No matter what you majored in or where you studied, your university probably didn’t teach you one essential subject: how to pay off all those student loans. Having more money is obviously the most useful way to help get rid of student debt, but that’s not that realistic when you’re just beginning your career.
The truth is that even with limited resources you can make a dent in your student loans by paying them off with maximum efficiency. You just need to tailor your debt strategy to what’s best for your current situation.
Here are a few things you need to know in order to get rid of your student debt once and for all.
Knock Down the Big Interest First
If you have at least a couple different student loans, you’ll want to pay down the one with the highest interest first. Those high interest rates will accumulate more over time, so the longer you go without paying the loan off, the more you’ll be paying in the long run. Eliminating the loan with the highest interest rates first will save you money down the road.
One alternative way to pay down student loans is known as the snowball effect. With this method, the smallest-sized debt is paid off first, regardless of the interest rate. Having many outstanding loans can be stress, and the snowball effect provides something of a moral victory. While it feels great to pay off a loan, paying off the highest interest loans first is the better financial decision.
Understand the Grace Period
Some loans (typically private ones) kick in as soon as you graduate, meaning you’ll need to start paying even before you land a job. Federal loans, however, are far more generous. A grace period where you don’t need to pay can sometimes last as long as six months.
Not all federal loans are the same, so it’s important to understand the makeup of your loan and plan accordingly for the grace period.
Choose the Repayment Plan That’s Best for You
Depending on your situation, you might be better off forgoing the standard repayment plan of federal loans (making a flat monthly payment for a certain amount of years). If that’s too much for you, other options are available.
You might qualify for one of several income-driven repayment plans where you pay a percentage of whatever you earn. This is great if your job doesn’t pay much, and as you start to earn more money, you’ll chip away at your debts quicker.
In the long term, paying less than the standard repayment amount means it’ll take longer to pay down the debt. That’s the price that needs to be paid in order to avoid missing a payment entirely.
Consider Auto Deductions
Dealing with heavy debts can be as mentally taxing as it is draining on your bank account. To give yourself a little peace of mind, it often helps to put certain aspects of your financial life on autopilot. The best way to do this with loans is to set up auto deductions that will automatically take money from your bank account to go towards the loans’ monthly payments.
Why do this? It saves you from wasting time with online pay portals or mailing. It also ensures that you won’t miss any payments out of forgetfulness. Perhaps best of all, setting up auto payments for your loans means you won’t need to be reminded of the heavy debts you owe each time you make a payment. Just be sure to keep an eye on your payment settings.
Know Your Options
If the unexpected happens and you find yourself unable to pay off your student loans, don’t panic. This is an unfortunate situation but it doesn’t have to be a disaster. A number of tools and options are available to use until you get back on your feet. Contact your loan servicer and ask about possible deferments or switching up your repayment plan. You might be surprised by what you can get just by reaching out and humbly asking for a helping hand.
It’s especially important to negotiate because student loan debt is particularly burdensome. Declaring bankruptcy rarely discharges student loans, which isn’t the case with most other forms of debt. The student debt will be there forever, so you need to be able to take care of it.
Handling the Debt
Sadly, student loan debt is a heavy burden for anyone just starting off his or her career. The salaries at this stage in life are low, while the total debt is at its highest right after graduation. Yet as daunting as the prospect of paying it all down is, you can definitely do it even if you’re earning a modest amount of money.
To pay down your student loans, find out what works best for your situation while going after the loans with the highest interest rates first. Do that and your loans will slowly and steadily drop to nothing over time.