When we first go to college, we aren’t thinking about paying back student loans. There’s so much more to occupy our attention. We get to experience one of the biggest changes in life, meet new people, broaden our minds, and adapt quickly to an entirely new reality away from home.
Eventually, though, we graduate and look for a job. Not too much later, that first student loan payment comes due. Reality hits. There’s a big chunk of change coming out of your monthly income that you need to dedicate to paying for that college education. The good news is that you have a lot of options.
Whoever the lender is, private or federal, they want you to pay back the loans for their own sake and often provide flexibility in making repayment work in your favor. With that said, you want to make sure that your repayment plan is right for you in that it does not cost you more money over the life of your loan than you need to pay.
Contributing extra money towards your loans is always a useful strategy if you can manage it. Still, you need to be careful not to overstretch yourself and set yourself up for financial difficulties in another part of your life.
3 Helpful guidelines for paying back student loans
Some people consider personal finance a common sense situation. You owe money; you pay money. Done deal. Don’t get into more debt than you can pay back. The reality is that if you’re not paying attention, you can be losing money in a lot of different places. Paying back student loans is no exception to this rule. Doing the small things to keep yourself on the right track will put a lot of money back in your pocket and build healthy financial habits that will benefit you in the long-term. Here are three guidelines to get you moving in the right direction.
1. Explore repayment plans
There are many repayment plans available to suit your specific needs. You can apply for extended payment plans, pay as you earn plans, and income-based plans, to name a few. Unless you plan to make absolutely no money, there is a likelihood that you can find a plan that will work for you.
2. Make sure your extra payments are serving the right purpose
Yes, making extra payments on your loans is a good plan. The important thing to keep in mind is that you need to make sure those additional payments contribute to your debt in the right way. With student loans, extra payments will often default towards being contributed towards your future payments. In that way, they would not reduce your current principal or the interest you accrue over time. Thus, your extra payment isn’t serving much of a purpose.
When you make an extra payment, you need to articulate that you want it to go towards your principal and not towards future payments. Even if you have to get on the phone and communicate with your loan handler, it is essential to take care of this correctly. Otherwise, you’re just spending money ahead of time with no real advantage.
3. Regularly reevaluate your financial standing
Making the best financial decisions for yourself is a matter of being aware of your financial situation. Without having a clear understanding of what money is coming in and what money is going out, you can’t accurately assess your standing. Creating a budget, tracking your purchases, and updating your income are all healthy ways to keep on top of your financial standing.
The most important thing about your financial awareness is practicing the reevaluation process regularly. New fees, subscriptions, and membership charges sneak up suddenly, and sometimes you completely forget about them. Practicing this regular revaluation lets you know there is nothing that is going to be escaping your attention.
Paying back student loans can be a long-term process, but there are ways to make it work to your advantage.
How have you been able to manage stress and spending while paying back student loans?