Today’s students and new graduates are saddled with years upon years of student-loan debt. This type of debt can be difficult for anyone to pay back in a timely, responsible manner, even in the best of times. In fact, many professionals well into their careers continue to struggle with balancing the checkbook and the needs of their businesses. It doesn’t help that a significant portion of borrowers don’t have the financial training to understand how to manage debt.
As a CFO, I work with numbers and budgets every day. My education and experience mean I understand a bit more than the average person about topics such as debt, profit margins and setting budgets. But even professionals sometimes need a fresh perspective to help manage their own personal finances. If I can use my job as a reminder to be responsible with my personal budget, I hope that the 40 million Americans with outstanding student loans can, too.
You don’t need to be a CFO to act like one when it comes to personal-debt management. Follow these steps to manage your loans intelligently and pay off your balances.
1. Create an aggressive (but realistic) plan.
CFOs are responsible for virtually all of the financial activity at their companies. This begins with tracking and reporting on financial information, continues with treasurership duties and culminates with creating strategic plans based on the knowledge available.
You can do the same for your student loans. A three- to five-year plan typically is a good place to start. Taking into account the interest rates and total amounts owed, plan to pay off the highest interest rates first — as quickly and frequently as is feasible for you. Your plan should be realistic but also as aggressive as you can afford. And by “afford,” I mean living in a way that you have spare cash available to put toward debt repayment. For example, you might plan to pay double the minimum or make payments twice a month. You’ll be even better off if your course load and other requirements allows you to work a part-time job and start paying off loans while you’re still in school.
Idealism can be a good trait in business, but that philosophy doesn’t translate very well to loan repayments. The last thing you want to do is default on your obligations. You also don’t want to let interest pile up. Your goal is to get rid of your student loans as quickly as possible so you can achieve financial freedom.
2. Set and follow a strict budget.
If you’re working now, how much are you earning after taxes? If you’re renting, how much are you putting into monthly rent plus utilities? Do you have credit card debt? What are your other everyday expenses? CFOs need a comprehensive understanding of their companies’ financial situations, and this demands a thorough understanding of all cash inflows and outflows.
It should be no different for individual borrowers. Study your finances until you understand your own circumstances as well as a CFO must understand his or her company’s books. After you’ve created your pay-back plan, set a personal budget to support it. You might consider limiting your spending by allowing yourself a tight (but feasible) weekly cash amount. Think about what you’ll need to cover transportation, food, retail, recreation and everything else. Leave no stone unturned, and stay on target as best you can. If you get extra cash, put it to work as well by directing your windfall to your outstanding loans’ principal amounts.
Related: 7 Steps to Achieve Financial Freedom
3. Take advantage of technology.
Modern CFOs can’t rely on old methods to do their jobs — not when there’s a whole new world of innovation on the horizon. New technology makes it much quicker and simpler to keep track of finances, manage data and crunch numbers. Thanks to fintech advances, CFOs can focus their energies on forecasting trends, developing strategies and moving their companies forward.
The student-loan debtor also has plenty of technology to help stay on top of budgets and loans. You can consolidate and pay all of your loans online and view them as often as you need. A number of money-management apps sync with your bank account to itemize your expenses. Mint, Pocket Expense and HomeBudget are solid platforms to get you started. The easier it is to track expenses and budget your resources, the better you’ll be at focusing on what’s to come. When you have good information that’s presented in a meaningful way, you have the data and context you need to drive intelligent decisions.
4. Forecast and adjust.
Though CFOs must be absolutely thorough and exact in gathering and reporting financial data, they can afford to be inexact when it comes to forecasting. Forecasting is not a precise science. A CFO does the best he or she can to account for external and internal forces to come, and then builds a framework to support and reflect those projections.
There’s actually less room for guesswork involved in loan repayments: One mistake could sabotage your credit. Of course, that doesn’t mean that you can’t do some forecasting of your own. If you’ve been budgeting for some time, analyze how well you did and adjust for the year ahead. Perhaps now you have a new car, a new person in your family or a higher salary — all changes that will impact your spending ability. As you forecast your loan timeline, factor in emerging developments and old trends so you can adjust as necessary.
5. Make sacrifices.
CFO make near-constant sacrifices for the sake of cutting costs. We look for different business partners, more efficient tools, areas of excess and other opportunities to reduce expenses. You can do this as well, but you must recognize it very well might mean giving up your morning coffee, cable TV or annual vacation. Making small changes adds up over time.
Both small and large sacrifices will allow you to pay back more of your loans, and sooner. In the long run, this will save you interest that could amount to repaying your original principal multiple times over. You have to decide what is worth sacrificing and what you really can’t do without. You want to live below your means, but you don’t want to live without them. And remember: A savings fund is key to any budget.
Related: 6 Steps to Get Out of Debt
6. Read the fine print.
Lastly, every CFO must have an eye for details. We are engaged in mergers and acquisitions, employee benefits, risk management, insurance and other dealings that involve plenty of fine print. Your loans have fine print too, and it’s vital that you understand the terms.
Most loans have repayment guidelines, and the fine print should disclose how interest rates will change over time. In some cases, interest rates will rise dramatically if your payment arrives late even once. The terms also should describe all fees that can or will be incurred over the course of the loan. Knowing the terms of the agreement and the consequences of missed payments will motivate you to stick with your plan. Avoid at all costs any loans that penalize early repayment.
You don’t need to be a CFO to pay back your loans. Creating a smart and proactive plan, following it diligently while saving whenever possible and taking control of your financial situation will help you eliminate your debt ahead of schedule. It will take plenty of time and effort, but it’s worth doing all you can to free yourself of a long-term financial burden.