STUDENT LOAN REPAYMENT STRATEGY
Posted on: Dec. 12, 2017 in Debt

If you graduated from college earlier this year, it’s probably time for you to start paying back your student loans. It’s standard practice for lenders to offer a six-month grace period before requiring payments. Getting off on the right foot with student loan repayments can help you get out debt quicker and save your credit at the same time.

Know Where to Start

The best thing you can do as you begin to repay your loans is to get a handle on everything you owe. Make a simple spreadsheet that lists the name of each lender, the full loan amount, the monthly payment amount, the due date, and the interest rate. You can order them by either the loan amount or the interest rate, depending on how you’d like to tackle them.

There are a few different ways loan repayments can be structured.

  • Standard repayment has the borrower paying back a higher amount which pays off the loan quicker than other repayment methods. A faster repayment means the borrower will pay less interest on the loan over time.
  • Extended repayment has lower monthly payments, but will cost more because it will take longer to pay off.
  • Income driven repayment plans look at your earnings and family size to determine your monthly payment. Because this will vary by individual, this can be a quicker or slower repayment plan.

Once you know what your repayments look like, it’s a good idea to set up automatic payments. There are several advantages to this. First, many lenders offer discounts. While savings aren’t huge, they do add up over time and any amount you can reduce your loan by is worth exploring. The other advantage is that you’re less likely to miss or be late on a payment if it’s automatically deducted from your bank account.

Speed Up the Process

Whenever you can, make extra payments toward the principal on your loan with the highest interest. This will help you pay off the debt faster and cost you less in interest charges over the years. However, it’s important to instruct your lender to apply any extra payments to the principal and not interest. Talk to your lender to find out the best way to do it. Then, as you pay off a loan, take the funds that were freed up in your budget and apply them to the loan with the next highest interest rate by making extra payments to that loan’s principal (you’ll already have been making the necessary payment to that one).

Student loan debt can feel overwhelming for someone just out of school and entering the workforce for the first time. Keep your eyes on the prize to pay down your debt as quickly as possible and always on time. Lower debt and timely payments are both key factors in keeping a high credit score. Tackling this now will only help you down the road.

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