Debt can be very distracting.
Knowing that you’re in the red financially can take a serious emotional toll, particularly if you’re a student or a new grad looking to start building a career.
Managing your outstanding debt is a critical challenge of life after school, and how you deal with it can have a major influence on the transition you make from classroom to workplace.
While it may take you just a few months of extreme penny-pinching (or years of small frugalities), it’s important to cultivate the right attitude.
Thinking of paying off your debt as a chaotic race to zero will quickly exhaust you – instead, concentrate on being “in dialogue” with your debt.
This dialogue means looking at different processes you can engage in, and connecting these short-term steps to long-term outcomes.
Once you understand the options available to you, you’ll be able to choose the steps that fit your personal preferences, and feel confident in the plan you’ve made.
You can start this dialogue with a few simple steps.
If you’re dealing with a lot of distractions (an impending move or a job search, for example), it can be easy to avoid confronting your debt head-on.
Don’t make this mistake! Putting together the information you need as soon as possible can make all the difference.
First, gather all the financial information about your outstanding debt, which can include:
- Government loans
- Line of credit
- Personal loan (from a family member, for example)
Make sure to note the original total owing, any amount you’ve since paid back, the outstanding amount owed and the minimum payment (as applicable).
Having this information at-hand will help you make a plan.
With the facts before you, it’s time to look at your goals.
Remember that resolving your debt can’t be your only goal. You’ll need to strike a balance between short- and long-term priorities, as well as unavoidable expenses that lie ahead.
Brainstorm a list of major things you’d like to accomplish in the future, particularly those which cost money.
For example, if you plan on moving out on your own or relocating for work, you’ll want to take these goals into account.
Don’t censor yourself!
It’s ok to list “someday” goals, as well as things like travel plans and investments (if appropriate).
You’ll need to be honest about the things you’d like to accomplish in the future to make reasonable plans.
While some debt-holders (particularly recent grads) make maximizing their payments a top priority, everyone has different goals, and has to come up with a plan that suits them.
Make a plan
With all the facts before you, you’re ready to take an active step forward.
Note your income (after tax), as well as any cost-of-living expenses you’re currently responsible for, like rent, transportation, food and so on.
If you aren’t employed just yet, this information can help you note your projected expenses and may help you manage your money more responsibly while you look for work.
If you don’t have a current source of income, ballpark your projected income once you find employment – use estimates for different scenarios, like landing your “dream job,” as well as balancing different kinds of part-time work.
Work out a rough timeline for paying off your debts based on your present financial standing.
Compare the timelines you’ve created alongside the other financial goals you have. Can you resolve a debt faster by postponing a major purchase?
Try it out
Ready to get started?
Take the most ambitious steps you possibly can.
Maybe that means looking for extra hours at a part-time job, heavily cutting back on spending or redistributing your current income towards debt repayment.
Don’t treat these new steps as permanent changes to your lifestyle – rather think of them as a temporary exploration.
(For that reason, be careful about making commitments at work in terms of hours and availability.)
It’s important to start out with aggressive changes, as you may be surprised to discover how little you notice a slightly-smaller budget.
This is where you really get to dig into the “dialogue” with your debt.
Over time, monitor the effect the changes you’ve made have on your mood and attitude, both generally and towards your debt.
If you’re finding certain changes too strenuous, return to the goals you set and ask yourself if you should reevaluate your priorities.
The most important thing is that you make debt-payment decisions and commitments calmly and after careful reflection – slowly building a plan that represents the right balance of saving and spending.
It may never be pleasant, but you might find it exciting to realize that you’re actually quite comfortable spending less money than you originally imagined – and paying your debt down that much sooner.