It’s a new year. 2016. Time to resolve your past snags. And if you’re a student or a recent graduate, there’s probably a very big obstacle that needs your attention this year—your student debt.
Instead of eking by every month trying to pay off that hefty sum, try these fifteen tricks to reduce your student debt and put yourself ahead for many years to come.
Resolution 1: I will understand my loans.
Have you taken out federal loans or private loans? What is the interest rate on these loans? What’s your balance? All of these questions are important to answer. It’s in these details where you can determine your options for repayment and forgiveness. The first step to overcoming any problem is acknowledging that it’s there.
Pro tip: If you don’t know where to look, contact your lender, your school, or visit nslds.ed.gov to see your loan status.
Resolution 2: I will keep track of my grace period.
A grace period is the amount of time you have after finishing school before you have to make the first loan payment. It’s typically six months to a year for federal loans.* Private loans vary. Whichever you have, make sure you know this time frame so you don’t miss your first payment. And if you really want to get a head start and avoid more interest, pay ahead when you can.
Resolution 3: I will learn and pick the right repayment option.
You have the power to select a repayment plan. There are options such as:
- The Standard Repayment Plan: Slightly higher monthly payments and thus less interest over the life of your loan.
- The Extended Repayment Plan: Lower monthly payments for up to 25 years eases your financial burden for the present.
- The Graduated Repayment Plan: Ten-year payment period with lower payments that increase every two years, as you expect your income to grow.
If you haven’t chosen a plan, it’s likely you were assigned one. Repayment options center around your income and typically span over ten years, though they can also be extended even further, which will give you lower monthly payments but more interest over time.* Fret not — you can change your options and goals. Just reach out to your loan provider.
Resolution 4: I will know my worth and not settle.
You have invested a lot of time and money into getting that education. That investment should pay off. If you’re looking for a job, or are already in a position, make sure you’re getting what you’re worth. Many financial aid experts suggest owing less than what your starting salary will be after graduation.* Start negotiating.
Resolution 5: I will work to reduce my rate.
Depending on your job outlook compared to the amount you owe, you could refinance your loan for one with a lower-interest rate. This will lower your monthly costs and get you on the fast road to paying off your debt. The refinance market is reportedly growing, according to Bill Hubert of Overture Marketplace. Banks are starting to refinance federal student loans with 7.9 percent annual rates to as low as 3.6 percent.* But changing your interest rate could affect your ability to switch to other payment plans, so contact a financial professional or your loan lender for more information.
Resolution 6: I will pay off my most expensive loans first.
If you pay off the loans with the highest interest rates first, you’ll pay less over time. Especially if you have a mix of private and federal student loans, start paying toward the private right away, since they tend to have higher interest rates and less repayment options and forgiveness. Plus, having a focus can help take off some of the overwhelming pressure of having multiple, high-dollar loans.
Resolution 7: I will reduce my principal with any extra funds.
If you’ve got the extra funds to pay toward your student debt, make sure you’re paying toward the original amount you owe, not the principal. According to the Consumer Financial Protection Bureau, many borrowers apply the extra payments to the next month’s bill instead of reducing the principal.* So when you make extra payments—which can really help put you ahead—be sure to send the lender a note about how to credit your extra payments.
Resolution 8: I will put my payments on automatic.
Many lenders will cut rates or offer bonuses if you opt to have your payments automatically deduct from your bank account. The federal government even cuts your rate by one-quarter of a percent.* So why not put your payments to automatic? It’s easy. And it’s worth it.
Resolution 9: I will take the time to explore federal loan relief programs.
If you haven’t figured it out yet, federal loans are the way to go. If you’ve got a federal loan, be sure to check out the programs they offer. From Public Service Loan Forgiveness to Income-Based Repayment options, you can find something that will help you get out of debt easier. But the programs aren’t going to come knocking on your door. It’s up to you to find them and put them to work!
Resolution 10: I will look into consolidating my loans.
If you have multiple loans, consider consolidating them into one for a single monthly payment and one fixed interest rate. Explore what this means for you specifically—there are pros and cons. And never consolidate federal student loans into private loans; otherwise you could lose all the perks of federal loans.
Resolution 11: I will avoid charging my credit card.
You’ve got a loan or loans. Adding more to the amount you owe on credit cards isn’t going to help you any. Avoid the short-term gratification of seeing a movie, getting a few drinks with friends, and buying that great leather jacket — their wow will fizzle while your debt will continue to shackle you down. Instead, live happily and comfortably through frugal eyes. Remember, the less you spend, the more you can pay toward becoming debt-free.
Resolution 12: I will budget my expenses.
Budgets are fairly simple: make goals, compare income to living costs, set a plan, and track your spending. Sticking to budgets is hard. Make sure you’re saving enough away to pay off your debt and then some for future planning. “Set a budget and ‘enjoy’ the challenges of living the student lifestyle. One likely only has one chance to live as a student, and embracing it should be fun,” said Jonathan Fox, Iowa State University professor of Human Development and Family Studies. Even after a job and a raise, don’t ramp up your spending—inflation can sneak away your expenses and your savings account could always use more.
Resolution 13: I will pay extra at my loan whenever I can — not just the minimum.
The longer you have the loan, the more you pay. Federal student loans’ interest rates will increase this year, ranging from 4.66 percent to 7.21 percent.* That means, if you’re paying off a $30,000 loan for 10 years at an interest rate of 4.66 percent, you’ll end up paying $7,588 in just interest! Jennifer Docekal, a loan officer at a credit union, had taken all of her tax returns and bonuses from work and applied them to student loans. With her dedication to paying them off, she removed her debt.
Resolution 14: I will get creative with saving money on living expenses.
Save money elsewhere now so you can pay more toward your loans and have more to spend later in life. Check to see if you can cut your cell phone bill by limiting data. Cancel your costly cable and enjoy the free entertainment of online streaming. Rent got you down? Look for a less expensive place to live. There are many things eating away at your paycheck each month—make your student loan debt a priority—and try to cut back anywhere else you can. “If you can handle it, get a part-time job on the weekends or nights to fund your fun lifestyle. But never take out student loans for weekend fun,” Docekal said.
Resolution 15: I will be accountable for the money I owe.
Students often hide the fact that their debt is skyrocketing and chaining them down. But the people around you love you and support you. Let people know what’s up. Explain why you can’t go out to eat every week. Tell them why you can’t go see that movie. Not only will it help you say no, it’ll build a community of people who will check in with you about your student debt — holding you accountable and motivating you to pay it off efficiently and quickly.