You've graduated from college and are just starting your new career. Your student loans are also coming due. While the ultimate goal is to get them paid off in a timely fashion, there are a few things you need to consider. Privately funded student loans can be costly to repay, but federal student loans can actually be a beneficial tool when it comes to learning how to efficiently manage your finances.
Build Good Credit
Federal student loans typically have a low or moderate interest rate. They also report to all three credit bureaus. Once you graduate and establish your repayment plan, you can begin to pay off your loans and build your credit. For some, a student loan may be their first experience when it comes to loans and paying bills on time.
Pay On Time
Always pay your bills on time. Because federal student loans are reported to the three credit bureaus, you can begin to watch your credit improve if you monitor your credit or FICO score. Consider tracking your finances with a free personal finance tool like Intuit's Mint. The money management feature helps you pay your bills on time and monitor your credit score.
Create a Budget
Budgeting allows you to create a spending plan for your money, ensures you have enough money for the things that are important to you, and allows yo to work your way out of debt. Although you may select or be assigned a repayment plan when you first begin repaying your student loan, you can change your repayment plan at any time - for free. Contact your loan servicer if you would like to discuss repayment plan options or change your repayment plan to fit your budget.
Maintain Your Student Loan and Pay Off Other High-Interest Debt
If you find yourself with a higher debt-to-income ratio than you're comfortable with, you can pay extra on other types of high-interest debt. Instead of adding more money to your student loan payment, consider putting it towards your credit cards or other loans that have higher interest rates. Continue to maintain your student loan paying the monthly payment, but by paying off your credit cards, you will pay less in interest and be able to better manage your credit card debt. Your student loan rates won't change like those associated with your credit cards, so it may be a good idea to double up payments on your credit cards or other loans.
On March 27, 2020, Congress passed the CARES Act, which provides student loan relief measures for federal student loans. The CARES Act suspended student loan payments, stopped collections and waived interest on all ED-held student loans until December 31, 2020.1 While this relief is in effect, consider putting your student loan payment towards your high-interest rate debt. This strategy will allow you to reduce your high-interest rate debt at a faster rate, and create some room in your budget to save for future goals.
Taking time to pay off your federal student loans gives you an opportunity to establish the credit you will need for other important life events, such as buying your first home or car. They also give you an opportunity to learn how to manage your finances in a way that will last you the rest of your life.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.