Being out of school is awesome. As much as I loved my time in college and meeting new and amazing friends, I was so excited to be done with writing papers and taking tests. And it’s very great to be paid to work rather than paying to work hard on studying. While being out of school is wonderful, loans can make it a little more of a bummer… I have some tips as to how to tackle those persnickety loans and how you can get debt paid off sooner with less interest.
Start Today
Student loan providers give you a grace period of 6 months, meaning you don’t have to start paying at least minimum payments until 6 months after graduation. Hopefully this gives you time to lock down a solid job. My tip is if you already have a job, don’t wait 6 months. Start now! The part that I hate most about student loans is the interest. I do NOT want to pay more than what I borrowed, and the more time you wait to start your payments, more interest is accruing.
During January at the start of Spring semester of my senior year of college, I made my last tuition payment. I was receiving a small income each month, and I decided to use that to start paying my loans. It wasn’t much, but any bit helps!
I started working full time 3 days after graduation. Was it ideal? Not at all. A break after such a long and stressful year would have been great. And on top of starting a new job and trying to learn so much about a new company and new work, I was trying to finish planning a wedding that would be happening in 2 months! It was a lot to deal with. But I knew that my and Jacob’s future together was going to be more important than making sure our wedding day was perfect down to the smallest detail. So I worked full time and put every check to loans that summer.
Pay More than Minimum Payments
College graduates will receive loan statements in the mail showing them how much they owe total, and what their minimum payments will be each month for the next 15 years. 15 looonnngggg years… Yes. $200 a month doesn’t seem bad at all! But you are not going to want to do that for 15 years! If you put more than minimum payments to loans each month, you’re going to pay a lot less overall interest.
You may have more than one debt. The trick here is to tackle them one at a time. While doing this, you still need to make minimum payments on all your other debts, but then focus all your extra funds to paying off a single loan. For example, maybe you’ve budgeted that you can pay $1,000 to total debts a month. Great! So you have a government loan with $200 minimum payments a month, and your private loan is $250 a month, but you decide that you will put $800 to that private loan to kill it off as soon as possible! Once your private loan is done, don’t keep putting $200 a month to your government loan, but do the $1,000! Each loan will get paid off faster and faster.
Order to Pay Loans
Many students will have different types of student loans to pay off and you may not know which order would be best to pay. Here’s the order that I would recommend following.
- Private Loans: Private loans will usually have a higher interest rate. Pay these off first. Also, as morbid as this sounds, if you were to die and still had outstanding private loans, these debts will usually not be forgiven. This would then be passed to your family.
- Adjustable Rate Loans: If you have an adjustable rate loan, you’ll want to get this paid off sooner rather than later. This rate may be low now, but you’ll never know if it will spike up. With that being such a risk, get this loan paid!
- Co-signed loans: If you took out a private loan, you probably had to have a co-signer who is a parent. They don’t want your debt either, so get this one taken care of!
- Government loans: These are the opposite of private loans in the fact that if you were to die, these would be forgiven, which is why I say to do these last. They also probably have lower interest rates. Government loans have two different types: Subsidized and unsubsidized. Subsidized means that the government paid the interest on it while you were still in school. So if you borrowed $2,000 on this loan, you’ll have $2,000 owing when you graduate, and then interest will start. This is nicer compared to unsubsidized, which accrues interest while you’re still in school. Your $2,000 loan may be $2,500 by graduation. The interest is capitalized into the principal amount, and you end up paying interest on interest. I recommend paying off unsubsidized loans first because of its rapidly growing interest. Also, pay off these loans in order of highest to lowest interest rate. Each year of school might have a different rate, so you’ll save yourself some money if you get the higher rate loans paid off first.
When Jacob and I came home from our honeymoon, we made our first big decision together as a couple. We decided to pay of the remainder of Jacob’s private loan! It didn’t have too much left outstanding, and it was a great accomplishment for us at the first part of our marriage. We then started paying a lot toward my private loan with our government loans to come afterward.
How to lower interest rates
Your loan interest rates might be able to be lowered! My advice is that it doesn’t hurt to ask. Call your loan provider and ask if there’s any way to lower your interest rate. My private loan was lowered .5% for submitting a copy of my diploma to show I did in fact graduate. More of our loans were lowered .5% just by enrolling in automatic payments. I would suggest doing automatic payments anyway. You NEED to pay your minimum debts every month, so this way it keeps you from forgetting to make that payment. We have all our loans set up to deduct minimum payments from our account each month, and then we put extra to the loan we are trying to conquer at the time.
I hope this few tips are helpful as you embark on the journey to becoming debt free! Pay off those loans. Stay committed. Celebrate your accomplishments.
Marissa