How To Pay Off Your College Debt
Paying off college loans can seem like a next to impossible task. Each year, more people graduate with increasing levels of debt. This is largely due to the fact that college is expensive. It doesn’t matter if you’ve graduated from a state school, private college, or community college. Most people have some level of debt associated with getting a degree. Now the trick is how you’re going to pay for it.
When you’re starring at a mountain of debt, it’s very easy to feel helpless. The good news is that depending on the type of debt you have, there are flexible repayment options that can often meet your lifestyle. None-the-less, the responsibility for paying off the debt is yours and must be taken seriously. Otherwise, bad credit, liens, etc. could result impacting your future ability to borrow money.
Depending on how recently you graduated and type of loans you’ve taken out to pay for college, you may qualify for different loan repayment options. One of my personal favorites is student loan consolidation. The benefit here is that you aggregate all of your outstanding loans into a single loan with different payment terms. This may result in a lower interest rate and smaller monthly payment.
If you want to pay off your loan more quickly, reducing the amount you pay significantly over the life of the loan, then follow this tip. Each year, make one additional monthly payment and apply it directly towards the principle amount of the loan. By doing this, you lower the outstanding amount which reduces the significant amount of interest you pay over the initial 10 year loan period. Don’t underestimate the power of one additional payment on an annual basis.
You should start by speaking with your lender. Do they penalize you for early repayment? If so, what are the costs? Balance those against the longer repayment cycle and the potentially tens of thousands of dollars you must pay in interest over the life of the loan. More often than not, banks are willing to accept early payment without penalty.
One thing to look out for is how the lender treats your extra payment. A common mistake is that individuals send in the extra payment without any directions for the lender. As a result, they think that you are just advancing next month’s payment. In order to take advantage of early repayment, you need to write on the check, “apply to principle”. If you don’t, they will simply put it towards the following month’s bill. This obviously defeats the purpose as the principle is what you are trying to address.
Get yourself into the habit of making one extra payment each year. This may seem like a difficult task, but think of it this way. Even if your monthly payment is 350 dollars, saving 30 bucks a month to put towards your loan at the end of the year is really no big deal. The result is you will only be making payments for say, 7 years versus 10. Short term pain equals long term gain. Imagine what it would be like to not have that monthly loan.
Some people are truly overwhelmed by the idea of paying back a large amount of debt. The key is to focus on making your monthly payment and at the same time, lowering your overall outstanding amount. Speak with your bank, creditors, and lender to understand how they can help ease the repayment process. Over time you will find you debt has vanished and you saved thousands in repayment.
