5 Tips For Paying Off Student Debt Without Losing Your Sanity
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You've already graduated but are still left with an awful feeling like you've missed your final exam. If you're one of 40 million Americans, you've likely felt this way about your student loans at one point.
Relax. Here are five tips to pay off your student loans while keeping yourself sane:
1. Create a plan of attack.
Getting out from under thousands of dollars of debt can seem like an almost insurmountable task. So just think about one thing now: snow. Two of the most popular strategies for paying off debt are the snowball and avalanche methods.
In the snowball method, you are paying off your loans as quickly as possible. While making the minimum payments on each of your student loans, focus on putting any extra money towards your loan with the lowest balance each month. When you pay off that loan, you're able to make one less minimum payment each month. With the snowball method you're counting down to being debt-free one account at a time, which can help give you confidence that you're making progress.
To start the avalanche method, find the interest rates for each of your student loans. Once you've figured out what you're paying for each of your loans, prioritize paying off the loan with the highest interest rate, while continuing to pay the minimums on your other loans. Keep this up until you've paid the balances on all of your loans. Your savings continue to build up over time like a snowstorm. Paying down the loan with the highest interest rate will keep your balances from compounding as much interest, saving you money in turn.
2. Don't be afraid to ask for help.
Dealing with student loans can be overwhelming and frustrating but you don't have to do it all by yourself. The federal government offers various repayment plans that can make your payments more affordable.
- If you expect your income to increase in the future, you may want to consider a graduated repayment plan, which start your payments low, increasing every two years.
- An extended repayment plan gives you some more time to pay off your debt. The plan lowers your monthly payments but stretches the length of your loan out. While your monthly payments are lower, the amount you'll pay in the long run will likely be higher when you factor in interest.
- If your student debt is a large part of or higher than your annual income, you may be eligible for income-driven repayment plans, which include income-based repayment, pay as you earn repayment and income-contingent repayment plans. These plans base your monthly payments on your income and will change over time, with your income. Usually this means you will need to provide an update of your income to your federal student loan provider each year.
While it may seem a little awkward, you may also want to ask a potential employer if they can help with your student loan. Consulting firm PricewaterhouseCoopers recently announced that it would put $1,200 a year for six years towards their employees' student loans as an employee benefit, for example.
3. Make it easier for yourself.
You don't have to juggle all of your student loans at once. Refinancing or consolidating your student loans can make your student debt less overwhelming.
When you refinance, you are taking out a new loan to pay off all of your current student loans. Refinancing can therefore make things easier to manage, bringing about fewer payments at a potentially lower interest rate. If you have good or excellent credit, refinancing can create thousands of dollars in savings by taking out a new loan for the same amount at a lower rate of interest. Just comparing interest rates, federal loans range from 4.29 percent - 6.84 percent, while private loans may be as low as 1.90 percent.
The Department of Education allows you to consolidate your loans for free. Consolidating your loan fixes your interest rate for the rest of your loan, which can make your payments more predictable and manageable. The fixed interest rate is based on the weighted average of each of your previous loans' interest rates. There can be a downside to this: by consolidating your loans you may lose perks like access to federal repayment plans, interest rate discounts and loan rebates or cancellation benefits, if they were offered these perks with your previous loans. You may also pay more in interest because of the longer term.
4. Put your finances on autopilot.
Just like you can set up automatic payments for your credit cards or other bills, enrolling in auto-pay for your student loans can give you one less thing to stress about each month. Many lenders and refinancing companies are now offering interest rate discounts of 0.25 percent if you set up automatic monthly payments from your bank.
Additionally auto-pay can prevent you from getting charged a late fee. Besides saving you some money this can also help with your credit rating. A strong history of on-time payments is one of the most influential factors that goes into calculating your credit score.
5. Keep your chin up.
Being in debt isn't a good feeling and it's easy to lose steam, but by staying focused and keeping a positive attitude towards your student loan debt and credit situation you'll get yourself closer and closer to being debt-free. Imagining how great that feeling will be may be just the inspiration you need.
Successful people are often those that remain positive and proactive. They check their financial accounts and credit reports regularly and know about all of the resources available. Credit Karma has tools to help consumers better understand and manage their personal finances. With over 45 million members, Credit Karma has unique insights that allow for friendly, personalized information of trusted loan partners, with new lenders being added every month, that help each person understand and make the most of their individual situation.