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5 Best Ways to Pay Down Student Debt

Hitha Herzog

Here's a fun fact: The average undergraduate student will graduate with $28,973 in loans, according to Edvisors, a group that advises students and parents about paying for education. That amount will go up if you tack on graduate school.

In the U.S., student debt has risen to $1 trillion, per the Federal Reserve Bank of New York, with nearly $864 billion in federal student loan debt. As if those stats weren't enough, Americans are racking up student loan debt at a rate of $2,726 a second, according to a debt clock from StartClass, which calculates debt in real time and provides education research.

If your instinct is to bury your head in a mountain of papers, and pretend college or graduate school never happened, stop the denial cycle. Instead, take a proactive approach and follow these five steps to get you on the path to freeing yourself of student loan debt.

[See: 10 Easy Ways to Pay Off Debt.]

Max out ... on payments. When people refer to something being too much of a good thing, news flash: They aren't talking about making the maximum amount of payments per month on student loans. The more you can put toward your loan per month, the closer you will get to tackling the principal amount (what you actually took out) versus just the interest payments. Lenders are required to pay off the interest first with your payments, which accrues daily before using your payment toward the principal. Therefore if you owe $250 a month and that is barely covering interest, it would behoove you to pay a bit more. Make sure to designate that any overpayment go toward the principal balance.

Read the fine print of every document. This is major. Student loan documents can phrase things that can be at best vague and at worst confusing to the point of being incomprehensible. What's more, these little sidebars that you sign off on may end up costing you thousands of dollars. For example, if you decide to consolidate your loan, most loan providers will put in the fine print that your interest will increase. This could be the difference between owing $1,000 in interest or $8,000, depending on the size of the loan. Don't be the person who feigns illiteracy. You are smart. Read everything and if you don't understand, ask the loan provider to explain. Do not sign off unless you fully get it.

Don't transfer loan balances to your credit cards. This seems obvious, but in case it's not, let's do the math. Say you have a $40,000 loan at 4 percent interest. You move it to your credit card where your limit is $50,000, but you have an annual percentage rate, or APR, of 20 percent. If you transfer the balance and make the minimum payment, you are potentially paying $8,000 a month in interest payments. If you only make the minimum payment on your newly transferred loan, you could potentially be paying $16,000 on interest for the $40,000. No one should be doing that.

[See: Best Credit Cards.]

Give yourself a time limit for getting things paid off. You can hand in work assignments on deadline, give your significant other time ultimatums when it comes to your relationship and become irate when Amazon doesn't deliver your order as scheduled. Why not impose the same time constraints to your loan-payment plan? Setting up time parameters forces you to go into "do or die" mode when it comes to paying back your loan. When you know you have a deadline looming, you work extra hard to double up on payments or make changes to your lifestyle so you ensure that deadline is met.

[See: 11 Expenses Destroying Your Budget.]

Live like you never left school. Remember that basement sofa at your parent's home? What about eating ramen noodles every day? These may seem like a hyperbolic #TBTs to college living, but the numbers don't lie. Cutting things like cable, which can cost upwards of $100 a month, frequent dinners out averaging $150 a week, having a car when you live in an urban area (costing you upwards of $500 a month) or not living with roommates (tack on another $700 a month) can save you close to $12,400 a year. If you can suck it up for three quick years, for example, $37,200 could go toward your loans. And if you think you are the only person doing this, you're not: According to the Pew Research Center, around 36 percent of Millennial women (ages 18 to 33) are still living with their parents, while 43 percent of Millennial men consider mom and dad "roommates."

Focusing on future financial goals is never easy when you can't see the forest through the trees. And if you have a loan that is more than a couple thousand dollars, that forest can feel like a jungle. Focus, make a plan and use the same will power that prevents you from eating three Krispy Kreme donuts with your morning coffee. Saving is never easy, but having a balance of zero when it come to your student loan is worth the sacrifice ... even if you have to share a bathroom with your sister again!

Hitha Herzog is chief research officer of H Squared Research, lecturer at Parsons School of Design and author of "Black Market Billions."



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