Your student loans are easy to forget about when you’re busy celebrating college graduation, looking for a job and perhaps preparing to move to a new city. But the summer after graduating is the perfect time to take charge of your loan payments and create your personal action plan to get out of debt.
“Whatever debt you have, don’t treat it as a friend you have around,” says Phil Schuman, director of financial literacy at Indiana University in Bloomington, Indiana. “You should be mad at it. You should be doing everything you possibly can to get rid of it as fast as possible.”
Follow this five-step plan to understand, streamline and attack your loans, starting now.
1. Know your loans inside and out
Before you can manage your debt, you’ll need to understand how much you have to repay. Log in to the National Student Loan Data System to review the federal student loans you’ve taken out. Create a Federal Student Aid ID to log in if you don’t already have one.
There you’ll see a list of your loans and what date they were disbursed, the amount that’s left to repay (known as the “outstanding principal”) and the interest that’s already accrued. Click on the number of each loan in the left-hand column to view each loan’s interest rate and the name and phone number of its current servicer, the company that manages the loan on behalf of the federal government.
If you have private loans, the financial institution that made them (such as Discover, Wells Fargo or Citibank) keeps track of your loan information. Make sure the lender has your current email and snail-mail addresses on file so it can send you all the updates you’ll need as repayment inches closer.
2. Talk to your loan servicer
Once you know what loans you’ll have to pay off, learn about your repayment options the old-fashioned way: Call your servicer. That’s the company that either lent you the money or that is now contracting with the federal government to manage your loans.
In many cases, your servicer will automatically place you on a 10-year standard repayment plan, which is one of the fastest ways to pay off your loans. If you have a lot of debt but not a lot of income, this could mean your payments are tough to make initially. For federal loans, you’ll usually have a post-graduation grace period of about six months before repayment begins; for private loans, this period is sometimes less. Take time at the start of your grace period to build a comprehensive understanding of your loans before you start paying them off.
Make a list of questions to ask your servicer so you understand the basics:
- When is my first payment due?
- Where do I send it?
- How much will I owe per month on my current repayment plan?
- What other repayment options do I qualify for?
- How do I switch repayment plans?
- Are discounts available if I sign up for automatic debit or take advantage of other repayment features?
Take detailed notes and keep them in a specific folder, either in Google Drive or in a physical place where you also store mail your loan servicer sends you. It’ll be easier to keep track of your loan details if you stay organized and do your best not to get overwhelmed.
3. Pick the right repayment plan for you
Now comes one of the most important parts of managing your loans: deciding how you’ll pay them off. Federal loans have options beyond standard repayment, including income-driven plans that take into account how much you earn after graduation. There’s also the Public Service Loan Forgiveness program for graduates who work in the public interest, which will make your remaining loan balance disappear after 120 on-time payments on your federal loans.
“The nice thing about federal loans is it’s very consistent as to how it operates,” Schuman says.
Plug in your loan and income information using the Federal Student Aid website’s Repayment Estimator to see how much you’ll pay per month on each plan. If your loans will be more manageable on a graduated, extended or income-driven repayment plan, call your servicer and ask for more information about your eligibility.
Private loans work differently. Private companies aren’t required to offer specific alternative repayment options to borrowers like the government does, but various lenders may work with you to provide an interest rate reduction, extended repayment plan or a longer grace period if you foresee having trouble repaying your loans. Your best bet is to call your lender before any payments are due to discuss your options.
4. If you can, start paying during your grace period
With your long-term repayment plan squared away, consider ways to start bringing your debt down now, Schuman says.
“Don’t let the lending company tell you when you should start paying back your loans,” he says.
If you have the means during your grace period, you could make a one-time payment toward the interest that accrued on your loans while you were in school before it capitalizes, or is added to your loan balance. Another, more powerful option is to start making payments toward your principal as soon as you graduate, while you’re technically in your grace period. If you ignore your student loans for six months after graduation, you’ll get used to having more money in your checking account than you will once repayment begins, Schuman says.
“You’re getting the opportunity to develop six months of bad habits,” he says.
It’s important to note that if you start paying off your loans during your grace period, you should ask your servicer to apply your additional payments directly to your principal instead of toward a future monthly payment. That will ensure that the extra you pay brings your balance down faster.
5. Treat your loan like another monthly bill
Repaying your loans isn’t optional: It’s absolutely necessary for your financial well-being. Missing payments or eventually going into default has serious consequences, so you should think of your loan payments as just one more monthly essential that you budget for.
Sign up for automatic debit so your payment comes directly out of your bank account, the way you may already pay your electricity or cellphone bill, Schuman says.
Once you’re used to making regular payments, you can also start to be strategic about which loans you pay off. You can apply extra money to high-interest loans so you don’t accrue big interest charges, which can make it seem like your loan balance hardly decreases. Or you can completely pay off smaller loans’ balances when you’re able to, which Schuman calls the “momentum method.” That can feel rewarding psychologically, he says, encouraging you to keep making extra payments so more loans disappear. Make sure your servicer knows which loan you want to apply additional payments to.
No matter how you do it, repaying your loans should be a top priority when you graduate. Pay them off smartly and strategically, and soon they’ll be off your plate and in your past.
This article was written by NerdWallet and was originally published at USA Today.
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