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So you’ve graduated college (YAY!) but now it’s time to start paying back those student loans. You may be wondering what your next steps are. If you have a grace period, you have about 6-9 months (which will FLY by) before you have to start making monthly payments. The thought of paying back a large sum of money can be daunting, but with these tips and tricks it will be a breeze!
There are several options when it comes to paying off your student debt. Always do your research beforehand! And always, always, always read the fine print. Consider the following scenarios before dishing out cash every month.
The first thing to consider before making your payments is to speak with your lender. Talk to them about your other financial responsibilities (i.e. rent, car payments, medical bills, etc.) and work to determine a plan for repayment that better fits your current spending needs. This is a crucial step if you have multiple lenders and need to balance your frequency of payments.
If you have a low salary, and/or have any dependents, talk with your lender about an income-based payment plan, which is available on federal loans. This option will allow you to pay a smaller, more reasonable portion from your salary for up to 25 years (after which, all remaining debt is forgiven).
Another option is to refinance. This may help you get a better interest rate for the loan(s). It is likely that you applied for your original loans under a lower credit score. Refinancing takes into account your current (and hopefully stronger!) credit rate and the interest rates will reflect accordingly. While this option is not available for federal loans, it is for private loans. One final thing to consider with this type of payment is that the interest rates are not fixed and can go up without warning.
Visit studentaid.ed.gov for more information on this type of repayment.
If you have multiple loans, one option would be to consolidate them. All of your loans would be added up and you would make payments off of this sum. Rather than juggling several loans with different interest rates, consolidating your loans averages all of your interest rates and you pay one rate for one sum of money.
The catch is that it may immediately terminate your grace period for loans that are not yet in repayment. Keep this in mind before you decide to consolidate any loans!
Some federal loans may qualify for cancellation if you work certain jobs such as teaching or nursing. You may also qualify if you are a librarian.
If you are planning to go to grad school, you may be able to defer your payments until you complete your second degree. Always check with your lender to see if you qualify for either of these options.
If you have a grace period, it is still a good idea to start making payments immediately if you can. This will help ensure lower monthly payments if you decide to refinance later. Even if the payments are $10, you won’t regret starting early!
Pay More than the Minimum
If you can, pay more than the minimum amount each month or during the months that you have some extra cash. This will make paying off your loan go much faster than the typical 10-year period. If your work has slower months or you’re worried about not being able to make a future payment, pay a larger sum one month and then continue to pay the minimum amount in case you do need a grace period at some point. Think if it as a “rainy day” fund. Another perk of paying more each month is lowering your interest rate over time.
One at a Time
If you have multiple loans, and you don’t/can’t consolidate them, try to focus on one at a time. That is, pay the minimum on all of the loans except for one. On the remaining loan, put as much into the payment as possible each month, exceeding the minimum, until it’s completely paid off. Then, choose another loan to focus on and continue until you have made all of your payments.
Try starting out with the loan with the lowest amount of debt and pay it off first. Fewer loans means less interest and less cash going out each month! This strategy is definitely the more aggressive option, but the end goal (debt free!) is still the same. However you achieve that status is up to you!
Paying off student debt is hard enough as it is. Here are some ways to make managing payments easier for yourself:
Budgeting and money management are so important both now and in the future. Learning these skills and mastering them at a young age will make things so much easier for you in the long run! You want to be absolutely certain that you have enough money at the end of each month to pay for all of your expenses, including your loan payments.
Create a spreadsheet in Excel with all of your monthly expenses and subtract those expenses from your monthly income. Keep track of both your expected expenses and your ACTUAL expenses each month so you can adjust your budget accordingly. If you notice you’re spending too much on coffee each month, cut back on the Starbucks and make your own coffee to keep a balanced budget.
Set up Automatic Payments
Setting your payments to be withdrawn automatically each month is a great way to make sure you don’t miss a deadline. You can set Auto Pay for specific dates each month and stop at any time. Simply set it up to withdraw the minimum amount each month (or more if you are able) and you don’t have to worry about deadlines.
Be careful with this option, though. Auto Pay will still withdraw the money from your account even if you don’t have enough to fit the bill. Even with the automatic service in place, it’s important to monitor your bank account each month to make sure you can pay the bill.
Did you know you can be reimbursed up to $2,500 in tax refunds at the end of the year from the interest paid on your loans? As tempting as it may be to spend that reimbursement cash on a vacation or new clothes, you should put the money right back into paying off your loans. Every dollar you pay off now is money saved later.
It’s normal to feel overwhelmed by student debt, but don’t stress too much! It may seem like you’ll never get out from under your loan payments, but you WILL!