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How To minimise Your Loan Stress

Don’t rush the repayment of your student loan. You might overburden yourself instead of ridding yourself of the burden. Here’s how to do it

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Fuelled by aspirations for a better future, more and more young Indians are leveraging themselves financially in an effort to procure quality higher education. According to Reserve Bank of India, the quantum of outstanding student loans swelled nearly 50 per cent between March 2013 and December 2016 — from Rs 48,332 crore to Rs 72,336 crore.

The economic slowdown that kicked off nearly 10 years ago, has taken a heavy toll on the job prospects of young graduates. Data from All India Council for Technical Education (AICTE) paints a grim picture. In the year 2016-17, more than half of India’s MBA graduates were unable to land jobs, let alone secure a position at the company of their dreams.

Collaterally, student loan defaults are on the rise. In the same period between 2013 and 2016, non-performing assets in this segment shot up two and a half times. In times like these, a student loan can very quickly go from being a blessing to becoming the proverbial albatross around your neck — exacerbating the stress that invariably marks all early stage careers. If you, like many others, are entering 2018 saddled with a student loan EMI to bear, here are a few things for you to keep in mind.

Avoid The Temptation To Go All Out
Career-building is basically a long-term endeavour that’s fraught with pitfalls and struggles. Although it may be tempting to squeeze yourself dry in order to divert every last penny towards paying off your student loan, this isn’t a prudent approach in the long run. The psychological toll that this can take can be tremendous, and often lead you to take short-term career decisions that could blemish your resume and come back to bite you later.

Instead, aim for a balanced approach towards paying off your student loan. Divide up your post-tax income using the 50-30-20 rule: using 50 per cent for your essential expenses, 30 per cent for discretionary spends such as eating out and shopping, and 20 per cent for paybacks. In the one-off month that you do end up spending less on your utility bills or discretionary spends, don’t wait — immediately make a prepayment into your student loan.

In case you have entrepreneurial aspirations, it’s highly recommended to push them ahead by five years or so; during which time you will have stabilised your career and paid back the bulk of your loan. The last thing you’d want is to be buffeted by the invariable storms of an entrepreneurial life while you are busy paying back your student loan!

Be Smart With Your Debt
If you have other, higher cost debts to pay off, such as credit card debts, pay them off first. Bear in mind that if things go as per plan, your income will rise with each passing year, automatically reducing your student loan EMI as a proportion of your overall take-home pay. But if the possibility of borrowing a lump sum from close relatives to repay the loan in entirety exists, do it early on in your loan cycle. Set up a more flexible and lower-cost payback arrangement for this so-called ‘refinanced’ loan, and formalise it, if possible.

Part-Time Work Can Be Useful
Taking up a job purely based on the salary on offer can be an unwise move early on in your career. You may have taken up a job for the right reasons — the learning, the networking opportunities and the possibilities for vertical growth — for instance; but the lower salary may be putting you under pressure due to your outstanding loan burden.

Many young graduates find themselves in the quandary described above. In such situations, it would be wise to buckle down and seek part-time work outside of your full-time job. Consider taking up a temporary opportunity such as freelance content writing, teaching, social media assistance or online research. It goes without saying that you will need to work harder and put in that little bit extra, but think of it as a price to pay for building out a long-term career for yourself.

If All Else Fails, Seek Better Prospects
If you have tried just about everything else, but still find that tackling your student debt is an uphill climb — seek a higher paying job that will cover your monthly EMI and then some. In the end, you are in the best position to judge whether the stress of paying back your loan is cannibalising your work output and motivation to a material extent. If you are a prized employee at your firm, your current employer may consent to share some of the burden in the effort to retain you. Lay your cards on the table frankly and discuss a workable solution with your line manager. If nothing works out, you may need to bite the bullet and move on to another opportunity. Just make sure you don’t make it a habit!