Student loans in America amounted to a whopping $1.71 Trillion owed by 44.7 million people. These loans are essential for people who can’t afford to pay tuition out of pocket. However, the loans can be financially debilitating, and you need to find a way to pay them. The following are some of the steps you can take to help you repay your loan.
Analyze Your Debt
You probably borrowed from many different lenders with different interest rates and repayment plans. The first thing is to put your loans together, find out to whom you owe the money and the interest rates. You should also find out the minimum monthly installment for each loan. If you have been repaying the loan, find out how much you have paid and what you still have yet to pay, and to who. This step will help you prioritize the repayments.
Pay Capitalized Interest First
Student Loans, especially by private lenders and non-subsidized federal loans, accrue interest as you continue with your studies. Some lenders give a grace period, after which the principal attracts interest. The terms allow the unpaid interest to become part of the principal, generating even more interest.
Devote most of your income towards the repayment of loans of this nature, as they are more expensive in the long run. You can pay the minimum allowed installment on cheaper loans ad deal with them more fully once those with capitalized interest are out of the way.
Make Payments During the Grace Period
Federal student loans have a grace period of six months after you complete your studies. Some private lenders also have a grace period that varies from lender to lender. You won’t be listed with Credit Reference Bureaus for failure to pay during the grace period, but your loan will still attract interest. You should therefore start paying the loan before the grace period is over if possible. This will keep the loan from increasing.
At the moment, interest on Federal student loans has been suspended until September 2021. If you still have an income, take advantage of this period to repay the loan interest-free. You will have less to pay when interest comes back to force.
Safely Make Extra Payments
It is possible and advisable to spend any extra money you make for the payment of student loans. Unfortunately, when done before your expected due date, these payments can cause the lender to push your repayment date forward in the following repayment period. You should inform your lender when making the payment to explain that the extra payment doesn’t modify the terms. Such an extra payment reduces principal and subsequent interest, thus reducing your payment period.
Automate Your Loan Payments
Federal lenders and some private lenders offer a discount on interest when the loan is automatically deducted from your bank account. Thus, autopay will ultimately enable you to pay less. Autopay also ensures that your payments are always on time, thus helping you maintain your credit rating. Late payments lead to a lower credit rating, which may, in turn, lead to increased interest.
Angela Kovacs of Van Buren Township, Michigan is the founder and CEO of Credit Repair Gal. A credit restoration firm in Michigan.