Graduation is an exciting time for many students. While the COVID-19 pandemic may have put a damper on some of the fun activities like walking across the stage and hosting graduation parties, there’s still plenty of affairs that will need tending to like managing student debt.
Student loan debt is one of the largest amounts of money owed by people around the world today. Though there are opportunities to refinance and make your payments more manageable, you can also take other courses of action to create a more proactive approach to handling this type of debt.
Rather than fold under the burdensome weight of student loans, try these helpful tips for managing student debt after graduation like a pro:
Be Smart With Your Payments
Taking control of your student loan repayments is sure to help with overall debt management and there are several ways you can do so.
Pay High Interest Loans First
Did you know that there is a smart way to tackle your monthly student loan payment? Instead of throwing money around without a specific purpose, take a closer look at what you’re actually paying off.
You can pay down your loans with the most interest first so you don’t end up paying more in the long run. This will likely require you to get in touch with your servicer and inform them how you would like to allocate funds towards your student loan.
Refinance Your Loans
Refinancing is another alternative you should take into consideration. The best time to refinance is when you have acquired a job with a stable income and your credit score has improved.
By refinancing, you will have the chance to change the terms of your loan, including your interest rate. So if the interest rate on your current loan is much higher than the one available through refinancing, you can cut years off your payments saving you money over time.
Enroll in Auto Payments
If you don’t have the right amount on hand to get rid of pesky interest fees, there are also several other things you can try.
Enrolling in auto payments can provide relief of up to a quarter of a percent on interest rates per year. It will also ensure that you will never miss a payment, so you can avoid late fees or a detrimental hit to your overall credit score.
Reassess Your Living Situation
While you may be able to crash at your family’s home for a while, eventually, you’ll really be on your own after graduating from college. This means getting your own place to live! From apartments to condos to owning your own home, there are plenty of options that you will need to consider.
Rent or Buy?
Not sure if renting or buying will be a better choice for you? Be sure to assess all of the pros and cons of each.
After the widespread effects of COVID-19, many people are opting out of renting and deciding instead on purchasing a home in order to enjoy their own space and privacy. But if you don’t have a ton of money saved up for a down payment and closing costs, renting could be the way to go.
Pros & Cons to Renting
When renting, you will have very little liability for maintaining and financing the home as a whole. Also, you will not require as much money upfront to move into a rental.
Typically, your landlord will ask for a security deposit and the first month’s rent in advance of moving in. While you are accountable for looking after the home, you will not be in charge of making major repairs like fixing a water heater or replacing a roof.
It is important to note though, that depending on your location, oftentimes the cost of rent is higher than a mortgage would be. You also won’t be able to build equity in your home so you’re essentially throwing money away by renting.
Pros & Cons of Buying
When you buy your first home, you will have a lot more responsibilities. For example, you will need a down payment equalling a percentage of the home’s price as well as extra cash for closing costs. Closing costs consist of the price of a lawyer, property taxes, and insurance.
In addition, you will take ownership of all maintenance, including big-ticket items like utilities, renovations, and home repairs.
However, there is a big perk in owning your own home. By making the right improvements, you will safeguard your investment and may even improve the value of your home.
Just make sure that when you’re looking at houses for sale, you take into account surrounding home prices so you don’t have to worry about losing money on improvements once it comes time to sell.
Set A Budget
While this tactic may not be the most groundbreaking idea to hit the market, it goes without saying that there’s some validity behind this tried and true method. While setting a budget requires a little bit of legwork and a lot of self-discipline, it could be your most logical bet to manage student debt after graduation.
Needs vs Wants
To start, take a personal inventory of your needs versus your wants.
Your needs are made up of your necessary expenses, like your rent or mortgage, utilities, groceries, transportation, and student loans. Your wants include your discretionary spending — going to the movies, dining out, and other non-necessities.
Don’t Forget to Save!
You should also incorporate some sort of savings plan into your budget as well so you can start building your nest egg right away.
By using your net income, which is the amount you make after taxes or other deductions, and comparing that to your spending, you should be able to assess how much you are able to save each month.
Use a spreadsheet or an easily accessible spending app to help you organize and calculate your budget so you can clearly see what you can issue each month. Once you come up with that amount, you can re-evaluate your student loan payments to see if you could be paying more to satisfy your loan faster or adjusting to a lesser amount that is much more manageable for your budget.