Once you graduate, you typically have six months before the first student loan payment is due. If you are close to graduation or a recent graduate, it is time to pay attention to what you owe. If you are already into your student loan payment period, it is time to take control. This is a guide to paying off $200,000 in student loans. In this post we assume that you are not participating in the federal loan forgiveness program. We further assume that you want to turbo charge paying off your student loans.
Student Loan Payment: You Do Need A Job
First, secure a job that pays a living wage. Following graduation, you typical have six months before beginning the student loan payment journey. As such, securing a job that pays a reasonable wage will reduce the financial stress associated with student loan payment. Keep in mind that although you have six months to begin student loan payment, you may begin paying back your loans early.
As an example, while in school, you can work and pay down your student loans as you go. This can save a tremendous amount of money as you are able to cut down the interest compounding on your student loans. If you are able to pay down the principal of your student loans while in school, this will further reduce your debt load. For those who are employing or who have employed this tactic, great job. If this ship has already sailed, let’s move on to knowing what you owe.
Student Loan Payment: You Must Know What You Owe
Before graduation, shortly thereafter or now, begin to review all your student loans. Take a look at how much you owe and the interest rate for each loan. Let me rephrase that, know how much you owe and the interest rate for each loan, write it down. Order your loans from highest interest rate to lowest interest rate. In doing so, you are identifying the loans that will cost the most. The aim here is to attack and pay off the loan having the highest interest rate first, thus reducing the total cost of the loan. The first step is to identify the target loans.
Student Loan Payment: You Must Know Your Minimum Payment
To take control of your student loan debt, you must appreciate your monthly payment. Note what your minimum student loan payment will be for each loan per month for the term of the loan. Next, add together all your minimum payments per month. This is the minimum payment due for your entire student loan debt load per month. Know this number. Ensure that you have structured your life in such a way that you are able to make these monthly payments. It is important to note that the plan is not to pay the minimum student loan payment for the standard 10-year period. However, it is good to know early what these minimum payments are.
Debt Avalanche
Now the plan. Now that you have reviewed all your student loans and you know the total minimum student loan payment per month, it is time to implement the plan. Attack your loan having the highest interest first. Look at your budget, and determine how much additional money you can dedicate to your student loans each month. This amount will be a sum above your minimum payments. The aim is to dedicate this amount (additional money) to your highest interest rate loan while making the minimum payments on your other loans each month. Once your highest interest rate loan is paid off, you can thereafter dedicate the additional money + minimum payment of the highest interest rate loan you just paid off to the loan having the second highest interest rate while maintaining minimum payments for your other loans.
Implementation And Example
As an example, if you have 3 loans, loan 1 having an interest rate of 5%, loan 2 having an interest rate of 4.5% and loan 3 having an interest rate of 4%. Using the above method, you would pay your additional money to loan 1 each month. For loan 1, you would pay loan 1’s minimum monthly payment + the additional amount. For all other loans, you would pay the minimum monthly payment. Once loan 1 is paid off, your additional amount + the minimum monthly payment for loan 1 + minimum payment for loan 2 would be paid to loan 2 while maintaining minimum payments for loan 3.
Using this method, mathematically, you would be paying off your debt more quickly and with less interest.
Additional Tip
Additional tip, most loans provide a reduction in interest rate if you sign up for automatic payment. Prior to signing up for automatic payment, ensure that you are able to afford the payment amount. If you are, sign up for automatic payment. This will also reduce your total payment and reduce your payment timeline.
Conclusion
No matter where you are with regard to your student loan payment, it is time to take control. By reviewing what you owe and attacking your student loan having the highest interest rate, you will pay off your student loans more quickly and with the least interest cost. By taking control of your student loan situation, you can turbo charge your student loan repayment and pay off $200,000 in student loans.
Paying off debt is essential on the journey to financial independence. Start attacking your student loans today.
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