So, you studied your tail off, made those grades and landed your first job. Nice. Now there’s nothing stopping you from achieving your dreams … except maybe those student loans. Paying off student loans can be a big source of stress, but Kim is here to help with a few savvy tips to repay your debt faster and smarter.
Question: I know I’m going to have to start paying off my student loans, what’s the best way to prepare for this expense? Should I be looking into consolidating?
Answer: Good for you on preparing to tackle your student loan debt! A great way to start is to put the estimated payment away in your savings account now, before payments actually start. That gives you the ability to build a safety net while you “test drive” the payment in your monthly budget. If you find the payment is not comfortable with your other expenses, it gives you time to seek some advice on options.
If you don’t already have a budget, draw one up with free budgeting tools on our Money Smarts blog. Include your expected loan payment(s). When you create a budget, consider what’s coming up in the next couple of years financially that you want to start planning for – building an emergency fund, saving for a vehicle, etc. Consider those monthly expenses to help you choose your best options for student loan repayment. Once you have a plan in place, you can also use our loan repayment calculator to figure out how long it will take to pay off your student loan debt.
At Summit, we help a lot of people with consolidating student loans. Consolidation may be a way to streamline your finances, reduce your payments and improve your cash flow. Remember, though, if you lower your payments by extending the length of time you take to repay the loan, you could be paying significantly more in interest over the life of the loan. A few things to consider:
- Start with some research on your loans. Do you have federal or private loans, or both? You can find your federal loans listed through the National Student Loan Data System, along with options available for repayment. This information is only available online, so be sure you can view the accounts and status to stay on top of your payments. Find your private loan paperwork to review the payment plans you have set up on those loans as well.
- Before you decide whether to consolidate, find out if you qualify for any student loan forgiveness programs and determine if you will take advantage of them. For example, if you are a licensed medical or dental provider, you may qualify for loan forgiveness funds if you commit to working in an underserved area. Only federal loans quality for this kind of benefit, not private loans.
- What is your goal for consolidating? Is it to reduce your monthly payment or to reduce the overall interest you will pay over the life of the loan? Are there any fees?
- If a cosigner will be needed, look for a lender like Summit that will give you the option to release the cosigner after a certain number of on-time payments.
- You may be allowed to consolidate both federal and private loans into a private loan. We’d discuss options with you first to help you determine if that is the best option for you. If this is the direction you are contemplating, give us a call!
At the end of the day, every situation is different. There’s no one right way to pay off your student loans (although there are a few wrong ways!). Whatever your case might be, just make sure you do your homework to know what you’re getting into. If you need help along the way, we’ll be here.