On a college graduation day, there are smiling faces all around, but there are some faces where a sense of tension can be felt. With graduation caps flying high, stress is building up in the students’ hearts about paying off the student loan debt.
Student Loans are considered a blessing when it is time to get admitted into a professional college. And these loans certainly are. It helps students pursue their dreams by allowing them to study in the school of their own choice. But as graduation day comes closer, students begin to worry about how they are going to pay their student loan debts. Because this is a matter to worry about, it will become a formidable challenge to pay off student loans and debts without a proper management plan.
Managing student loans and debts is tough, but if a smart strategy and plan are drawn up, it will not be much of a big deal to pay off the entire loan and debt. The plan must be designed in a way that does not interfere with one’s life goals, which is why a student opts for this loan in the first place.
This 4-step guide can help individuals develop a smart management plan for handling and paying off their loans.
Step 1: Listing and reviewing the loans and debts
Many students do not like to think about their debt. Once they have designed an initial plan, they want to stick with their plan. It is not a wise approach as, with time, circumstances change. An ideal method is to review the plan and analyze if any other feasible repayment methods exist. Letting the payer keep track of how long it will take to pay off the entire amount.
Step 2: Clarity of financial goals
A student does not graduate from a college to earn to pay for their loans and debts. Students wish to achieve several other financial responsibilities and goals with their hard-earned cash. A fundamental step is to list all the significant expenses and financial goals one plans to meet. The ideal strategy is to first prioritize paying the debts with the highest interest rate. As compared to other debts, student loan debts have lower interest rates. Therefore, if one has a pending credit card bill, it is wise to pay off this debt first.
Step 3: Budgeting
After an individual has listed down all the loans and debts along with all financial goals, other than the student loans, it is time to create a budget based on these lists and goals. Creating a budget makes it easier to manage the money, and one will know exactly where they spent their earnings.
Step 4: Execution of the plan
It is time to put the designed plan into action. Living with a well-prepared plan helps an individual pay off the student loan and debts on time. Also, it saves them from making the most common mistake: living above one’s means. If the plan one draws up is successfully executed, money and paying off debts are not stressful anymore.
By following this 4-step guide, people can manage their hard-earned money in a disciplined manner. Not only will they be able to pay off all their debts and student loans, but they will also be able to achieve their financial goals. It is advised to analyze and decide which student loan repayment plan suits the requirements after a decision has been made, including that payment method into the management plan!
Ways of paying off student loans:
There are different methods to pay off student loans based on income and other factors.
Income-driven repayment plan
The income-driven repayment plan is perfect for individuals not earning enough to cover student loan payments. Choosing this plan sets the loan payment to 10% of the individual’s discretionary income. After successfully paying the loan payments for 25 years, the balance left is forgiven. If the payment cannot cover the interest costs, the government will pay part of the interest or the whole interest amount. This plan requires the income and family size to be rectified every year.
Refinancing
Refinancing is a plan mainly used by individuals with a good income. Refinancing is a plan which allows a person to take another loan to pay off the student loan. It not only renews the period to pay off the debt but also allows payment of the loan faster.
Volunteering in non-profit projects
Another way to pay off student loans and debts is by volunteering to work in a non-profit organization. In exchange, the organization offers student loan repayment assistance. It is a great way to get help in paying off student loans.
Repayment based on personality
The repayment plan based on personality can be used when a person has more than one loan to pay off. This payment plan has two subcategories, debt snowball and debt avalanche. The snowball method provides a repayment strategy that involves paying the lowest balance off first. This method produces results right away. The debt avalanche is the best approach for people who wish to save their money. This method focuses on interest rates, not the balance, helping an individual save money!
The 4-step guide and the proper student loan repayment plan work as a perfect management strategy for smartly tackling student loans and debts. It makes the process of repayment less stressful and lets people focus on their other life goals!
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