Biggest student loan repayment mistakes
According to a recent study by Credit Karma, the average student loan balance among 2017 college graduates is nearly $30,000. Making a student loan repayment mistake can really cost you and result in a serious increase in the life of your loan.
Here are some common student loan repayment mistakes that too many graduates make:
Not making a student loan repayment plan
If you are borrowing for your college education, you should try to come up with a strategy to repay your loans before your grace period even begins.
While a grace period might feel like a good thing, don’t allow yourself to get comfortable in this spot.
Use this time to get your money ducks in a row and prepare yourself to take on a payment of several hundreds of dollars for repayment each month.
Not knowing how much you owe
Even though it’s easier to put your student loan in an ‘out of sight, out of mind’ place, you’ll want to make sure you know a few important details after you graduate.
- How much you owe
- Your interest rate
- When your repayment starts
Knowing how much you owe will allow you to better prepare your monthly budget, and for you to be better-informed on what your student loan bill will be each month.
Not understanding your repayment options
A big mistake many student loan borrowers make is not knowing all of the options when it comes to repayment. Federal student loans often have different repayment options, and often times based on your situation.
Rather than picking the first option you come across or the first option that looks like the lowest payment, it’s better to take some time to evaluate what each option can mean for you and your specific situation.
Not paying down your debt quickly
While it might not be realistic for everyone, experts recommend an aggressive student loan repayment strategy that usually requires repaying more than just the minimum payment.
When you opt to utilize an income-based calculated minimum, you are missing out on an opportunity to pay down your higher-interest. You may find yourself struggling for longer as the interest continues to add up rather than figuring out the best way to pay off your student loan debt quickly.
Not updating your contact information
While this may seem so trivial, you want to make sure that your student loan service has your current contact information.
This includes your mailing address, email address and telephone number.
Repaying student loans is an obligation, and claiming you didn’t receive a bill is not an acceptable reason for missing a payment.
Having up-to-date contact information on file is a great way to make sure you never run into a situation where you are facing a default.
Using suspended payments too much
Most student loans, including private student loans, have a payment option called “forbearance”. This option lets student loan borrowers suspend their payments temporarily if times get tough but the problem is that interest still accrues.
Occasional use of forbearance is an OK short-term solution. For example, when you’re in between jobs. What you need to know is that using this option will only grow your student loan debt, not shrink it.
Forgetting to make payments
We get that these things happen, and sometimes making your monthly payment can slip under the radar until you have completely forgotten. Defaulting on your loans is not only bad for your credit, but it can cause other problems as well. Read more about defaulting on your student loans here.
A great way to avoid a default on your student loan payment is to set up a monthly payment reminder or an auto-pay from your bank account. That way, if you do forget, you at least will still be making your payment and avoiding defaulting on your loans month over month.
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