Tips for Repaying Student Loans
Graduating from college is a stressful time filled with adjustments and newfound responsibilities — including finally facing those long ignored student loan payments. When it comes to being a proactive graduate and applying the skills you learned as a student, you’ll quickly learn it’s best not to procrastinate on your loan payments and to use your hard earned money responsibly.
1. Know Your Loans
With the whirlwind of graduating from college, it can be overwhelming to add one more responsibility to your plate; however, it’s important to get organized and know your loans grace payment periods. Whenever you move locations or change your contact information, inform your lenders so you don’t miss any invoices. Missing a payment could result in default, which can have serious long-term credit consequences. Also, making your payments on time helps maintain a good credit score and also saves you from late fees. If you’re worried about remembering your payments each month, set up automatic payments through your bank.
2. Lower Your Principal
If you can afford to, you can lower your principal by paying more than your required monthly payment. If you do this, you can reduce the total amount of interest paid during the duration of the loan. Additionally, it’s recommended to pay off the loans with the highest interest rates first to save money. Usually, students wait until after graduation to begin repaying loans; however, you can get a head start while you’re in college by using your summer internship income to make payments that will reduce the total amount of the loan. Making these extra payments lowers the total interest paid over the life of the loan and ultimately saves you money. If you find yourself struggling to make the required monthly payment, cut back on unnecessary expenses, like daily coffee outings.
3. Research Your Repayment Plans
It’s possible to consolidate your loans into one single monthly payment at a fixed interest rate, which can be helpful so you don’t have to keep track of multiple payments. Before you make the decision, research your options to ensure you pick the best one and understand all of the technicalities. Although it’s appealing to consolidate your loans into one simple payment, depending on the terms you choose, this can potentially increase the life of the consolidated loan and the amount of interest paid.
Whether you decide to consolidate or not, there are a variety of repayment plans that can accommodate your income level and lifestyle. Generally, federal loans are based on a standard 10-year repayment plan. There are also repayment plans that vary from 10 to 25 years and others that are based solely on your income level. Although it’s appealing to choose a plan with the lowest monthly payment, this will actually cause you to spend more money during the life of the loan because of the interest payments over the longer term.
Photo credit: Karen Roach/Hemera