💲 Seven tips for managing debt and paying off student loans

college students in caps and gowns

Graduates are leaving college with more debt. The average student loan debt is $37,172, and in the United States alone, the total cost of student loan debt reached $1.3 trillion in 2017.[1]

For graduates entering the workforce, figuring out how to pay off student loans while handling everyday living expenses is a challenge. New jobseekers who are looking to understand how to get out of student loan debt can apply these seven tips for paying off student loans. They might even help you learn how to stay out of debt for the rest of your life

1. Understand your loan

It’s important to understand how to pay your loan once you’ve been approved. If you don’t want to sift through the bank documents, speak with a lender about your loan’s details. Specifically, you’ll want to know:

  • What your interest rate is
  • What your minimum payment will be
  • How long you’ll pay on the loan
  • What the grace period is for late payments
  • What late fees are if you miss a payment

You can use this information to make decisions about payments throughout the life of your loan.

2. Pay a little extra each month

If you can, consider paying more than your minimum payment each month. It doesn’t have to be much; even an extra $20 or $50 a month can lower the amount of interest you’ll pay over time.

If you do plan to pay extra, contact your lender and tell them that you’d like the extra money to go toward your principal. If you don’t specify where the money should go, it might be applied toward next month’s payment or go toward interest only.

3. Make one sacrifice every year

Consider making a new sacrifice every year to pay off your school loans faster. For instance, give up cable TV and apply the amount you would normally spend on it to your loan each month. Next year, give up morning lattes and apply that amount – if you purchase a $5 coffee five days a week and choose to make it at home instead, for example, that’s about an extra $100 a month you can apply toward loan repayment.

The idea is to continually increase the amount of money you pay every year.

4. Focus on higher interest rate loans

When you’re evaluating your debt, note the loans or credit card accounts that have higher interest rates. If you have the means to pay a little extra, do so on these loans over others with lower interest rates.

In addition, if you want to pay off a loan (or put a substantial amount toward a loan), the higher interest rate loans are the best ones to eliminate when you want to save on long-term interest.

5. Consolidation may help you

If you’re juggling several loans with high interest rates, you may be wondering, “should I consolidate all my student loans into one?” By combining all of your loans into one payment, you have the potential to lower your interest rate and your monthly bill. However, you may pay more in interest over time and may need to pay on the loan longer.

6. Check on loan forgiveness plans

If you work in certain fields, you might be able to get your loans forgiven. The Public Service Loan Forgiveness program is a federal program that forgives debt after you’ve worked for a decade if you work for nonprofits, serve in a full-time AmeriCorps or Peace Corps position, or work for the federal, state or local government. To understand if this is something you might consider, look into student loan forgiveness.

7. Set up a savings account

As much as you plan for the future, at some point, you’ll deal with an emergency. It’s important to put money into a savings account so you won’t be late on any school loan payment due to an unforeseen problem. Try to keep enough money in your savings account to cover bills for a minimum of three months.

Paying off student loans will take time, but by using these tips, you can put yourself on a debt-free path that eliminates loan payments as quickly as possible and puts you on the right path for retirement.

 

[1] “Student Loan Debt in 2017: A $1.3 Trillion Crisis,” Forbes (February 21, 2017). https://www.forbes.com/sites/zackfriedman/2017/02/21/student-loan-debt-statistics-2017/#2a42e8045dab

 

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