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Last updated on April 8, 2021
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You just graduated—now it’s time to learn how to be financially responsible
If you are approaching graduation from college or university and worried most about paying back your student loans—you aren’t alone. A great number of American students depend on student loans to pay off their college tuition fees, accommodations and school supplies, such as textbook rental costs. My own student loan amounted to $41,000 when I completed my undergraduate degree in university. You bet I was more concerned with paying back that loan than I was about finding the right job. I made the mistake of taking the first job that presented itself, instead of trying to negotiate a higher salary just because I was happy to earn a paycheck. Looking back now, I wish I had known the following 5 tips for paying back my student loans faster when I graduated:
1. Keep living like a student
You’ve been living the life of a student until you finally started earning a paycheck. Don’t let a regular income cloud your judgment—you have loans to pay! If you can, keep accommodations to a minimum by renting an inexpensive apartment (suitable to a student) or move home with the folks for a while. Keeping your same student habits won’t increase your cost of living, and so you can use some of that new salary to pay off your loan principal up front and preventing compounding interest from piling up. Try to maintain the student life by taking public transit or riding your bike to work, bagging lunches and clipping coupons for groceries and personal items whenever you can.
2. Accelerate your loan payments
I know it’s difficult to resist the temptation to spend your whole paycheck on a bedroom set for your new apartment—you are a professional now after all. However, if you focus (at least for the first year of work) on using any spare cash to increase your loan payments, you will reduce the total amount of interest you pay in the long run. Then you’ll have tons of money to buy whatever you want in the future.
3. Consider consolidating your student loans
Consolidating loans means that you combine several student loans into one bulk payment. Consolidation can be a good way to lower your interest—especially if some of your loans carry a variable rate. Be sure to talk to your financial advisor to see if consolidation is the best route to help you pay off student loans faster.
4. Make payments on time, every time
Missed loan payments equal financial penalties that can damage your credit rating (if you are brought to the attention of a collection agency). In most cases, bankruptcy doesn’t apply to student loans. Instead, pay your loan debt on time, every month and you will build your credit score, which will help you qualify for better credit and loans with lower interest rates down the line if you should need it.
5. Don’t be afraid to seek loan deferment or reduce payments
The worst thing you can do as an unemployed new graduate is ignore your student loans. They won’t go away. Loan deferment (or hold) or reduction of loan payments is possible during economic hardships (i.e., unemployment, illness, for new moms, times of financial need). This will allow you to either reduce your loan payments for a designated time period, or defer your loan altogether until you are making more money. To seek a student loan deferment all you need to do is fill out a Statement of Financial Status form with the Department of Education or request a deferment or payment reduction from your private lender.
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