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What College Seniors Need to Know About Paying Off Their Loans
With graduation on the horizon, there's something else looming ahead of you: paying off your student loans. It can seem like a confusing and frightening thing for someone who has never dealt with it before. But don't worry. Here are some simple things to remember that can help you through the process.
By Laura Allan
How Much Do You Pay, and When?
You might be a little nervous about paying back all that money right away, but don't fret too much. You have a six month grace period before you have to pay a dime to anyone. Think of this as a time to get a job as soon as possible and to start saving money. Don't spend it on frivolous things or ignore your loans entirely during that grace period. The more you can have ready to give up to loan companies, the better off you'll be in the long run.
After those six months have passed, your loan companies will get in touch with you and let you know how much you'll be paying per month and when during the month you'll pay. In general, you'll be looking at paying a few hundred per month, maybe more and maybe less. That can sound pretty frightening, and what sounds worse is how long you'll have to be doing that. Depending on how you have your loan set up, you'll be shelling out that money anywhere from 10-30 years in the future. You may be tempted to push for the shortest amount of time, but don't rush yourself. You'll have to pay an unmanageably huge amount more every month if you try to go that route, even if it doesn't take as long.
Interest is Your Enemy
Your only experience with interest might be in your own bank account, so it may sound like a friendly word to you. In this case, it's not. Pay close attention to your interest rates as you're figuring out when and how much to pay every month. Keep in mind that you'll be paying back more than what you took out in the beginning when you do any calculations. On your payments, give a little extra per month if you are able and make sure it goes to paying off the principle amount. Also, keep an eye on your savings account in comparison to your loan interest. If your interest rate for your loan is higher than the interest rate for your savings, it's worth paying extra every month so you'll have more money in the end. Still, remember not to bleed yourself dry; that way you'll be able to make next month's payment too.
Look Into Consolidation
If you have a bunch of places you owe money to, things might get a little too complicated or confusing for you to handle. There is a way to make things easier on yourself, and sometimes it can even be cheaper. Look into consolidating your loans. What this entails is taking out a loan with one company to pay for all your other loans. This results in you only having to pay bills to one company. Sometimes, you'll find that your interest rate is lower and you'll never have to worry about paying money at different times of the month. For someone new to paying student loans, this can be a blessing.
Budget Your Money
Once you find a job, you'll have to learn how to wisely spend your money. Depending on whether you're living with your parents or on your own, it may seem difficult to pay for everything in your life. Food is expensive and gas prices just keep rising. But you can do it! Take a deep breath and sit down with all your expenses over the past month. Start budgeting by subtracting the amount of money you will need in order to pay for your loan next month before you look at anything else. From there, look at what you are spending on food, gas and things that might not be necessary. What can you cut? Budgeting is a key skill you will use in all areas of life, and learning to live on a tight budget so you can pay off your loans is worth the effort.
What Happens if You Don't Pay it Back?
There is nothing good that can come from not paying back your loans. If you happen to be late with a payment, even that can hurt you. It shows up on your credit score, which can keep you from buying a house, getting a car or renting an apartment in the future. Not paying it off will result in you building up more and more interest, until you'll owe much more than you did initially. If you still refuse to pay it off, you can end up with fines and worse.
The point is that this is something you have to do, so don't ignore it. Don't panic looking at how much you owe and don't rush to pay it off all at once. Pay your dues on time every time and pay a little extra if you can. It may take years, but getting it paid regularly will build you good credit and hone your financial responsibility skills. And never be afraid to ask your friends how they are dealing with loan bills. Sometimes the voice of experience is very helpful when it comes to money matters and it's nice to know you're not the only one going through this.
Still want to know more? Find out with these simple facts about student loans!