Paying off your student loans can become challenging very quickly as you juggle multiple loan payments every month. The only way to stay on top of it and avoid the risk of getting into default is by making a plan that works for you. Wondering where to begin? Here’s a step-by-step plan that will help determine where to begin with your student loan repayments:
Step 1: Use Your Grace Period Wisely
Although you would have borrowed money at different times while you were in college, most repayments start six months after your graduation date. It can be tempting to just want to chill after a hectic four (or more) years in college but that could be a big mistake. This is the time to plan your payments and most importantly, look for ways to start earning.
Step 2: Make a Student Loan Payoff Plan That Works For You
Start by creating a spreadsheet that includes details of all the loans you’ve taken, the monthly payment against each loan, and the payment due date. This step is crucial. Don’t sidestep it. Creating a spreadsheet will help you get an overall picture of your financial obligations at a glance. Without a proper spreadsheet you are more likely to miss out on a payment, which can have far-reaching consequences.
Step 3: Decide Which Loans You Will Pay Off First
Every loan you take, whether federal or private, will have a different interest rate and different terms and conditions. Private loans in particular have much higher rates of interest. You should always plan to pay off your more expensive loans first. Remember, interest rates on student loans are cumulative, so even a smallest difference in the rate can make a considerable difference over the life of the loan.
Step 4: Look Into Switching Repayment Plans
The standard repayment plan for student loans is 10 years, with the payments spread out equally every month for 10 years. Can you afford to make these payments every month? If not, you may want to look into other repayment plans such as income-based repayment plans.
With an income-based repayment plan your monthly payments are calculated as a percentage of your earnings. While this will help you meet your commitments every month, you should know that it will add to the overall cost of the loan. Think about it. Do your calculations and speak to someone more experienced before you make this decision.
Step 5: Look Into Refinancing or Consolidation to Make Your Payments Easier
Do you feel overwhelmed at the thought of keeping track of the different payments and deadlines every month? You really do not want to risk missing any payments and adding to your debt. If you find yourself struggling to with keeping track of it all, you should look into consolidation or refinancing. Both of these will combine multiple loans into one loan so you need to keep track of only one payment every month. There are pros and cons to both these solutions though and that is something you should look into before you make this decision.