Student Loans

Your Student Loan Debt Elimination Plan

I am talking to a lot of people lately who are feeling overwhelmed by their student loans. The staggering amount of student loan debt in our country has been a shocking wake-up call as the outstanding debt has surpassed $1.5 trillion. While high student loan balances are having a significant impact on people of all ages, they are particularly stressful for younger employees or those who went back to school during the “Great Recession.” Personal financial coaches and financial planners often hear the anxiety related to having student loans.

If you are feeling burdened by the weight of your student loan debt, it can be tempting to focus your financial resources and energy to pay them off as soon as possible. But as my colleague Kelley Long notes, there are situations where student loan debt isn’t as bad as it seems. In a Forbes contribution, she highlighted the importance of prioritizing other personal financial goals before worrying about making extra payments on student loans. Here are a few financial wellness steps that generally should be taken before making any extra payments on student loans:

Step 1: Make a list of your most important goals.

Many people assume that just because they have student loans, they will never be able to buy a home or retire. Student loan debt may seem like a significant burden, but it doesn’t have to be the fun killer that prevents you from reaching meaningful life goals. No matter how tight your budget is, it is important to have a written financial plan to provide guidance when prioritizing where to allocate your time and financial resources.

Your financial plan doesn’t have to be anything too detailed or overly complicated. As Carl Richards points out in his book appropriately named The One-Page Financial Plan: A Simple Way to Be Smart About Your Money, you can accomplish big things with a basic plan. A simple one-page financial action plan that helps you set SMART goals could be the solution to help you feel like you are making as much progress as possible as you fit student loan payments into other areas of your financial life.

Step 2:  Create (and follow) a personal spending plan.

This one sounds like a no-brainer, yet how many Americans actually follow a budget and tracks income and expenses on a regular basis? If you have struggled with maintaining a spending plan, you may need to change things around and find a different system that you are most likely to follow. Try the no tracking budget if you want an easy to follow spending plan.

Step 3: Establish a starter emergency fund.

This is a foundational part of the financial wellness plan that sets the framework for creating a fully-funded safety net account. The starter safety net fund typically ranges from $1k-$2k in an account separate from your regular checking account. It will come in handy if any unexpected medical, auto, or home expenses occur.

Step 4: Contribute enough to your retirement plan at work to get the full employer match.

Retirement may not be at the top of your financial priority list if you are in the early stage of your career, but if you work for a company that offers some type of matching contribution to your retirement plan, don’t leave free money behind. Take advantage of these matching contributions by at least contributing up to the matching amount. A contribution rate escalation program, if provided, can also help you reach that full matching level over time, even if it’s difficult to do now.

Step 5: Eliminate high interest credit card debt and personal loans.

When it comes to paying off loans and other debt obligations, it is important to realize that not all debt is created equal. Low interest student loans or mortgage debt are generally okay since the interest may be tax-deductible and they can help build your credit score. However, try to keep these payments under 25% of your monthly income. For those other debt obligations with interest greater than 6% such as credits cards, the best approach is to create a plan of attack to eliminate that high interest debt first.

Step 6: Fully fund your emergency savings.

Do you have enough to cover at least 3 to 6 months of basic living expenses? If you are experiencing student loan anxiety, you may feel the urge to bypass this important step. My best guidance is to avoid this temptation and focus on building up an emergency fund first just in case a life happens moment occurs along the journey.

This is where it helps to be different than the average American and pay yourself first. Set up an automatic transfer from your paycheck into a separate savings account until you’ve built up enough savings. If you participate in a health savings account or contribute to a Roth IRA, you can choose to include these funds in your emergency stash. Just keep in mind that you will typically need at least 3 months of liquid savings before investing those funds.

Step 7: Review your student loan repayment options at least once per year or if any life changes occur.

It is important to review your loan repayment options whether you are currently making payments or not. If your loans are currently in deferment status, try to go ahead and incorporate your future payments into the spending plan. Instead of paying your loan servicer, you can start saving some of those payments and get into the habit of making the payment to yourself to get a feel for how they will fit into your future spending plan.

Among those who are making payments, the average monthly payment is $351 for borrowers between the ages of 20 and 30. Choosing the right repayment plan is about more than just minimizing your current payments. Knowing how long it will take to become debt-free and how much you will pay in total interest over the life of your loan are major factors to consider. It also helps to understand that you can always change the terms of your federal student loans repayment plan.

Refinancing with a private lender is another option to consider that could potentially reduce your overall interest payments. If you consider going this route, be sure to factor in that you will be giving up benefits like income-based repayment plans or even loan forgiveness if you work in certain public service jobs. To learn more about choosing the right repayment plan for federal student loans visit

It is important to point out that the previous action steps are recommended before paying extra on student debt. If you have student loans that are starting to feel more like a mortgage payment, remember that creating a financial plan that is simple and flexible is the first step you can take to assume control over your situation. Student loans can be a scary obstacle to overcome without a plan that is integrated into your financial life plans. If you are feeling burdened by nagging student loan payments, focus on your overall financial wellness while reviewing your repayment options.

The original version of this article appeared at