$50K in Student Loan Debt: Where to Start

3177192128_7273c76f9f_oCollege is over and apparently it’s time to start behaving like a grown up. You’re thrust out of the warm womb of academia and into the cold real world. It’s jarring for everyone. And it’s even more jarring for those of us who are up to our necks in student debt.

When you’ve got somewhere around $50,000 in student debt, it’s difficult to know where to start. This article will give you the advice you need to begin digging yourself out of debt.

Know What You’re Working With

You might be receiving student loan bills from two to four to eight different lenders. Taking into account all of the other bills you have to worry about, it’s difficult to keep track of what you owe to whom and when.

This is why it is crucial that you have a spreadsheet, document, handwritten journal entry, etc., that contains all of your lenders, monthly payments, amount owed, and any other relevant information. If you don’t know all of this information offhand, check your credit report – it should have all of your lenders listed.

It’s not fun to discover just how much you owe – as the old saying goes, ignorance is bliss – but that ignorance could wind up costing you tens of thousands of dollars if you don’t get a handle on it. Suck it up and do it.

Make a Budget!

Your parents have probably been telling you this for years. But it’s just so hard to know how much money you’re spending per month with all contingencies considered. Maybe you don’t have a steady job, or maybe you don’t have a job at all yet. It doesn’t matter – you need to make a budget.

Put simply, you need to find out how much you can afford to pay on the student debt you owe. Because if you can’t afford the monthly payments, it’s absolutely necessary that you contact your lenders to discuss repayment plans. Believe me, they’d much rather strike a bargain with you than not get their money back. Negotiation is the name of the game.

Consider Other Options

Outside of fleeing the country or faking your own death, there are options for you to keep your sanity while paying back your student debt. The first of these options is debt consolidation.

Student loan consolidation is when the borrower takes out one loan in order to pay off any number of small, private loans. You’re no longer stuck with managing a multitude of payments. You’ll be responsible for making just one payment, to one lender per month. You’re refinancing your loans, so that means you’ll have a new interest rate and new repayment terms.

Consolidation isn’t necessarily right for everyone, but it can save you thousands of dollars if you do it right. Some consolidate for the simplicity of one monthly payment, and others do so in order to extend the life of their loan and lower their monthly payments.

Do your research before you jump into anything. And watch out for scams that sound too good to be true.

Looking Into Consolidating Your Student Debt: Who Qualifies?

Many graduates shy away from student loan consolidation because of the credit score and minimum income requirements. So, before you apply (and risk taking hard inquiries on your credit report) ask yourself these questions:

  • Is my credit score better now than it was when I applied for my initial loans?
    Most financial institutions are looking for a “good” (above 720), or at the very least, “fair” (above 600) credit score in order to qualify for refinancing.
  • Do I have a stable monthly income?
    Most financial institutions will require that you make at least $2000/month in order to consolidate. If you’re stuck waiting tables or doing freelance work for now, you might consider finding yourself a cosigner.
  • What is my debt-to-income ratio?
    Generally, you will not be eligible for consolidation if the amount of debt you owe exceeds 45% of your monthly income. Again, keep that cosigner option in mind.

If you’ve decided to further your education, the above considerations should be taken with a grain of salt. The fact that you’re investing in your future by continuing on in your studies is generally something financial institutions will take into consideration when you apply for consolidation.

OK, this all Sounds Good: Now Where do I Start?

There are a variety of websites that compare rates from a number of lenders to get you the lowest consolidation rate possible. Sites like this generally search through thousands of banks and credit unions to find you the lowest rate. But it’s best that you don’t place all your hope in such sites. The most updated statistics will be on the individual lenders’ websites. So be sure do to your own homework.

Keep in mind that there are two kinds of organizations who will consolidate your loans: financial institutions (banks and credit unions) and debt consolidation companies. Don’t rely entirely on websites that compare rates for you – do your own research by going to individual lenders’ sites, and getting them on the phone if necessary.

When you evaluate your options, be sure to consider three things: whether the interest rate is fixed or variable, whether there are prepayment penalties, and whether there are any upfront or long-term fees.

The important thing to keep in mind is that you’re not alone. Millions of young people are in the exact same place that you are, and some are in the hole much deeper. You may have gained a stellar education during your time at university, but adjusting to life in the “real world” is simply something that can’t be taught. It’s scary, complicated, and more stressful than all of your final exams put together, but if you make an effort to get a handle on your financial situation, it won’t be so difficult. Hang in there, my friend. It will get better.