You finally made it through college and graduated with a degree, a new set of friends, great memories, and most likely a significant amount of student loan debt. How can you manage paying such a substantial debt on a starting salary (assuming you were fortunate enough to find a job at all)? It is not easy, but by following some simple rules, you can increase your chances of successful student loan repayment.
Consider the following dos and don'ts of managing your student loan:
1. Don't Splurge on Spending – It's tempting to take that first paycheck and splurge on some of the things you've always wanted and can now afford. Resist that urge and make it a priority to pay down debt. Devote at least the minimum payment amount to your student loan payments — and, if you can afford it, consider paying ahead to knock down the interest payments. However, don't pay ahead on your student loan and then rack up credit card debt, because in that case you are trading lower interest student loan debt for higher interest credit card debt.
2. Do Develop a Reasonable Plan – You will have a repayment plan assigned to you by your lender, but there are ways to modify that plan if you prefer. There are eight different repayment programs listed on the Federal Student Aid Website, covering a variety of scenarios to make payments more affordable.
Part of that plan is creating a budget to make sure you can make the payments for whatever plan you choose. Set up a solid annual budget with all of your annual expenses and expected income included. This will not only help you make your payments on time, it will also help you better manage your overall cash flow.
3. Don't Default Under Any Circumstances – If the situation is dire and your employment status means you can't make your payments, the worst thing that you can do is avoid the situation entirely. There are steps you can take to avoid a default, such as a deferment or forbearance. In both cases, interest will accrue, but at least you can avoid the pain of outright default.
Defaulting on a student loan can result in future garnished wages and poor credit for years. Student loans have one other side effect in that, unlike other debts, they generally cannot be discharged through bankruptcy.
Stefanie O'Connell, Millennial Money Expert at stefanieoconnell.com, warns those facing overwhelming student loan debt, "Instead of doing something about it, I think most people disengage and the consequences of that can be pretty critical. Because then you might think to yourself, 'Well, I can't afford it, so I am not going to pay it.' And then what are you doing? You are hurting your credit. And then once your credit is hurt, then it becomes harder to rent that apartment and get that home loan, that auto loan. And so that becomes kind of like a snowball of financial struggle."
4. Do Verify Your Loan Information – Take the time to check your loan status with the Student Access portion of the FSA website, as well as with the credit bureaus. Make sure that both sets of records match and contain the correct information. An erroneous posting of a late or missed payment can cause significant credit problems during a time when you can least afford them. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
5. Do Seek Help If You Need It – Having trouble setting up a budget and meeting your student loan obligations? Consider asking your lender for assistance, check with your university for any resources available for graduates, or review online resources. Is there a problem with the servicing on your loan? The Federal Student Aid Ombudsman Group may be able to help. Seek help from a variety of sources, but be wary of loan consolidations and other debt-relief agencies that offer seemingly quick fixes.
"If you have a significant number of student loans and you're just looking to refinance, but you're not doing the math, or you're not fully educated in your options, I want you to just take a step back," recommends Adam Carroll, the Chief Education Officer at National Financial Educators. "There's plenty of information out there online about all the products and programs that are offered and the variety of tools that you can use to either pay your loans off faster or minimize the amount of interest you're paying over the length of the loan."
Managing student loan debt can be challenging, but with discipline and focus — and perhaps the occasional bit of sound advice — you can work your way through this challenge, just like you handled all of those challenging classes along the way to receiving your degree.
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