You can finally see the light at the end of the tunnel and the finish line is drawing closer. Most scholars can reasonably expect to graduate with thousands in student debt. If you've had trouble managing your debt as a result of poor choices made during your college experience you're not alone. Whether you're struggling to pay back your student loan debt or looking for a way to repair damaged credit, these five simple steps will point you in the right direction.
Step 1. Don’t Ignore Your Debt!
“Out of sight…Out of mind” are not words to live by when it comes to debt. Ignoring your debt will not make it go away. In fact, neglecting to address your financial and credit issues only exacerbates the problem. A better approach is to simply list all of your debts so that you have a clear and realistic picture of your financial situation. Next, determine how much you can afford to repay each month until you have paid off all that you owe. By developing a repayment strategy you put yourself in control. Stick to your plan and pay your bills on time! Late payments are harmful to your credit.
Step 2. Obtain your credit report.
In order to repair your credit, you must know exactly what is in need of repair. The best way to find out is to request a copy of your credit report directly from the credit bureau. According to the FACT Act, all U.S. citizens are entitled to one free copy of their credit report each year. This report will list your debts and payment history. This one simple step is the perfect place to start to repair some of the damage done during those young, wild, and free college years. There are three major credit reporting agencies that can provide your free annual credit report; TransUnion, Experian, and Equfax. Take the time to carefully review your credit report. Look for information that may be inaccurate or flat-out false. If you find yourself feeling overwhelmed, LuxuriousCREDIT.com can help simplify the process. You have the right to challenge and request to have any erroneous or unverifiable information removed. This may seem intimidating initially, but you CAN do it!
Step 3. Student Loans.
Most student loan debt consists of Stafford loans, Perkins loans, and PLUS loans. These loans are guaranteed by the federal government which, basically, means that if you default on your loan the government promises to pick up the tab. That does NOT mean, however, that your credit won’t be harmed. There are two ways to obtain these federally secured loans, either directly from the Department of Education through the Federal Direct Loan Program or through a private lender, typically a bank. Many private lenders sell off their loans to other companies. This is known as the secondary market. One of the most notorious lenders in the secondary market is Sallie Mae, who you are likely familiar with.
Tackling student loan debt is a big task no matter how you look at it. You’ve made your first large financial investment, in yourself! Like any investment, it will take time to begin to see the returns. While you wait, there are some simple things you can do to minimize the accrual of interest during repayment, simplify your payment method, and relieve the stress if you just can’t afford to pay now.
Many lenders offer rewards for consecutive on-time payment of student loans. These rewards usually translate into a decrease in interest rates of up to 2%, which can save you hundreds of dollars over the term of repayment. Similar rewards often also apply when you sign up for automatic payment. Take advantage of these freebies. Next, if you have borrowed more than one single loan it can get tricky keeping up with who gets what during repayment. Loan consolidation is one way to put all your loans under one roof, so to speak. Consolidation reduces your paperwork and allows you to combine all of your major federal loans into one massive loan, but, this service is not free. Your new servicer agrees to pay off all your old loans and issues you a new one with a fixed interest rate equal to the average of the rates on your old loans.
The major benefit to you is that it helps you stay on track by simplifying the entire repayment process. Loan serialization, is a way to receive just one bill for all loans held by the same lender. The benefits are very similar to that of consolidation without requiring you to refinance. Special repayment options such as extended, graduated, or income-sensitive repayment take your financial situation into consideration to make your monthly payments feasible for your income and debt load. Finally, special breaks such as deferment and forbearance make special concessions for individuals who simply cannot afford to pay now. Contact your lender to discuss which of the above options will work best for you.
A Word of Caution for Students: If you happen to be reading this article while you’re still a student, be intentional about your borrowing! Calculate what you will need to cover tuition, books, and cost of living expenses and consider alternatives prior to securing new loans. Overborrowing may seem like an attractive option now but remember that it is a LOAN that YOU must repay in the future.
Step #5. Develop a Budget
The fact is that many people face financial hardship and even crisis at some point. Your situation doesn’t have to go from bad to worse. Take control of your finances by getting real with yourself about your spending. Make a true assessment of how much money you have coming in and going out every month. List your income from all sources. List your “fixed” expenses such as rent or mortgage, food, transportation. List your variable expenses such as clothing, entertainment, and recreation. Analyze your spending habits, prioritize your spending, and create some financial goals. Once you determine your priorities, be disciplined so that your spending reflects what you truly value.
Step 4. Credit Cards.
The stereotypical starving college student barely has money for food, let alone the means to keep up with the latest fashion, tech, and pop-culture trends. Some do without. Others just “gotta have it”! A department store card here, a credit card there and before you know it you’re up to your neck in credit card debt. A smart move, if you have both credit card and student loan debt, is to go after the credit card debt first. The interest rate on your credit cards is likely much higher than the rates on your student loans. If this is true for you, tackle the credit card debt, and protect your credit from the nasty effects of high balances and missed or late payments, by paying off the most expensive cards first. What this means is, work to pay off the balance on the cards with the highest interest rates first while maintaining the minimum monthly payments on the others. Then tackle the next highest interest rate, and so on until your credit card debt is wiped out! It’s that simple.