By and large, there's no getting around the fact that you have to pay off your student loans. Such loans are rarely
granted default status and none are ever abolished in bankruptcy situations. Then there is the credit report issue. If you don't pay off your loan, that can haunt you the rest of your life in the form of a bad creadit report. And a bad creadit report means no new car, no new home, and virtually no hope of ever borrowing money from creditors
again. Besides, ignoring your college debts won't make them go away. Instead, that will just make things worse. If you take the ostrich route and stick your head in the sand every time a loan statement arrives in the mail, you're just staving off the inevitable. By not paying, or delaying, substantial costs - in the form of interest and penalties - could very well be added to your loan bill.
Translated: Student loans are serious business. That's why knowing the particulars of your student loan - account terms, timetables for payment, penalties - is so crucial.
The next step in freeing yourself from student loan debt is to craft a master plan or blueprint to work from as you pay off your loan. But to control your student loan debt, as in most other instances, you have to walk before you can run. That's why knowing the financial basics - the terms of your debt, how to craft a household budget,
the machinations behind credit and debt, and the importance of eliminating "bad" debt - is so important to your student loan situation. Here's where to start.
KNOW YOUR DEBT What exactly "knowing your debt" means? For starters, it means how much you owe on your loan. If you owe $10,000, then, if nothing else, you know where you stand. But some people can't be bothered about their debt amounts. They're too busy starting their careers or tackling other, more appealing fiscal responsibilities, such as buying a new Jeep or grabbing a vacation rental on the beach for the summer. Don't be like that. Know your loan. Know its terms, its payment schedules, its repayment options. Know that if you make higher monthly payments you can pay the loan off more quickly. Know who your lender is and where you can reach them. Know that if you move, you need to contact your lender and let them know your new address.
Knowing your debt also means knowing what to do if you can't make a monthly payment for some reason. Lenders are usually fairly gracious about this, as long as you let them know you won't be paying and when they can expect the next payment.
Keeping your lender in the loop is a huge part of knowing your debt. Closing them out or ignoring them will only lead to complications and possibly default. Above all, knowing your debt means reading and understanding all the correspondence you'll receive from your lending institution. Yes, the language lenders use in their statements reads like the Dead Sea Scroll. But read it anyway. Remember that it's all part of knowing your debt.
GET RID OF CREDIT CARD DEBT Managing your personal finance - especially your credit card debt - is job one when it comes to squaring your student loan debt. While credit cards are a necessary evil, when you're trying to free yourself from student loan debt, they can be more evil than necessary. How so? Well, try paying off your college loans when your monthly Visa statement looks like the annual operating budget for Portugal. In many cases, the interest rate on creadit cards is 16% or more the interest you pay is not tax-deductible; and quite often the money you owe is for something you've already gotten the most use out of. Pay it off.
But first, make sure the credit card bill is accurate. Analyze the bill. Make sure it matches your receipts. Sometimes when you sign on the dotted line, you don't double-check the amount of the purchase.
BUILD YOUR BUDGET Lets start with a household budget. Without going through the punishing ordeal of ranking your spending priorities, it is difficult to guarantee you will have anything left over at the end of the month to pay your student loan. Start by holding out a reasonable portion of every paycheck to pay down your student loan and other debts and force yourself to live on the balance.
NOTE
Don't fall for any season's greeting from your creadit card company offering to lower your minimum payment or saying that because you're such a good customer, you can skip this month's payment. That sounds enticing, but remember, the interest rate clock is still ticking. With your holiday shopping, in addition to your regular expenses, suppose that your January creadit card bill is $2,500, a typical amount. If the annual interest rate is 18%, skipping January's payment could cost you about $38 in finance charges
that will show up in next month's bill. No wonder the creadit card company is so nice.
IMPORTANT
If every now and then you come out ahead, be sure to apply your windfall to eliminate student loan debts before you start to accumulate savings. This makes sense for a number of reasons. Borrowing rates are typically exceed savings rates. Interest expense is usually nondeductable, while savings are taxable. Interest charges are a certainty, but investment returns are volatile.