Student loan debt might just be the biggest financial problem for students between the ages of 20 – 30. As of 2018, we have more than $1.5 trillion on student loans. This number is greater than the total number of credit card debts and auto loan debts combined.
So, let’s get started with the strategies you can opt for to pay off your student loans after getting a job.
Choose the best payment plan
First of all, you need to select the best option as your payment plan. By choosing the best plan according to your financial status, you can easily manage your minimum monthly payments based on your current income.
Student loans aren’t the only debts that you may need to handle after you start your new job. With increased income, you may also increase your credit card debts. Don’t ignore your credit card debts while dealing with your student loans.
So, you may have to choose a repayment option that can be manageable with your other debt payments. If you can’t afford any of those debts properly, you may have to take help through a debt management program.
Add extra cash towards the highest interest rate
Once you complete your graduation, you might be looking for a job in a company offering a bonus and a great basic salary. You would be lucky to get a job like that and start your working life with joy.
Once you start receiving bonuses, you may transfer a minimum of 50% of the bonus amount towards your outstanding student loans. The other 50% of your bonus amount should go towards building an emergency fund. For your information, your emergency fund will be proper if you can save 3-6 months of your living expenses over there.
Whenever you make a payment towards your student loan apart from your minimum monthly payment, you should target the highest interest rate loan. Focusing on the highest interest rate student loan debt first is the basic rule of making debt repayment. If you follow this strategy, you will end up paying much less interest over the entire life of your student loan.
But remember, when you are making an additional payment towards the student loan, the loan servicer will not automatically apply that extra payment toward your highest interest rate debt. So, make sure to manually choose the loan you want to apply for the extra payment so that the strategy works.
Set up automatic payments to save on interest
After graduation, once you start working, your financial status will be stable. Then, you should sign up for an automatic monthly payment system for your debt payments. Inform your student loan servicer and your bank to get the job done.
The most fruitful way to get out of your student loan debt is to make payments on time.
So, you should sign up for auto-payments to ease up your payment schedule and to save on interest. Many federal student loan servicers and many private lenders may offer you a discounted interest rate if you opt for auto-payment services.
Opt for refinancing if you have good credit
You may opt for a refinancing option and pay off your student loans faster without making any extra payments. As you have a steady job with a good income, good on-time debt payment history, and if you have a 600+ FICO credit score.
But, if you’re using federal loan benefits such as an income-driven repayment option, you can’t refinance your student loan.
Through a refinancing option, you may convert multiple student loans into a single personal loan at a lower interest rate. You can choose a shorter loan term to pay off the debt quickly and save money on interest.
But for that, it can increase your monthly payment. You just have to handle one monthly payment instead of multiple debt payments.
Opt for biweekly payments
By using this simple strategy you can save yourself from making extra on your student loan debt. You may make half of your payment every two weeks instead of paying one full payment every month.
If you are making payments every two weeks, you’ll end up making an extra payment each year. This way you are modifying your payment schedule, slicing off the pressure of making a lump sum every month into two parts, and saving money on your interest payments.
You may use a biweekly student loan payment calculator to analyze how much you can save overall.
Use the benefits of the 529 Plans
As per the SECURE Act, signed in December 2019, you may withdraw up to $10,000 from a 529 plan to pay off your student loans. This is a federal law, so you are eligible only if you have federal student loans.
While applying for the money, you may need to verify that your student loan repayments qualify for this benefit and you may receive the same state tax benefits as the taxpayer.
The state of Indiana does not allow such withdrawals for student loan repayments as a qualified expense to get the tax credit benefit.
So, make sure you have this facility in your state before approaching. If you are the beneficiary of a 529 plan and your state allows it, you can easily use that money to pay off student loans.