Tips for Paying Off Student Debt
Congratulations Class of 2014! What an accomplishment.
And also a second congratulations needs to go out as you are the highest indebted class in history.
According to an analysis of government data by Mark Kantrowitz, publisher at Edvisors, this year’s graduate has an average student-loan debt of $33,000. Factor in inflation adjustments and that’s almost double the amount borrowers had paid 20 years ago.
This comes from this year’s graduates assuming more debt as 70%-plus of bachelor degree holder’s exited college with student loans, up from 1994’s class having less than half of its graduates doing so.
But it’s not all doom and gloom graduates. You won’t own the distinction of the “Most Indebted Class Ever” for too long as next year’s new diploma holders will likely take over the reins.
So now that we’ve offered a friendly reminder that you not only have a new job to go to and earn money, you’ll also need to do so as a means to pay off that educational debt. Don’t get overwhelmed; here are some tips to pay it down quickly and comfortably.
Review Your Payment Options
For your student loans, you may have more than one way to pay it off. Keeping track of their amounts and payment dates will be important. This will allow you to have enough money to pay them as well as avoid missing payments.
Fortunately you have many payment options depending on the type of loan that you have, according to Federal Student Aid.
Here’s a look.
Standard repayment: Set monthly payments for 10 years.
Graduated repayment: Start with lower payments, then increase them later to pay off the debt.
Extended repayment: Take up to 25 years to pay your debt.
Income-based repayment: Use Income-based plans that necessitate “partial financial hardship” payments that can take 10% to 15% from discretionary income. Through different income-based plans, they can determine payments derived from your annual income.
Consolidation/Refinancing: Simplify the payment process by either refinancing or consolidating loans such as a one single monthly payment and interest rate. This will not only cut down your monthly sum but you will also avoid paying additional interest through time.
Loan forgiveness: Enter into public service work and qualify for federal loan forgiveness after repayments for 10 years. These careers include the military, police, firemen, and teachers as well as volunteering for either the Peace Corps. or AmeriCorps.
Execute your payments
After you’ve determined your payment plan, now you have to make sure they get done according to the designated terms. You will need to include this in your monthly budget, allotting money to pay it off similar to any other bill.
If you are challenged to make these monthly payments such as not remembering to write and mail the check, then you should set up the payments automatically.
In the future, if you discover your budget will allow you to pay off more of your debt, do so to pay off it quicker. You’ll also be able to cut down on the total interest you need to pay for the loan over time.
Remember to not consider this debt as a low one on the payment totem tool. As we discuss in the next section, do not default on this loan.
At one point, you may discover you don’t have enough money for your monthly payment. Don’t avoid paying the loan, instead, reach out to your loan servicer and discuss a possible change. This could be as simple as a payment date change, a potential forbearance or deferment or a good Plan B.
It’s important to not get behind with your payments. Penalties can be severe such as a fall in your credit rating which could lead to difficulties in obtaining a mortgage, credit card or loans. You could face higher interest rates for financing and in extreme cases, the government could either garnish your wages or keep your tax refunds.
And you can forget about being eligible for a student loan in the future. Should you declare bankruptcy, releasing student debt is very hard.
Similar to any financial responsibility, it’s important to stay organized. Regardless of your financial situation, remember to explore your ways to pay off the debt.
If you have any questions, feel free to contact us.
photo credit: ralph and jenny via photopin cc