According to a 2017 USA Today article, outstanding student loans has passed credit card debt. Total outstanding student loans at that time were estimated at $1.4 Trillion. Most people believe that student loans are necessary. Once it comes time to pay it back, you need to be educated and know exactly what you have gotten yourself into so you can get yourself out as quick as possible.
If you haven’t started college yet, I want you to look at your options for staying debt-free. Using your savings accounts, shopping for a cheaper college and using available scholarships and grants are great ways to reduce your debt before you even start. Educate yourself on all of these options and the best loans to acquire for your situation.
Once in school you can make a big impact on your student loans. Generally, they don’t need to be paid while you are in school. But, if your loan is not subsidized (income requirements) then they are adding interest to your loan every single month. If you take out a $10,000 loan at 10% and don’t start paying it back for 4 years, you now owe almost $15,000. On the other hand, if you can just pay the interest each month, you will owe the $10,000 when you leave school. On a $10,000 loan, $84 every month pays the interest. So, drive a cheaper car, cut the cable or internet, work a part-time job, don’t eat out regularly. A $10,000 loan is much more manageable than $15,000. Do whatever you can to start paying early.
When you graduate, you now have this student loan bill and don’t know if you can pay for it. So, here’s some ways to get it paid off early.
- Consolidate. Be very careful that you use a reputable lender for a consolidation loan. Make sure that it will reduce your interest rate and your monthly payments without extending the loan repayment period. This could be an option to help you pay them off. But, if you understand the debt snowball, you would want to keep some loans small so you can see the progress you have made. If you have a $5,000 loan and a $50,000 loan and you consolidate them, it is harder to see your progress.
- Pay more than the minimum. Once you graduate, most loans give you a 6 month grace period before they require repayment to start. If there is any way to start making the payments sooner, please start. The interest is again adding into your balance on the loan. Then, they calculate your payment over 10 years. So, always pay extra even if it’s just a little.
- Extra cash. Apply your extra cash towards your student loans. When you get a raise instead of spending the money, immediately increase your payment to the lender. Don’t let yourself spend that money and you won’t miss it. As with any debt snowball you are working toward, any extra cash like bonuses or tax refunds go towards your smallest debt.
- Don’t get behind. As with any debt, don’t get behind. Late fees and penalty interest add up to even more. Make sure that you pay the minimums on every loan every month. The government can not only damage your credit like other lenders but they will take your tax refund and can even garnish wages if you don’t pay back your student loans.
Student loans can seem like they will take forever to pay off. But, by paying as much as you can as soon as you can, you will shorten this time. The sooner you pay it off, the less you pay in interest. Just think what you could be doing with that money each month.
If you really can’t afford your student loans, you should talk to the lender about reducing your payments. But, make a budget and try to pay them off.
I offer free phone consultations for setting up your budget. Click on my contact page.