A number of graduates are struggling because of the hefty school loans hanging on their necks. The number of defaulters on student loans is increasing by the day. Graduates find it hard keeping up with bills, rent, groceries and student loans and still be expected to save for the future. There is a ray of hope as government programs have new services to help students calculate their loans and prevent them from too much borrowing.
If you are a student or will be a student consider the following
- Identify colleges that help you rely less on student loans. There are colleges that overload students with debts. Some colleges have high default rates and they allow students to take more debt than they can afford. An online search will help you identify colleges with more affordable student loans.
- Know how to limit your borrow. Do not borrow just to get a degree and the salary you expect to make in the first year out of school cannot reach repay the loan. Use market salary targets in your profession to calculate realistic loan payments. Your payments should not exceed 11% of your gross income monthly which is manageable. Pick a state and check the first five years earnings for the anticipated in the major you want to acquire.
If you are paying a loan already
- Pick a repayment plan that will suit you. Federal student loans programs enroll graduates to a 10 year repayment plan with the first payment starting six months after graduation. This is not the only payment option available, there are at least six other repayment options offered by the government which could lower the payments or delay payments. There is a tool which helps one figure out what could work for them without much hustle. Did you know there is a new income driven plan which adjusts monthly bills to your salary? There is also the option of the loan being totally forgiven. Graduates working in public service, government institutions and nonprofit organizations have the advantage of the possibility of having their loans forgiven; when they pay consecutively every month for ten years without delay, the loan is forgiven with the option of not paying taxes on the balance. For other students the loans are forgiven in 20 years, but still they have to pay the taxes on the balance forgiven.
- Reduce the principal amount. If you have extra cash lower the principal amount you borrowed. This should be done by clearly sending out a letter with instructions on how the extra payment should be used.
- Reduce the loan rate. If you have steady monthly paychecks you could refinance a high interest loan to a lower rate one reducing your monthly costs. Private institutions are offering such services, but be careful when switching because some have high interest rates. Switching is ideal, although one loses some benefits such as the guarantee to switch to another payment plan and the possibility of the loan being forgiven.
When you are unable to make your loan payments on time
- Most people ignore and decide to wait and maybe next month will be better, only that it does not come through. When you start missing payments, please make sure you switch to an attractive option on time so that you don’t attract extra payments or penalties.
- If all fails, bankruptcy is the way out. This is a last resort because it remains on your credit history for years. Present yourself to a bankruptcy court or hire an attorney and even if you are not successfully declared bankrupt the court can reduce or eliminate other debts.
- As you are doing all this for the student loan make sure you become a smart spender because every coin counts.
- Stop using credit cards because they have high interest rates which make them expensive to use.
- Use cash on your spending, psychologically it is painful to use cash, but it is easier to keep track of your spending that way. When you run out of cash you will limit your spending.
- Budget your money monthly include rent, utilities and other monthly obligations including credit card bills. Determine how much money you have left after fixed expenses have been paid.
- Create a debt repayment budget with a repayment goal. See to it that the targeted goal has been reached each month.
- Go through your monthly budget and cut all unnecessary expenses or adjust accordingly.
- Save money whenever possible. You could save lots of money on gas and time by setting aside a single day to run all or most of your errands in a single trip.
- Be on the lookout for discounts and deals which are a big relief on your monthly expenditure. Compare prices from different grocery stores and know where to get groceries for less.
- Get rid of things you do not use and they are in good working condition. They are many e-commerce sites which allow the sale of second hand items which will boost your finances.
