Now that the job industry is at its most competitive era, it’s crucial to have a strong educational background to land a well-paying job. However, not everyone has the financial capacity to pay for four years’ worth of college tuition fees and dorm accommodations. Because of this dilemma, most students are forced to take out loans to pay for college, fill financial gaps, and have enough funds to cover living expenses.
Although student loans offer a great opportunity that allows students to push forward with their chosen majors, most of them are too young to understand the terms and conditions associated with student loans entirely. And once they graduate, they often fail to pay off their student loans on time because of new goals and responsibilities. However, it’s important to note that lending services thrive on interest rates that pile up as time passes. So, the longer it takes for a student to repay their loan, the higher the interest rate will be.
To make things easier on your end, here are some helpful tips to pay off your student loans.
Your Guide To Pay Off Student Loans
1. Pick An Appropriate Repayment Plan
Overall, federal college loans offer the following repayment plans that cater to students with different situations:
Standard Repayment Plan
This particular repayment plan sets up the exact payment amount on a monthly basis, with a minimum amount of $50. The standard repayment plan allows students to pay off their debt within ten years.
After graduating, you might find it challenging to pay off your student loan within the given period. To help you out, the graduate plan offers a more flexible payment scheme wherein it will increase your payments every two years, payable for ten years.
If you’re looking for a more long-term plan, the extended plan offers a fixed or graduated payment over 25 years.
Five Income-Driven Plans
The five income-driven plans allow lenders to make fluctuating payments depending on your family size, annual income, and other factors. For example, the Pay-as-You-Earn plan minimised monthly loan payments by up to 10 percent of discretionary income. Moreover, it forgoes the remaining loan balance after 20-25 years of consistent repayment.
Due to the ever-changing world, we live in, lenders allow students to switch to a different payment plan with no penalty. However, it’s crucial to understand that settling for a plan with a lower monthly payment will take longer to pay off. As a result, you’ll end up paying more in interest.
2. Set A Strict Budget
Now that you’re an adult with bills to pay, it’s crucial to manage your finances properly as early as now. Doing so will increase your chances of paying off your loans in a quick manner.
For starters, you should carefully plan and understand your monthly cash flow. Then, assess your spending habits by keeping track of your expenses for a month.
Afterward, you may set a budget for food, rent, and transportation to avoid falling off the budgetary wagon. Finally, on special occasions, you may have a set budget to use for gifting to family members.
3. Find A Side Hustle
To pay off your debt, you should have a source of income. However, you might find it challenging to find full-time work because of your busy class schedule. But do not fret because nowadays, there are various side hustles you may try to make extra money.
To do this, you should figure out your strongest suit.
Did you excel in a particular course during the previous semester? If so, you could tutor fellow students during exam season.
Do you find creative writing fascinating? Then you may check freelancing platforms to provide articles in exchange for money.
If you’re interested in trade, you can buy and sell used items online for a profit.
You can do numerous things to save money while you’re in college – the possibilities are endless.
4. Pay As Early As Possible
As a rule of thumb, there’s never any penalty for making advance payments on your student loan. However, a caveat with prepayment is that student loan services may add an extra amount to the next month’s payment. This phenomenon advances your due date but won’t speed up your end date. To resolve this, inform your servicer that you want to apply overpayments to your current balance. Doing so will keep the next month’s due date as planned.
Moreover, you can make additional payments at any point in a month or make a lump-sum student loan payment on the due date. Whichever method of payment you use, you’ll surely save some money.
5. Make Biweekly Payments
Although it’s a fairly straightforward strategy, it will trick you into paying extra on your debt – pay half every two weeks instead of making one full payment each month. In addition, you’ll pay extra each year by doing this trick, cutting down your repayment schedule and interest rate.
If you need assistance, biweekly student loan payment calculators online will help you see how much money and time you can save.
6. Take Advantage of Discounts
Most lenders offer a 0.25 – 0.5 percent discount if you set up an automatic payment scheme on your loan. Moreover, private lenders may also provide other interest rate discounts if your account meets specific criteria. You’re more likely to be offered these discounts if you’ve reached a certain number of on-time payments or taken out a different loan with the same company. Albeit small, these discounts will get you out of trouble quickly. In addition, they will significantly lessen your balance when you look at the bigger picture.
Taking out a student loan is a valuable way to go through college without paying expensive tuition fees, making education more accessible to everyone. However, you should constantly remind yourself that it’s not for free – it comes with high-interest rates that will grow exponentially over time.
To prevent paying more than you need, you should maintain a healthy relationship with money and pay your dues on time. And by following the tips in this article, you’ll be well on paying off your student debt on time.