Taking student loans seems to be the only way to make your higher education dreams come true. It’s easy when it’s time to take the loans but paying back the loans can test your organizational skills to the max. Not only does each type of loan have a different deadline but each one has a whole different set of rules and of course, interest rates.
While some may argue that you can’t put a price on a good education, many of today’s graduates face the grueling task of paying off student loans while trying to save for a house, pay their bills, and start a family.
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How do you stay on top of all your student loan payments? These tips will help you.
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Know Your Student Loans & Create a Planner
The absolute first thing you need to do to stay on top of your loan payments is to learn everything there is to know about each of your loans and create a spreadsheet.
Your spreadsheet should include columns for entering exact details for:
The principal amount of the loan
The rate of interest you will need to pay
The term of the loan
The date on which you need to start repaying the loan
The amount you will need to pay back on that date
The penalty for late payment
Take time to read through those tedious terms and conditions, highlight the important points and record them in your spreadsheet against that loan. Remember ignorance of the law is no defense. If you go against any of the terms and conditions, saying you did not know will not do you any good. If you’ve accepted a loan, it is expected that you will read the terms and conditions, so do it.
Borrow only what you need
To figure out how much money you may need to borrow, look at a college’s cost, your cost of living, your family’s contribution, and your financial aid award. You don’t have to accept the entire amount of a loan you’re offered.
Mark Out Those Loans with the Highest Rates Of Interest
It is always advisable to know which of your student loans attract the highest interest rates. Mark them out so they are easily noticeable or put them at the top of your list. If you have extra funds at any time, these are the loans you should make payments for first.
When making early payments, always remember to put the payment towards the principal, not the interest. Putting the extra money towards the principal will lower your overall payments while putting the money towards paying the interest does not give you any significant benefits. Lenders automatically put any early payments towards the interest so you need to be very clear about stating what the early payment should go towards.
Establish a college repayment fund
If you’re not sure how much more you can devote to your student loans every month, set up automatic transfers to separate savings account specifically for college debt.
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Transferring money automatically into savings is effective because you won’t be able to spend it on something nonessential like clothes or dining out.
Just make sure to set up a separate account for paying back your college debt. Don’t use a checking or savings account you already have, because you might be tempted to use that money for something other than your student loans. Compare savings accounts and put your money in a high-yield savings account to maximize your returns.
Set up Automated Student Loan Payments
If you have enough money coming in every month and do not have to worry about having enough balance in your bank, the best thing to do is set up automated payments.
With auto-debiting payments, the necessary amount is transferred from your bank account to the lender’s account automatically on the due date. You don’t have to worry about making any mistakes and there is no risk of forgetting. Setting this up is easy. You just need to speak to the bank and give them instructions.
Knowing that your loans payments are taken care of will take a load off your mind, leaving you free to attend to more enjoyable things instead. Otherwise, just having to keep track of different dates every month can be unbelievably stressful.
Stick to a budget
Not knowing how to manage finances properly can prevent you from paying off your loans quickly. That can lead to delays in pursuing more fulfilling financial goals. By planning and understanding your monthly cash flow, you can make some necessary sacrifices and avoid falling off the budgetary wagon.
Chances are when you just start working, you will be in a top salary bracket, which means your salary will not be sufficient to cover your loans and leave much left over for luxuries. You will have to compromise and learn to make do with less till you get a pay hike.
When creating your budget, first add up all your student loan payments for the month and deduct this total from your monthly earnings. What’s leftover after deducting your total loan payment is what you have to work with for all other expenses for the month.
From this, keep aside what you need to forest, groceries, utilities, and transportation. These are your basic requirements. If there is anything left over after this, that money can be either put towards building your emergency funds or making an early payment on your loan with the highest interest rate.
Consider Consolidation Or Refinancing
Sometimes, no matter how organized you try to do, staying on top of your student loan payments can continue to be overwhelming. Instead of feeling snowed under, it may be time to consider student loan refinance or consolidation.
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While refinancing federal loans with a private lender will cause you to lose some federal benefits, it could also allow you to pay off your loans faster.
Timing is key with this strategy. Your credit score is typically going to be at its lowest immediately after graduation, which generally means that the interest rates you’re offered will be higher.
“It takes a few years of repaying your debts responsibly, by the due date, for your credit scores to improve. You also need to have a steady job, Shop around for the loans with the best rates. The best-advertised rate is not necessarily the rate you will be offered, so you may need to apply for several loans to see which lender gives you a better deal.
You can refinance your loans more than once, which may be worthwhile if you drastically improve your credit score or increase your annual income.
Take advantage of tax deductions
The federal government offers a student loan interest deduction on your taxes for interest paid during the year on qualified loans. The law allows you to deduct up to $2,500, depending on your adjusted gross income. The deduction is available for both federal and private student loans.
You can claim this tax deduction if you’re legally required to pay interest on a qualified student loan