How To Reach Financial Freedom When You Have Student Loan Debt

You long for the day you reach Financial Freedom. But you wonder how you’ll ever get there when you’re carrying massive student loan debt.

And you’re not alone. In the U.S., 44 million people are currently shouldering more than $1.48 trillion in student loan debt. Plus, according to a recent report by the Federal Reserve, most of those people are paying their debt without help from parents or other help.

As a result, you might feel pessimistic about your ability to tackle thousands of dollars of debt while working toward Financial Freedom. But there are steps you can take to achieve Freedom while knocking down student loans. Here’s how it works:

First, Ask Yourself The Big Question

Are you ready? Here’s the big question you need to ask when it comes to your student loans: What are your loans’ interest rates?

The interest rate attached to each of your student loans matters. In particular, this matters relative to the other interest rates that are part of your financial picture.

Here’s an example:

Suppose your federal student loan comes with a 4% interest rate. Your savings account, meanwhile, offers you 1.25% APY. If you pay your loan minimums just so you can stash a ton of cash in savings, you’re making a big mistake. What you’re paying in interest exceeds what you’re earning in interest. Putting the bulk of your money in the bank is actually costing you!

Now consider your investment portfolio. Suppose you conservatively expect to see 6% annual returns on your investments. If you wait to invest until your loans are completely repaid, you’re sacrificing dividends that are worth more than the interest your lenders are charging you!

So grab a sheet of paper, and take notes on the interest rates of your finances:

  • What are the rates on your student loans?
  • What’s your savings account APR?
  • What interest rate are you paying toward credit card debt?
  • What’s the rate on your mortgage?
  • What’s the average return on your investments?

Now, Start Paying More

Paying the minimums on your student loans is a great way to stay mired in debt for years or even decades. And, if your goal is Financial Freedom, you can’t possibly arrive while you’re still chained to student loans.

So prioritize your need to eliminate those loans. In other words, start paying more than the minimum monthly bill.

How much more? Finding the right amount to pay is specific to you, your family’s needs and your financial situation. While you want to be free from your debt, you never want to pay so much toward student loans that you can’t . . .

  • Cover your family’s needs. Make sure you’re able to pay for all the essentials—housing, food, clothes, etc.
  • Pay your insurance premiums. Your safety net is just as essential an expense as food and utility bills. Be sure you’re protected against major medical expenses, disability, death and more.
  • Maintain a solid emergency fund. If catastrophe forces you to dip into savings that run dry, you may be forced to turn to high-interest credit card debt or default on those student loans. So build up your emergency fund while paying down debt if your savings are running low.
  • Claim your employer’s retirement match. Businesses that offer a 401(k) match are giving you free money you can’t afford to pass up. Just for contributing, you can get up to a 100% automatic return on your investment via the company match.
  • Get ready for big expenses. Don’t put money toward student loan debt you know you’re going to be needing in the near future. If the car’s tires are nearly bald or your kid’s tuition bill is due soon, keep that money liquid and secure.
  • Invest in your future. Feeding your Income Generator and your Growth Engine can’t wait until your debt reaches zero. The power of compounding means that, the longer you wait, the more you’ll need to invest in order to catch up. And, of course, once your debt is gone, you can amplify your Freedom Generator contributions.

Finally, Up Your Game

It’s entirely possible your student loan debt is crippling you to the point that you simply can’t pay more than the minimum while still covering the areas I’ve just described. But there are some steps you can take to overcome that issue. And these steps will continue to work for you when you’re ready to accelerate your debt repayment even further:

  1. Stay focused on the goal. Chipping away at debt can take time. But, if you keep at it, you will eliminate it and be able to use that extra money to pay your future self.
  2. Decrease your expenses. The quickest way to find more money to put toward debt repayment isn’t begging for a raise. It’s slashing expenses. Dig into where your money is currently going, and see where you can make some sacrifices or make savvier spending decisions.
  3. Increase your income. Ask for that raise. Increase your working hours. Pick up a second job, or start a side hustle. Sell the stuff you no longer want or need. Challenge yourself to find sources of extra cash.
  4. Get forgiveness. In some circumstances, you may be able to have part or all of your student loan debt erased. Explore student loan debt forgiveness programs for which you might qualify.

Remember: Paying down your student loans doesn’t mean that you have to put your future on hold. With the right strategy in place, you can absolutely tackle that debt while holding course toward Financial Freedom.

image credit: Bigstock/dolgachov

Dr. Tony is the co-founder of MindShift.money and the best-selling author of three books on personal and business finances. Having achieved Financial Freedom at 27, Dr. Tony believes that through Financially Fit Bootcamp and Cash Flow Cure everyone can get there. He has made it his life’s mission to help others live a life where their money works for them—not the other way around.

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