Your student loan can easily turn into a monkey on your back after you graduate. Total student loan debt in the U.S now stands at $1.3 trillion with a default rate of over 11%. It is only second to the country’s total mortgage debt. Getting this monkey off your back requires meticulous planning on your part. Here are some tips on how to manage student loans.
- Find Out How Much You Owe
The first step to sorting out your student debt is to come to terms with amount of debt you’re dealing with. Like most students, you may have accumulated numerous loans both federal and private to finance your way through school. Take some time to do the math so that you can create a workable plan on how to pay it off.
- What Are the Terms?
Find out what the terms of every loans are. Every one of them could have different interest rates and payment terms. You need to sift through this information to work out a strategy that avoids penalties, exorbitant fees and extra interest.
- Find Out About the Grace Periods
Once you have the all the details about the loans, you will realize that each loan has its set grace period. This is the amount of time you have after you’ve graduated to start repaying the loans. You’ll now be able to prioritize the loans based on when they fall due.
Find out if it makes sense to consolidate all your student loans into one, Consolidation will allow you to reduce the burden of your monthly repayments and lengthens the repayment period. While this will eventually cost you more in interest payments, it is advisable since it will give you more time to pay off the loans.
Notwithstanding, you need to weigh your options before signing on the dotted line for consolidation. You lose your right to income based repayment plans and deferment option attached to federal loans.
- Tackle the Higher Interest Loans First
Wisdom dictates that you start off by tackling the higher interest loans first. A good strategy is to allocate a given amount over and above the total amount required for the repayment of all the loans. The excess should then be allocated to the loan with the highest interest. When the first one is paid off, do not reduce the amount you allocated for the loans. Instead, channel the excess towards the loan with the second highest interest. This way, you will be able to clear all your loans much sooner and at a minimal cost.
- Pay Down the Principal
The faster you pay off the principal, the lower interest you’re going to pay on the loan. Make a concerted effort to pay extra principal whenever you can. Interest in calculated based on the principal each month. The lower the principal, the lower your interest payments will be.
- Set Up Automatic Payments
Some lenders give discounts when you set up your payments to be charged directly to your checking account every month. The discount may be a s low as 0.25%, but it will add up.