Paco de Leon's Finance Advice

Paco de Leon's Finance Advice

Every month, finance guru Paco de Leon offers words of wisdom from the world of coin. In today’s installment, she’s sharing tips for paying off student loans…

Q. Help! I am drowning in student loan debt. For the last few years, I’ve just been able to pay off the minimum amount each month, which means that I’ve basically only paid the interest. What can I do? — Simone

A: I have lots of thoughts on this. So many people have mortgaged their futures in the hopes of being able to get paid well and pay it off, but there are definite ups and downs because this is the economic system we are living in. Income-based repayment plans are flawed because interest can accrue and the balance that you owe can compound over time. It’s messed up. Then there’s the whole debt forgiveness thing, but I wouldn’t hang my hat on that as a plan for getting out of debt.

I hear you. And I’m sorry.

So, here are a few options:

1. Enlist the help of a professional.
There are advisors who specialize in helping you restructure your student loan debt. I would look for a fee-based financial planner who will give you an initial consult for free. Even if it’s only 15 minutes, it’s good to feel them out to make sure you’re on the same page. You might be able to hire them to specifically help you come up with a payback, payoff or restructuring plan. Make sure they educate you on the implications of your options. The biggest thing to worry about when it comes to student loans is figuring out what you don’t know. It’s the unknown unknowns that have put people in bad positions. A good advisor will educate you on everything you don’t know that you didn’t even know that you didn’t know.

2. Consider refinancing.
You have to take a look at your specific loan terms to understand if there are penalties for refinancing or paying off your loan before the term ends. Then you can look into refinancing with third-party lenders like SoFi. But you’ll need to be an attractive borrower (in other words, you’ll need to have a good credit score). Another best-case scenario is you refinance with a friend, family member or rich grandma who can afford to refinance your debt. Just make sure your relationship won’t be impacted by bringing this into the equation. I say it’s a best-case because it’s probably going to be below-market interest, you don’t need to have stellar credit and the lender may be somewhat flexible.

3. Pay what you can and hope for the best.
There’s an orthodontist I know who owes A MILLION DOLLARS in student loans because they compounded. And he just pays what he can and probably slowly dies inside. You are not alone. (While you’re paying what you can, it can be helpful to live beneath your means. Here are some tips for how to do so.)

4. Make a sh*t ton of money and get out of debt.
You can work really hard, get really lucky, or some combination of the two. You can get a great job, work your ass off and figure out how to maximize your earnings. You can also consider taking on a temporary second job or starting a side hustle and using that extra income to attack your debt with extra payments. Starting a side hustle might be easy if you already have people asking to give you money for a thing you do, like branding or making pot holders or being awesome at something you’re awesome at. If the side hustle isn’t organically falling into place, take a step back, assess your skills and talents and research if there are people who are willing to pay you for said skills and talents.

5. Break the law and become a fugitive.
Kidding! I’m not really condoning running out on your debt. But there are folks who have gotten the eff outta Dodge and skipped out on their student loans and are living a fugitive dream life outside of the U.S. To be clear, though, you should not do this. Seriously, this is not my advice.

Paco de Leon is a musician who happens to be killer at finance. Her experience includes business consulting, business management, financial planning, wealth management and even some time at a giant bank. Her experiences led her to found The Hell Yeah Group, a financial firm focused on inspiring creatives to be engaged with their finances and giving them the tools and support to stop freaking out about it.

Thank you so much, Paco! Do you have a pressing money question? Please let us know in the comments below…

P.S. The best $2 lunch and an easy way to save money.

(Photo courtesy of Paco; illustrated background by Alessandra Olanow.)