Graduating from school is an achievement, congratulations! It’s time to take things into your own hands and transition into adulthood with more responsibilities. Are you a graduate who borrowed student loans to cover your tuition? Don’t worry we’re here to help you manage your finance.
Standing at the threshold of a new world after graduating college is in itself an overwhelming feeling and the confusion about how to handle finances can boggle you down.
It is recorded that an average 21-year-old carries a student loan and has to make a loan payment of $393 every month. Here is a guide to help you clear loans faster as well as saving and investing.
How to pay student loans while investing and saving together?
Making the right financial move should be one of the primary goals of an adult. You should always have a clear idea of the ratios of income to expenses. Preparing a budget gives a fair idea of how much you must save or invest.
Also paying for student loans regularly is important because you can learn about How To Pay Off Student Loans Faster by adopting the best methods listed on websites like The College Monk.
Using various methods and enrolling in repayment plans help in reducing the burden and boost your credit scores. Here are a few ways listed to help you eliminate student debts.
Make payments on time
Organizing expenses means that you make a list of loans, their interest rates, and the respective dates to make monthly payments.
You must prioritize which loan payments must be made first and try making the minimum payments on time.
This helps to avoid accruing of extra interest, penalties, harm to your credit score, or summing up the financial charges.
Try making extra payments
One of the simplest ways to clear loans is by prepaying with an extra amount.
You could also make regular payments on time and use the extra amount on clearing the balance on principle.
So you must be aware of where you’re investing the extra amount on and instruct your loan servicer prior, to use the payment made on the current balance and not on the payments for the next month.
Plan your budget
Budgetary plays an important role in analyzing the cash flow to prioritize the expenditure. As a graduate student, you must be responsible for the transitioning finance which calls for preparing a budget.
According to priorities, you must choose to pay the student loans first, then save for retirement, emergency funds, and then the investments in a car or a house.
Knowing what you earn and how much you can spend helps in paying loans as well as saving simultaneously.
Pay off high-cost debt
When paying student loans is a priority, you must list the loans in an order with the highest amount and interest. Paying off the loans that cost more helps you clear a big burden where you’ll be left with smaller loans to pay later.
Usually, the high-cost debts include the unsubsidized loans where the interest is accrued while you were still at college or a credit card debt where the interest rates can be as high as 20%.
Consider Consolidating or Refinancing
Consolidate your federal loans by combining multiple loans into one single loan with a newer interest rate and term to repay. This helps in getting one due date and eliminating the stress of missing payments.
Borrowers can also get lower monthly payments to make and lengthened period to over 10 years to manage their finance and make investments simultaneously.
Student loan refinancing is another option where you could complete all private loans and obtain lower interest to make payments according to your creditworthiness. This is an advantage to those who can afford to make more payments and want to clear the loans sooner.
Choose Repayment Plans
Repayment plans are federal programs that help you qualify for plans to make lower monthly payments to make over a long period.
Income-driven repayment plans help in deduction of only 10% of the overall income you gain and the period would be over 20-25 years. With 10% spent on the loan repayments, you could use the other portion on savings and investment.
However, the loan payments are increased gradually as the income increases.
Use the grace period as a bonus
After graduating, you are provided a period of six months where you don’t have to make payments. Use this time as an advantage to save and settle at a job. You could save on rent, groceries, bills payment, utilities, and others.
Focus on building your security funds or invest in property. Inventing a property helps in generating income when you rent out the property. This income can be used to make loan payments and the extra income generated from the job can be used in saving.
Aim at Winning a Scholarship
A Scholarship is a reward given to students based on their performance in standardized tests. It is free money given based on your caliber and one must always choose this over borrowing student loans as it is not required to be paid back.
It can be given based on merit, athletics, art, special interest. There are various scholarships sponsored by colleges, universities, private organizations, government, and others.
But you gain more chances of winning a scholarship, you find the right one to align with your goals. Research on various College Scholarships available based on your qualification and requirement.
Save for retirement
After paying off your high-cost debt, You could also take advantage of the employer-sponsored retirement plan where you could offer a percentage of your income to save for your retirement.
A 401(k) plan is a long-term plan to help you save for retirement and can reap benefits of the free money at the time you reach 59½ years. This helps in supporting your lifestyle post-retirement.
While you are making regular payment of the loans, you could save money in this plan involuntarily for the future.
Use windfalls wisely
You could also clear loans and save money by the extra money you receive such as signing bonus, work bonus, tax refunds and other.
Paying student loans can be difficult if there is an imbalance in managing finance. Hence, you may use various methods mentioned above in an appropriate way and make decisions wisely.
In addition, there are other simple methods to become debt-free such as bi-weekly payments where you make 26 payments a year or try enrolling to autopay where you are offered a reduction of 0.25% interest rate on loan.
Paying off the capital interest helps in reducing the extra accumulation of interest and helps in clearing off loans sooner. Hope this article was helpful. We wish you all the luck.