Graduating from college is a dream for many but it often turns into a financial nightmare. As of the current year, student loan debt has now reached a record of $1.56 trillion. This means that the U.S. student loan has now become the second highest consumer debt, ranking only second to mortgage debt.
If your college debt is starting to feel overwhelming of late, you might find some relief in knowing that you are not alone in this ordeal. In fact, there are thousands who are trying their best from crumbling under the heap of student loans right now. The good news is there are ways for managing student loan repayments to create a plan for success.
Manage Your Student Loan : Time Tested that Work
Read on to find out how to handle student loan debt so that it is one less hurdle on your way to your dreams!
Types of Student Loans at Your Disposal
Typically, there are two types of student loans; federal and private. The former ones are offered by the U.S. Department of Education, while the latter are offered by private lenders, such as banks, credit unions and other financial institutions.
Federal loans come in both, subsidized and unsubsidized form. Subsidized loans do not accrue interest until after you have graduated. On the other hand, unsubsidized loans accrue interest from the moment you receive the loan.
The second type are private loans but often they don’t charge them at low-interest rates like federal loans do. That said, if you get these loans through your bank or elsewhere, they often offer various repayment options.
How to Handle Student Loan Debt
Managing student loan repayments is all about having thorough knowledge of what you have got yourself into and how to manage it thereon. Here are seven tips to manage your student loans better!
1.Calculate and Organize
As with any type of debt management, the first step is to find out how much you owe. A lot of students graduate with many loans, including federal as well as private. They arrange new financing every year without considering the old ones so by the time they graduate, things are pretty much out of their hands.
Therefore, first things first, sit down and calculate the total amount you have borrowed. Only when you know the total amount can you work out a plan to pay it back, consolidate it, swap your repayment plan, defer payments, or apply for forbearance.
Once you have the size of your debt, consider the terms of every loan that you have borrowed. Each one might have different interest rates and different repayment requirements. You will need all of this information to develop a feasible plan that saves you extra interest, fee or penalties.
2.Consolidate Your Loans
A lot of students make use of various loans for financing. Depending on your circumstances, often it is better to consolidate them rather than keeping up with different loans and repayment schedules. Consolidating your student loans is, in fact, about decreasing the financial clutter.
Apart from the convenience of making just one payment, sometimes you also get a reduction in your monthly payment amount. However, it is also important to bear in mind that this often leaves you with more interest to pay on your loan. Consolidating often lengthens the pay off period, which means you might have to pay more interest but you get more time to pay the debt.
Here is how to consolidate your loans.
3.Review the Grace Periods
The grace period of students loan is the amount of time you have after graduation to start paying back your loans. As you will read the terms of your different loans, you will notice that they can differ. From six months to a year, different lenders offer different grace periods. The best way to get on top of your financial management is to not wait until the end of the grace period. If you have the amount, go ahead and pay it before the grace period ends. This way you will also develop a habit of saving up for the next payment every month.
4.Pay off Bigger Loans First
As for handling any type of debt, the best way is to pay off the loans with the highest interest rates first. One great trick to go about this is to budget a certain amount above your monthly debt payments and then use that extra amount to pay off the loan with the highest interest. This way you will be paying off the regular payment and the extra amount for that loan to get rid of it as soon as possible. Once that debt has been paid off completely, you can move on to the next loan with the second highest interest rate. This strategy is known as debt avalanche.
5.Set Up Automatic Payments
A great strategy of managing student loan repayments is to automate your payments. In most cases, it saves you a lot of time, stress and sometimes money as well. Some lenders even reduce the interest rate on your student loan (usually less than 1%) if you set up automatic payments.
6.Pay Down the Principal
Paying off extra principal is another great strategy to manage your student loans better. Paying off more than you owe in a month (if you can afford) reduces your interest rate. The faster you pay down the principal, the lesser interest you will have to pay over the life of your loan. In fact, if you can afford it, you can make higher payments in your grace period to decrease the amount of interest that you will have to pay otherwise.
7.Create a Cushion
Creating a cushion comes real handy when it comes to tackling any kind of debt. Saving money when you first graduate often seems impossible. Therefore, it is best to save up over the years with smart budgeting and mindful spending. This way you will have a little nest egg for unexpected situations like losing your job, etc.
Student loans can feel crippling at times, but the sad reality is that they would not just disappear. It is virtually impossible to get rid of them during bankruptcy. They will follow you all your life until you finally pay them off.
Thus, there is nothing but one way to deal with them, that is to manage your loan repayment better. Developing a plan to manage them is in the best interest of your long-term financial and mental health.
If you are looking for more help to manage your debt, expenses and savings better, download the Doctor Money app right now. It can help you manage your loan repayments better so that your education does not turn into a debt sentence!