Student loans can be a great option for anyone wanting to fund their education. But it can be really depressing to open a paycheck, only to remember that a substantial part of it has to go to repaying your student loan. For many, it seems like a never-ending plague. But it doesn’t have to! With proper financial planning and organization, your student loan debt could go away faster and you can get back to actually enjoying that paycheck.
*** This is a guest Post By Josh Wilson at Family Faith Finance and (as with any guest post) reflects the views/opinions of the author and not necessarily those of Diary of a Southern Millennial ***
1. Make an Effort to Pay More Than the Minimum
This is by far the simplest way to pay your loans off sooner but it definitely isn’t the easiest when taking a budget into account. If you have an extra buck, add it to the principal amount. That right there is making a conscious decision to pay more than the minimum! By doing this, you are reducing your debt sooner than planned and will save money in the long run.
However, your ability to do this is highly influenced by what you can afford, so it can be tough to consistently stick with it. If you can afford a little bit for now, then pay a little bit for now. In the future, you may be able to pay much more. Just keep this option in mind at all times, and it can be applied to any sort of debt.
2. Identify Your Pay Off Date
Most students have no idea of when their payoff dates are. This is the date you will be free of student debt payments. Knowing this date is crucial because can put your payment schedule in perspective. It will help you understand how much you’re going to owe on a consistent basis. You can set a mental goal to beat that date which could motivate you to start paying more.
A refinancing or consolidation loan is used to pay off another specific loan which is a student loan in this case. For practical and financial sense, your new consolidation loan should have a lower rate than the average of your previous rates. If this is the case, then you are making a smart move because you would pay less in interest over the rest of repayment. With that said, the obvious benefit of refinancing is reducing your interest rate on student debt.
With an effective consolidation loan, your payments are less devoted to interest and more to the principal balance. However, to get a refinancing loan, you need to qualify with a lender who often relies on credit history and income. On average, an approved applicant has a credit score of about 760, and only roughly 40 percent of applicants are approved! It’s a tough option to get, but it can be worth it if you have the credit.
4. Live Within or Below Your Means
Sometimes in life, all it takes is a little bit of sacrifice to reach a goal. After finishing their studies, some students go ahead and get great jobs with handsome salaries. Some get out of grad school and instantly earn a double salary. Well, that extra amount that’s at your disposal should be put to sensible use like paying off your loan. This means you should avoid buying the car that costs $60k; put the extra money towards your loans. Sacrifice.
Financial experts advise that clearing a liability is far more reasonable than spending disposable income on consumables and flashy items. It pays to adjust your lifestyle and live within or below your means for just a period. Look at it as a short term move for long-term gain.
5. Defer the Loans if Times are Hard
Sometimes, things may not be working well for you financially. You might not have gotten a job, or an emergency may arise. Don’t stress yourself since there is a provision for pausing payments on your student loan. This is referred to as forbearance or deferment. Most students already have a deferment period of 6 months out of college whereas those who face emergencies can apply for forbearance for up to 12 months.
However, there are associated risks with deferment and forbearance of student loans. If your loan is not subsidized, it will continue to accrue interest, leaving you with a massive bill in the end. Assess your circumstances keenly before considering either of the two options.
Do you have student loans? Have you paid them off or have any advice?
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*** This is a guest Post By Josh Wilson at Family Faith Finance ***