Student loans can be a lifesaver for students who need money to pay for school, but they can also be a huge burden if you're not careful about how you manage them. According to research, the average American takes up to 21 years to pay off their student loans.
Politicians are constantly debating student loans, and rules are changing every year. The latest student loan forgiveness 2022 extension is in favor of those with ongoing debts, as it prolongs student loan relief because of the pandemic. In the meantime, we share the top tips to manage your student loans and become debt-free sooner.
Calculate Your Debt in Total
If you want to calculate the total student loan debt you have, there are a few things you need to do. First, find out the interest rates of your loans. You can call your lender or look up your loan information online. Next, determine the repayment term for your loans. Lastly, calculate your monthly payment using a loan repayment calculator. This will give you an estimate of how much you'll need to pay each month to repay your loans.
By knowing these things, you can calculate your total student loan debt, and afterward, come up with a strategy to repay it without burdening yourself too much. Once you develop a plan, stick to it and only go off the trail if you really must.
Pay Off Higher Loans First
It makes sense to pay off higher student loans first. The reason is simple—you'll save money on interest.
For instance, the interest on your loans accrues daily. That means that the longer you wait to pay off a loan, the more interest you'll ultimately have to pay. So, by paying off your higher-interest loans first, you'll save money in the long run.
Of course, you may not have the extra cash to pay off your loans all at once. If that's the case, you can still save money by making additional payments on your higher-interest loans. Even a little extra each month can make a big difference in the amount of interest you ultimately pay.
Pay Extra Principal Whenever You Can
If you're able to, paying extra principal on your student loans can save you money in the long run. By doing so, you'll reduce the amount of interest that accrues on your loan and, as a result, lower your overall repayment amount. Additionally, prepaying your loan may help you pay off your debt more quickly.
Before you do so, make sure you read the terms and conditions of the loan. Some lenders, especially private ones, can sometimes charge prepayment penalties. When it comes to student loans, prepayment penalties are forbidden, so if it happens to you, contact a legal attorney to keep yourself covered.
Paying Automatically for Discount
When repaying your student loans, you may be able to get a discount if you make your payments automatically. This is because automatic payments can help lenders save on processing costs. To get the discount, you'll need to set up automatic payments with your lender. Once you've done this, your lender will typically take the payment from your bank account on a set date each month.
If you're not sure whether your lender offers this discount, you can check with them directly. There will be a bank statement for each withdrawal, and you can choose to have a notification every month. Automatic withdrawals have another benefit—you don't have to worry whether you forgot to pay the monthly rate.
Consider Loan Consolidation
When you consolidate your loans, you're essentially taking out a new loan that pays off your existing loans. This new loan will have a new interest rate, which is usually lower than the interest rates on your existing loans. That means you'll save interest money over the life of the loan.
Loan consolidation can also make it easier to manage your debt because you'll only have to make one monthly payment instead of multiple payments. If you consolidate federal student loans, you may qualify for additional repayment plans and forgiveness programs.
If you're considering loan consolidation, make sure to compare offers from multiple lenders to get the best rate. And be sure to read the terms and conditions carefully before you agree to anything.
If you are feeling overwhelmed by your student loan debt, know that you are not alone. There are many resources available to help you get on track and manage your debt. By creating a plan and sticking to it, you can take control of your finances and work towards paying off your debt. It might take a while, but in the end, it’s going to be worth it.