There are two schools of thought on debt repayment strategies.
Some call the notion of debt management an “art”. Others call it a “science”.
After five years as a trader on Wall Street and after ten years of writing about personal finance, I’d call it a mindset.
You really have to be a pragmatist to tackle debt. It’s a thankless, no-glamour task, akin to cleaning the gutters or undergoing root canal. Burdensome responsibilities, yes. But necessary ones, too.
Like most matters in life, you have to set the table before you can eat. You have to lay the foundation and build a house before you can live in it and enjoy it.
Same with retiring your student loan debt. It’s dirty work that, once finished, enables you to go on and enjoy the byproducts of that debt retirement – more money, less worries, and a sparking credit rating that will enable you to buy that dream home or open that coffee shop downtown that you’ve always dreamed about.
Those – and not your student loan debt – are the things that make life fulfilling. But you can’t get to those fulfilling life goals without clearing that debt away first.
So imagine your mindset when you graduate from college, enjoy the accolades from your friends and family, and look forward to embark on the rest of your life, diploma in hand and wind at your back.
That euphoria exists only long enough until you get that first student loan statement in the mail – the one with the eye-popping $25,000 figure on it staring back at you from the bottom of your statement.
Calgon, take me away, right?
Well, if you don’t adopt that “can do” mindset I referred to above, your student loan debt can become a student loan problem faster than you can say, “Ah, I’ll pay it next month”.
That’s why planning your loan repayment schedule around an overall financial plan is so important. In previous blogs, we touched upon the importance of managing credit card debt and establishing a budget. But you also have to figure out how to channel that aggressive, bulldog mindset that I described above into taking control over your financial life and carving out a strategy for paying your student loan debt.
Let’s tackle that issue right now.
The Cost of High Debt
When you’re talking about tackling your student loans, you’re really talking about avoiding lifestyle-crippling debt.
One of my favorite movies is “Apollo 13” with Tom Hanks. Kevin Bacon, and Ed Harris. Fine actors, all. But it’s Harris who has the best line in the film. Faced with a potential catastrophe up in space with a banged-up space capsule that might not survive re-entry into the earth’s atmosphere. Harris – as the NASA commander – is the guy who has to solve the problem and bring the astronauts’ home safely. Turning to his team, Harris gives them there marching orders and says point-blank “remember, failure is not an option”.
Failure is not an option.
What a great concept for addressing your student loan debt.
Why? Because the price for failing to pay off your student loan debt in a timely manner is a stiff one.
Let’s look at reality. The more student loan debt you accumulate (and don’t pay off) the tinier the mortgage you’re likely to get when you buy a home. Or, the smaller the loan you’ll get to buy a new car. Or how about your career? Many companies now rely on credit reports to hone in on your character when you're applying for a job. If they see a heavy debt load, that’s a big red flag. Hiring managers reason that if you're not reliable enough to pay your debts, you’re not reliable enough to come work for them.
Face it. Debt gets expensive after a failed student loan payment effort and the ensuing nasty credit rating you’ll get. That will impact everything that happens to you financially in life, from having to buy a smaller home – or heaven forbid, have to rent one because you don’t qualify for a mortgage – to the amount of money you’ll be able top put away for retirement. It won’t be as much if you face a mountain of loan debt, meaning you could be spending your golden years working under the Golden Arches to make ends meet.