Once you graduate college, a very exciting life starts. You finally start making real money and with that come a few responsibilities, such as paying for adult stuff, rent, car, and.. student loans. The average graduate will have around $30,000 of debt after college, and that figure can be four or five times bigger if you went for an expensive degree. This is a lot of money, and today we are going to look at ways to make these loans disappear as soon as possible.
Why would you want to do that, if the amount to repay is just a few hundred dollars every month? Well, because to these few hundred dollars, you will have to add all your new expenses as a young working professional. Maybe you’ll have to move to another state to take that new job. That means finding money for a first month, last month, and rent deposit. Maybe in a few years, you will want to buy a house, start a family, and suddenly finding room in your budget for student loan repayments will become increasingly hard.
There are always going to be other financial goals in your life. Saving for a holiday, your wedding, starting a college fund for the kids, or invest for your retirement. And while all these things might seem really far away, they will happen sooner than you think. And right now, as a young graduate with little financial responsibilities, is the best time to tackle your loans.
Whether you have federal or private student loans, the loan provider should be able to tell you how much you owe, what your current interest rate is, and how much that amounts to every month, for so many month. Say you have to repay $300 a month, for the next 15 years. That is $54,000. Substract from that number the amount you took out in student loans today, and you will know how much interest you have to pay on your loan. That is usually around a third of the total amount repaid over a period of 15 years or so, meaning for each dollar you took out in debt, you have to repay a dollar fifty.
There are ways to reduce that amount. You can look into jobs that will give you student loan forgiveness after some years working in your field. That is generally for government jobs that pay below what the private sector would, and if you are only doing this for the sake of paying less on your student loans, think twice. You may not like the job, and wish for a career move sooner than later. Life may happen and your partner may be relocated too far for you to keep the job.
Another way to reduce your total amount repaid is to refinance your student loans. There are companies that will help you do just that, and present you with offers of lower rates and shorter terms. Reducing the interest rate on your loans by just half a percent or so can have a big impact. Look online for loan repayment calculators to see how much you could save by refinancing. And if you keep paying the same amount you used to, say your new loan only requires $220 payments, but you keep making $300 payments every month, the extra $80 will be applied directly to the principle, reducing your debt by an extra $960 every year.
Again, you will be glad you did so when you look back 10 years from now, and have paid the loans you thought would take you 15 years to repay.