Paying Off Student Debt
Most students graduate college with an overwhelming amount of student debt. Although it may seem impossible to pay it all off, there are different ways to lower your debt burden. Since most students do not earn a high income immediately after graduating, it is important to budget your finances and make a financial plan that you stick to. There are even different repayment calculators available on the internet to assist you with budgeting your finances while you repay your student loan. Depending on your financial situation, the lender of your student loan may offer you a grace period or lower your rate of interest. Therefore, it is important to fully research your options before the repayment period starts.
Understand Your Loans
It is a wise idea to make a goal in terms of when you would like to have your student loan paid off. Different financial calculators that are available on the internet can help you calculate the approximate monthly payments you will need to make in order to meet this goal. In addition, depending on your jurisdiction and who the loan was made by, you may qualify for exit counseling. This will basically give you more information in terms of your rights as a borrower and how you can repay your loan. You should always make sure to read your loan agreement thoroughly so that you understand the terms and conditions as well as the rate of interest that will be charged.
Since most students do not land high paying jobs immediately after graduation, many may qualify for income based repayment. If your student loan was borrowed from the federal government, you may qualify for this program. The main idea is that you will make payments in proportion to the income that you earn. However, it is very important to weigh out the pros and cons before you agree to income based repayment. For example, you may end up paying a much higher rate of interest because you effectively stretched out the life of your loan. Also, keep in mind that students who receive private student loans do not qualify for this program.
Make Payments Early
Whenever possible, try to pay down your student loan as soon as you can. One way to do this is to start making repayments while you are nearing the end of your studies. This will allow you to pay down a chunk of the principal before the interest begins to accumulate. If you are a recent graduate, try to work as much as possible to pay the loan down in the earlier stages. One way to do this is to devote a large chunk of your annual income to student loan payments. The exact amount will depend on each individual situation, therefore it is a good idea to sit down and create a financial budget.
Consolidate Your Loans
Loan consolidation can be a good option for individuals who accumulated debt from many different sources while studying in college. Examples can include a federal student loan combined with private student loans and credit card debts. Consolidation makes loan repayments more convenient since you are only responsible for paying off one creditor as opposed to multiple creditors. In addition, it may also help extend your borrowing period. Although this may translate into higher interest rates, it is a good option for individuals who have scarce funds and are struggling to make their minimum monthly payments. However, this may be a more difficult strategy since many companies have scaled back on loan consolidations.
Signing up for auto debit basically gives your student loan provider the authorization to withdraw the monthly payments directly out of your bank account. This is a good way to ensure that all your payments are made in time so that your credit rating is not affected. In addition, some lenders even offer perks such as discounts to students who sign up for this service. This is because the risk of non-payment is minimized. However, if you receive a cash bonus and would like to use it to pay down a chunk of your student debt, this is still possible through the auto-debit option.