Many young adults throughout the country take on large sums of debt in the form of student loans before they even enter the workforce, which then suddenly seems like an enormous burden to pay off once they graduate.
If you find yourself in this position, the first thing you should do is just relax, take a deep breath, and prepare to take on some responsibility. Many other graduates have paid off their loans and you can too. Gain as much knowledge as possible. Learn the terms of your loan, exactly how much you will owe, your interest rate, and so on. The first step to paying off any loan is being informed. Once you’re ready, take a look as some of our tips below.
Understand your responsibility and make a budget
If you want to payoff your loan without any added costs or time, you need to fully understand your loan. Remember to review and save all of your documents. Put a weekly or monthly reminder on your calendar to remind yourself of your responsibility. Or to make this easier, set up automatic payments and as an added bonus you will likely receive an AutoPay discount.
Let’s say you have $25,000 total in student loans with an interest rate of 4.50%. You would need to make 120 monthly (10 years) payments of $259. The total amount you would pay would come to $31,092. That’s $6,092 in interest.
This is where budgeting comes into play. Would you rather pay a little bit extra now, or several thousand over the course of your loan? Here are some tips:
- Payoff your high interest rate loans first. Most servicers allow you to direct payments towards specific loans to help pay them down.
- If you were to make a minimum payment of $310 per month, rather than $259, you would end up saving around $1300 over the course of your loan and about 2 years in repayment.
- Hold off on extraneous purchases to avoid student loan defaults or overrating to make your payments.
Refinance your loan
If at all possible, look into refinancing your loan. At Credible, we have helped thousands of graduates understand and refinance their student loans. Refinancing your loan can be one of your best options. By lowering your interest rate, your effective monthly payment will go down. In addition, the total amount paid over the entire course of the loan will decrease. Rates are currently at market lows, so your potential for receiving a much lower rate is better than ever.
The little things matter
Student loan defaults should be avoided at all costs as they can stay on your credit report for up to seven years. If you have federal loans, there are several income-driven plans that can help save you money.
Most student loan payoff stories are usually comprised of borrowers taking second jobs and living frugally for several years. This may not be your style, but a number of graduates have found this effective and a great way to relieve yourself of many stressful years.
Paying off your student loans can be a manageable process if you know you are doing so correctly and have taken advantage of all of your options.
If you are interested in exploring your refinancing options, visit Credible