Following my recent post on how to ease your student loan burden, a reader wrote in asking for advice on how to better manage her private student loans, which are a bigger annoyance in some ways than federal loans.
Dear Farnoosh,
I was hoping you would have some advice for people like me who have about 50K in private student loans. Yes I know, it’s crazy. My monthly payments are almost $500 a month (that could have been a really nice savings account) but I’m BARELY making the minimum payments. Please, please, please tell me there is something I can do to help my newly engaged, looking to buy a house, then get married but have no money-self.
P.S. This was all acquired from my culinary degree, which coincidentally the school from which I graduated no longer has a culinary program!!
Greatly Appreciated, Nicole
Dear Nicole,
To answer your question, there is something you can do. In fact, there are several things you can do. But before I give you advice, I need you to accept the following: This debt is only your responsibility and you must make paying it down a top priority. Realize that at the end of the day, unfortunately, no one is obligated to help you ease this burden. I know you’re frustrated and regret taking on this debt, but if you want to turn this ship around you need to take control of the situation and raise your commitment level to these loans. Otherwise you risk putting a great deal more at risk, including your ability to afford a wedding and own a home.
Here’s my honest advice, which has less to do with actually modifying your loans and more to do with modifying your lifestyle and making some key changes in your income and budget. Bottom line: No one cares more about your financial situation than you.
Boost income. Since you can barely make the minimum payments, it’s fair to say that you have an income problem. You have a $500-a-month dilemma. So what can you do in your spare time to bring in that money? With your culinary degree can you cater a couple of extra parties a month? Host private cooking classes? What else can you easily and quickly do? Babysit? Tutor? Freelance food and recipe articles? Embrace the fact that you’re young and educated. The job market is rough right now but by taking on an entrepreneurial spirit you can find a way to add a revenue stream or two.
Reduce spending. While you’re looking for ways to make money, take a long and hard look at your spending. What’s coming in and what’s going out? Why are you barely able to make the minimum on your student loans? What’s eating up your income on a monthly basis? It may not be one category of spending. It could be a collection of expenses from eating out to your rent to your gym membership to your cable bill. You need to make some adjustments. Substituting your gym membership, for example, for free runs in the park or free online workout classes, can save you $75 a month right there. This probably isn’t the advice you wanted to hear, but it’s the one sure-fire way you can personally take control of the situation.
Speak with your lender. If you haven’t done so already, it may be worth speaking to your lender about any alternatives to the current loan program you are in. Is there a way to stretch the repayment period? Or consolidate your loans to one loan with a reduced interest rate? You won’t know unless you ask.
Don’t miss any payments. The biggest danger of all is falling behind. I’ve seen scenarios where a $10,000 private loan balloons to $30,000 because of late or totally neglected monthly payments. If all you can afford is the monthly minimum right now, then stick with the minimum. Once you start making more money and reduce your spending you’ll have extra savings to play. At that point, put more money toward the principal of the loan.
Farnoosh Torabi – Credit.com Personal Finance Contributor, nationally recognized author, expert and television host. Her first book, You're So Money, is an acclaimed tell-all for young adults searching for financial independence. Her new book Psych Yourself Rich, gives readers the mindset and discipline to build their financial life.