Navigating student loans and college debt repayment can be challenging, but graduates with the necessary knowledge and strategies can take control of their repayment journey and become accountable for repayment of their debts.
This guide features tips from financial experts, case studies of borrowers, and an analysis of federal student-loan data. You can download it for free through the Wall Street Journal app.
Know Your Loans
As student loan payments recommence this month, new graduates should devise a plan to effectively manage their debt. A good plan could include reviewing all options to pay off, consolidate or seek forgiveness of loans.
Get started by figuring out your monthly loan and bill payments, prioritizing student loan minimum payments as you won’t end up accumulating more in interest over time.
Know Your Federal Student Loan Servicer | MyFedStudentAid
Create a Budget
Establishing and adhering to a budget can help you tackle debt while saving money at the same time. By tracking expenses and prioritizing financial goals, a budget enables you to make smart choices that help accelerate the repayment of student loans faster.
Begin by listing all your expenses, such as rent or mortgage payments, utilities bills, phone/cable bills and food. Next subtract these from your income and whatever remains is your disposable income – something that can be spent on entertainment activities, sports events and concerts, vacations and food delivery services.
Before setting a budget, take note of any recurring annual or monthly costs such as property taxes, auto insurance payments and doctor or veterinary visits, in addition to work-study or part-time earnings, child care services fees scholarships etc that might come your way. Consider also any possible extra income sources such as work-study earnings part time earnings child care scholarships etc that might come your way as extra sources. Debt consolidation programs could help reduce interest rates and simplify repayment schedules with multiple federal and private student loans combined into one monthly payment – possibly saving interest rates as well.
Make Extra Payments
An effective student loan repayment strategy entails paying down as much debt as quickly and affordably as possible, using budgeting and research strategies, taking into account any options such as income-based repayment plans, pay-as-you-go or extended loan terms available to you.
Once you’ve created a budget, review how much more you can pay toward student loans each month. Use an expense tracking app or spreadsheet for clarity.
If you can make extra payments, one of the debt snowball or avalanche methods recommended by consumer experts to accelerate repayment could help to speed up the timeline of repayment. But before doing so, be aware how your servicer applies extra payments; some will apply them towards future payments while others only use them to apply towards principal.
Pay Off Your Loans First
Ideal, student loan repayment should happen quickly and seamlessly; however, in reality this doesn’t always happen. If your budget won’t permit more than minimum payments being made each month, prioritize those loans with higher interest rates and make those your top priority.
Prioritize your repayment plan and explore all of the available options, such as consolidation/refinancing, deferment and loan forgiveness. It’s also essential that you understand both federal and private student loans – the latter of which offer unique offerings – by ordering a free credit report which lists lenders or by consulting directly with each one.
As much as it may hurt your credit, it’s also essential not to miss payments, even when money becomes tight. Missed payments can damage your score and make mortgage and car loans harder and more expensive to secure. Instead, contact your servicer regarding other repayment options (remembering that bankruptcy won’t cancel out student loans!).