When it comes time to repay your student loans, you may be wondering how much you should actually send to your lender each month. As with credit cards, paying the minimum, instead of the maximum, may not always be the best idea. So how much should you pay back?
Depends on Your Financial Situation
There is no straight answer to how much you should pay when your student loans come due after you graduate or leave school. Every person will be different and it really depends on your own personal financial situation. However, paying the minimum each month can increase the amount of interest you accrue each year. It may not be in your best interest to pay the lowest amount possible.
If you can afford it, it is wise to put more towards your student loans than the lender’s suggested amount. This allows you to pay off the student loans faster, accrue less interest, and potentially increase your credit.
When to Pay Back the Minimum
In some cases, you may have to pay the minimum, rather than the maximum, that your lender requires. This is usually due to financial restraints, especially when you’re straight out of college and don’t have a job yet. Although federal loans have a six-month loan grace period, private loans don’t always offer the same luxury. You must pay the minimum to avoid ruining your credit and paying late fees.
You may also have to pay the minimum if you are short on cash, even when you’re settled in your career. As long as you pay this amount, you won’t accrue late fees.
Student Loan Repayment Tips
The best thing you can do to determine how much you should pay towards your student loans each month is to create a budget. Take some time and figure out how much money you have to pay towards bills, rent, car payments, food, insurance, minimum loan repayment, and other expenses. Don’t forget to account for the occasional fun activity and a savings account.
Once you’ve determined your budget for each month, you will know how much extra cash you can put towards your student loans. Ideally, this should be at least the minimum, if not more. If you find yourself short or it’s not quite the amount you wanted to pay towards your debt, you should go back, rework your budget, and cut unneeded expenses.
If you find no matter how you rework your budget, you can’t afford the minimum payment, talk to the student loan lender. There may be options to lower the amount due each month.
It really is in your best interest to pay as much as you can afford to each month towards your student loans. The faster they are paid off, the less you have to worry in the future. That also means less interest paid over the next few years. However, always make sure it is within your budget. If you find yourself short every few months, it is okay to pay the minimum once in a while, rather than the maximum, to make sure you don’t incur late fees.
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