It is common for students to feel overwhelmed by their college debt. However, the good news is that you are not the only one struggling with it. With timely approach and the right strategy, you will be able to manage your debt long before it becomes uncontrollable.
In this article, we will share some important tips to help you cope with your student loan debt for long-term success with your finances.
Know What You Owe
Student loans are no different than any other debt. Before you tackle the problem, you need to know its magnitude. So start with calculating exactly how much you owe. Once you know how much is owed, you will be able to develop a strategy that can help you pay, look into forgiveness, or consolidate into low-interest loans.
Educate yourself with Loan Terms
Once you know the size of your loan, the next step is to know about the terms of each loan. Each of your loans will have different payment rules and interest rates. You will need this information to design a plan that can be executed without attracting additional fees, penalties, and interest.
Know your Grace Period
Each loan comes with a grace period, the time you have after graduation to start repaying your loan. This information is important for you to plan your repayment strategy. The grace period may differ from provider to provider. Sometimes it may be six months and sometimes nine months before you start making your payments.
Look into Debt Consolidation
Once you have all the necessary details, you may want to consider consolidating your debt. The biggest advantage of debt consolidation is that you will be able to reduce the burden of your monthly payments. It also increases the tenure of your loan, giving you more time to pay off your debt. But before you consolidate your debt, make sure that you thoroughly compare the loan terms offered by each lender. Sometimes the interest rate of the consolidated loan may be higher than your existing one.
Pay off High-Interest Loans First
It is always recommended to start paying off the loans that have the highest rate of interest. The best way to do this is to pay a little extra each month, that is over and above your existing minimum due amount. Once you have paid the high-interest loan, you can apply this strategy to the next loan that has the highest rate of interest. This technique is known as debt avalanche.
Set Up Automatic Payments
Some lenders may offer discounted interest rates to borrowers who agree to set up electronic payments from their checking account. This will not only handle your payments automatically each month but will also give you the benefit of reduced interest rate.
Look into Alternative Options
Students who have federal loans may be able to work out another repayment plan by discussing it with the lender. For example, you can apply for a personal loan which will give you an opportunity to repay the loan from your personal income. This allows you to plan your fixed installments for the fixed time of period. Many students also prefer to cap their installments at 10% of their monthly salaries for up to 20 years. This is applicable for students who are going through financial hardships.
While these options will increase your monthly installments, but they will also reduce the interest rate that you will be paying for a lengthy term.
If, after the completion of the grace period, you are still unemployed, then you can request your lender to defer payments. This is possible for students who had taken out federal student loans. However, you need to qualify for the loan deferment to be able to avail the facility. You may also request the lender for forbearance. This allows you to stop making any payments towards your loan for a certain period of time.
Some people may also apply for loan forgiveness, that is cancellation of the student loan. A student is eligible to apply for this option if their school closes before the completion of your degree. It is also offered to students who become disabled for life or file for bankruptcy.
In other cases, students who work in public service can be eligible for loan forgiveness.
You may be able to exercise one or more of these options when you are struggling to pay your student loan. No matter which option you choose, it is important to make a decision quickly as inaction can negatively impact your creditworthiness.