest rate first is the most effective way to deal with your debt, financially speaking. “The snowball method, where one targets the smallest loan for quicker repayment, will cost the borrower more in the long term,” Kantrowitz explains.
He also notes that this process isn’t necessarily easy, and that you may need to take drastic action to see more change to your financial situation in a shorter period of time. If you’re serious about getting your student loan debt under control, you may need to consider moving back in with your parents, getting a second job, selling possessions, or cutting back on luxuries and discretionary spending.