You have probably heard the expression “living beyond your means,” which is simply another way of saying that someone is spending more money than they are earning. The key to getting out of debt is either to increase income or reduce expenses so that you are earning more than you spend. You may use the remaining money can then be used to pay off debt, starting with the debt with the highest interest rate.
Step 1: Estimate Income
The first step to reducing debt is to understand exactly how much money you are making. Our monthly budget calculator provides an easy way to do this if you receive a regular paycheck. But some students may not “earn” money, since they are supported by student loans, savings, or other sources of aid that come in lump sums rather than in regular pay periods. If you fit this description, you should average your income over several months in order to get a monthly figure income figure you can work with.
After totaling your income you need to find whether there is a way to earn more.. Depending on your situation, you could consider some of the following options:
The options listed above are obviously not for everyone, and we urge you to discuss your situation with an aid officer or financial counselor before making any major decisions. For example, earning extra money by increasing part-time work hours may be a good idea, but not if you are already having difficulty in school because of your work schedule. The worst possible situation is to accumulate student loan and credit card debt in pursuit of a degree, only to fail to finish the degree and be stuck with debt that you cannot repay.
Step 2: Reduce Expenses
Increasing income can be difficult for a student. In fact, some students are prohibited from working or from working more than a certain amount because of a scholarship or other condition of enrollment. The good news is that just about everyone can, with some discipline, reduce their expenses. Here are some ways:
There are hundreds of ways to potentially save money, many of which will not apply to your current situation. Use the monthly budget calculator to see where and what you currently spend and where you could save.
Step 3: Review Cash Flow
After taking all the steps in your power to raise your income and reduce your expenses, how much is left at the end of the month? If your income exceeds your expenses (including debt payments), you have positive cash flow. Make at least the minimum payments on all accounts, and take any extra money and apply it to the highest interest rate debt first until that debt is eliminated. After the highest interest rate debt is paid, move to the account with the next highest interest rate and continue until all your debts are paid in full.
If your income is not enough to pay your expenses, you have negative cash flow. Review your earning and spending estimates again to see if any opportunities were missed. If you still have negative cash flow, it’s time to seek additional help.
Advisory services offered through EWG Elevate, Inc. dba Protection Point Advisors.
This represents a partial list of clients. They have not been compensated and were not selected based on duration, performance, account size.