It has been three years since federal student loan payments were paused and interest suspended, but borrowers are now expected to start repaying these loans. The president has said that you will not be penalized for missing payments during the first 12 months after payments begin, but failing to make these payments could cause an accumulation of interest that could make it more difficult to pay off student loans later on.
It's the perfect time to get a plan in place to pay off your student loans, and there are multiple steps you can take to accomplish this.
1. Get organized
Maybe you have been keeping a close eye on your loans for the last three years or maybe you've pushed it aside with each renewal of the payment pause. Either way, it is important to create a list of all your loans and the details regarding each one. Write down the student loan provider, interest rates, length of loans, any repayment plans you are currently enrolled in, and minimum payments.
2. Review your budget
A realistic and well-organized budget is key to making sure you stay on top of your student loan payments. There are lots of different budgeting options, and it may take some experimenting to find the method that works best for you.
3. Create your strategy
You may need to consider refinancing, consolidating, or enrolling in an income-driven repayment plan depending on what types of loans you have. There are also different methods for paying off your loans. Two of the most common strategies are the snowball and avalanche method.
If you use the snowball method, you will start by focusing on paying off your smallest loan first. Once that loan is paid off, you will roll the payments into the next smallest loan and so on. Research suggests the snowball method keeps you motivated as your progress is more visible.
The avalanche method focuses on paying off the loan with the highest interest rate first to reduce the total amount you pay over time. If you can stick with it, you may also be able to pay off your loans faster using this method.
If you are struggling with your student loan repayment, please give us a call or email to schedule a time to review your loans and develop a customized debt repayment plan.