If you have student loan debt, you are not alone. Today, about 69% of students rely on student loans to pay for their opportunity to earn a degree. According to Whatsgoodly, 70% of college students rely on their parents for financial aid information. While you may find student loans helpful now, they can hurt you financially in the long run if you are not prepared for them.
Below, we will go over four different tips that will help you keep your student loans from holding you back financially in the future. Let’s take a look at those tips now.
Don’t Over Borrow
One of the biggest mistakes that you can make is borrowing more money than you actually need. Some students do not realize how quickly student loans add up and they borrow the maximum amount of money they are offered. What happens is, the initial $20,000 you borrowed turns into $40,000 by the time you pay it off.
It is important to only borrow the amount of money needed for tuition, books, and school-related payments. You should avoid taking out student loans and then fully living on them, using them for spring break vacations, and similar.
Pay Your Interest as it Accumulates
When you take out a student loan, you have the option to make payments on your interest as you attend school or defer the interest until six months after you graduate or after you leave school. If you choose the latter of the two, the interest will accumulate every month that you are in school, so essentially, if you are in school for two years, you will accumulate interest for two years and six months before you make a payment.
A good way to set yourself up for financial success is to make the interest payments while you are in school. This way, you do not have to worry about the additional money being owed. The amount you will pay in interest per month is minimal and may only be about $50 or so.
Refinance the Loans to Save Money
Refinancing your student loans is another good option, if it is available to you. However, according to LendEDU, over 90% of college students don’t know that you can refinance student debt. Refinancing is a way for you to obtain a lower monthly payment and lower interest rate. In addition, when you choose to refinance, you will often have the option to keep the terms of your loan the same, lengthen them, or shorten them.
It is important to take a look at this option FIRST before you apply because you do need to meet the minimum credentials of the lender. Often times, you need to have a cosigner to use this option.
Prioritize Which Loans to Payoff First
Lastly, you should take some time to look over your loans and determine which ones need to be paid down first. For example, private student loans often carry a higher interest rate than federal student loans, so you want to pay them off first. In addition, private student loans require immediate repayments, whereas federal student loans allow you to defer the payments until graduation or dropping below part time.
If you do not have any private student loans, you should take a look at which loans have the highest interest rates. These should be paid down first, since you will end up owing more the longer you allow them to sit out there.
Once your highest interest rates are paid down, you should then move on to the student loans that are the least amount. For example, if you have a student loan in the amount of $1,000 and another for $5,000, you want to focus on the one for $1,000 because it will be paid off quicker.
Final Thoughts on Your Student Loans
You should work to pay off your student loans before they become due, so that you can get a head start. In addition, you should send extra money to your student loans when possible, as this will help pay down the principal amount quicker than if you only made the minimum payment.