Student loan debt: Learn how to pay off your loans

Student loan debt is a crisis in the United States. In early 2021, according to the St. Louis Fed, $ 1.7 trillion was owed for education bills. That affects nearly 50 million people, according to the data analyzed by NerdWallet.

“(Debt has become) an inevitable reality in higher education,” said Kelly Anne Smith, consumer finance reporter for Forbes Advisor. Money problems – like a loan of more than $ 10,000 hanging over your head – can feel really isolating. But you are not alone. Here’s what you need to know in order to tackle your debt head on.

1. Think carefully about your plan

If you are starting a new course of study and need to take out a loan, think about what type of loan will be suitable for you in advance. Do your homework and don’t be afraid to make a few calls and ask for help.

“When you go to school or look at schools and compare costs, you have to keep in mind that … this is a financial commitment that you will have for the next 10 or maybe 15 or 20 years,” explained Schmidt.

Having so many options to choose from can be overwhelming. The Federal Student Aid Office has resources to help you understand the different types of loans and what is best for you and your family. If you’re considering a private rather than a federal loan, double-check the rules – they can vary widely from lender to lender.

It is also wise to think about your future career when calculating the numbers. For example, if you want to pursue a less well-paying job, think about your realistic income after graduation and how much you would need to pay back your loans.

2. Know the terms of your loan

There are so many different loans out there and you need to read the fine print to avoid getting burned. It can be scary even to give the full number, but you need to know what you are dealing with in terms of interest and what your payments are covering.

Melissa Jean-Baptiste, co-founder of Millennial in Debt, didn’t fully understand that her student loan payments only covered her interest – not her major or major balance. “I was very, very shocked to find out I actually had an interest payment plan,” she told NBC News, “and the $ 50,000 I borrowed after paying over $ 18,000 over … three years , my balance had risen to about $ 80,000. “

If you are confused, give your lender a call. They can help you understand your plan and make any necessary changes.

3. Schedule your payments

Paying off tens of thousands of dollars in loans is no easy task. Having a plan to make your payments on time will go a long way, and some students can even start paying off their debts while they are still on the books. Many loans offer interest breaks during school hours and for a few months after graduation, but there’s no need to hesitate when you can afford even small payments, says Jean-Baptiste.

Another way to cover your payments while on a budget: increase your income. As a teacher, Jean-Baptiste was able to monetize the work she had already done. “I started selling my lesson plans and unit plans,” she explained, “to make some kind of extra income.”

Jean-Baptiste’s salvation was to use declining funds to structure lump sum payments. She knew that if she planned to pay $ 12,000 by the end of the year, “then I would have to figure out how to save a thousand dollars a month from January through December,” she said. “That really helped me stay on course.”

4. Think twice before you refinance

Interest rates are currently at record lows, so it may seem tempting to refinance for a lower rate. Smith cautions borrowers to think twice before a refi, especially with federal loans.

When you refinance, you are essentially taking out a new loan and “you don’t have a lot of safeguards or options that come with it, such as insurance coverage. “Explained Smith. When “you’re in a really stable financial position with a really good job it may be worth refinancing in some cases, but for the most part the standard advice is not to refinance federal student loans.”

5. Find your balance

Interest rates can seem really scary and you might feel pressure to pay off as much of your credit as you can to avoid accruing it. When it comes to aggressive repayment strategies, “there is a big difference between being rushed to repay a loan or being overwhelmed financially,” Smith said. “To be sensible with how much you pay off each month and still be able to do other things like build an emergency fund or have money to go out and enjoy your life… people have to strike a healthy balance between the two . “

Paying back your loans is an amazing feat and requires a lot of work. So many people are in the same boat. Be gentle with yourself while you figure things out and you will get there in time.

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