9 Dos and Don'ts of Managing your Student Loan Debt in the New Year

Student loan repayment can be a source of anxiety for many people. If you’re carrying student loan debt and want to get a handle on it heading into the new year, then you might be wondering what you’re doing right and what you could be doing better. 

Here at Addition Financial, we understand that tackling student loan debt can be a daunting prospect. With that in mind, we’ve created this list of nine dos and don’ts of managing your student debt, plus some resources and strategies that are available to help you. Here’s what you need to know.

9 Key Dos and Don’ts of Managing Student Loan Debt

It’s easy to misstep when you’re considering student loan repayment options. Whether you’re gearing up for your first student loan payment or you’ve been paying for years, you can benefit from learning about the best ways to handle debt repayment.

Dos of Managing Student Loan Debt

Here are some practices that we recommend to help student loan borrowers manage and pay the loans they took out to pay for higher education.

#1: Do Make Debt Repayment a Priority

The single most important thing you can do to manage your student loan debt is to make the repayment of both federal student loan debt and private student loans a priority. While you can certainly make minimum loan payments and call it a day, anything you can do to prioritize repayment will help.

If you’re still a student, you could begin by making interest payments while you’re still in school. If you’ve graduated, paying a little extra toward your loan principal can help you pay off your loan faster and save money on interest.

#2: Do Verify Your Loan Information

You shouldn’t assume that your loan information is correct. Checking your loan information, including the amount that’s due and the status of your loans, is essential. 

To verify your loans, go to StudentAid.gov and log in. You should also check your credit reports and make sure that the information there is correct. Remember that if payments aren’t reported properly, you could have a delinquency on your credit report that’s negatively impacting your credit score.

#3: Do Make a Plan for Debt Payments

Having a plan for debt repayment is beneficial. You can create a personal student loan repayment system to help you get out of debt as quickly as possible. Here are some options:

  • Avalanche method: Make extra payments on the loan with the highest interest rate.
  • Snowball method: Make extra payments on the loan with the lowest balance until it’s paid off.
  • Snowflake method: Pay a little extra on every loan.

You also have the option to consolidate your loans, so you have only one monthly payment. 

#4: Do Address Payment Difficulties Head On

What happens if you don’t have a job or you lose your job? If you run into difficulties making your monthly loan payments, the best thing to do is to address the difficulty head on. For example, you could talk to your loan servicer about a payment plan or refinancing, apply for debt relief, or if you qualify, apply for student loan forgiveness.

Keep in mind that there is federal student aid available. Nobody wants you to default on your loan. Being direct and honest about your financial situation will allow you to explore your options without defaulting on your loan.

#5: Do Take Advantage of Available Resources

There are lots of resources available for people who need to pay student loans. You don’t need to handle everything alone. Even if you’re earning enough to make your monthly payments, it’s helpful to know which resources are available to you.

For example, you may be able to qualify for an income-driven repayment plan that limits your monthly payments to 10% of your discretionary income. There are deferrals available if you go back to school or enlist in the military.

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Don’ts of Managing Student Loan Debt

Mistakes are common when people have student loan debt. Depending on where you went to school and how much you borrowed, the amount you owe may seem overwhelming. Here are some things to avoid.

#1: Don’t Avoid Issues with Payment

Avoidance is a major problem for some people in financially stressful situations. When you feel overwhelmed, it can be tempting to bury your head in the sand. Doing so can lead to bigger and worse problems down the road, so we don’t recommend it.

If you’re worried about being able to make your monthly student loan payments or you’ve fallen behind, you’ll be better served by talking to your loan servicer or reviewing different payment options than by avoiding the issue.

#2: Don’t Miss or Skip Payments

Missing or skipping a student loan payment is not a good idea–at least not without talking to your loan servicer first. You may qualify for forbearance, but if you miss a payment without making arrangements first, it can hurt your credit score.

It can be helpful to make a monthly budget to be sure you’ve got a handle on your finances. You’ll be able to spot issues more easily than you would without a budget. If you have unexpected expenses or need assistance, you can get out ahead of the issue and avoid late or missed payments.

#3: Don’t Assume There’s No Help Available

As we’ve already mentioned, there are several types of help available to people who have student loan debt, including income-driven payment plans, forbearance, deferrals and student loan forgiveness.

Understanding your options is an essential part of managing your student loan debt. If you run into difficulty, you can refer to your list of options and seek the help you need to avoid defaulting on your loan.

#4: Don’t Rule Out Debt Consolidation or Refinancing

Finally, don’t rule out restructuring your student loans to make them easier to pay. You may be able to consolidate your loans or refinance them, resulting in a lower interest rate and a lower monthly payment.

As a rule, you’ll need a credit score in the mid-600s and a debt-to-income ratio of less than 43%, plus predictable income, to refinance your student loans.

What Resources or Programs Are Available to Manage Student Debt?

Now that you understand the dos and don’ts of managing student debt, here’s an overview of some of the resources you can use if you need assistance with student loan repayment.

Income-Driven Payment Plans

If you’ve got federal student loans to repay, you may be able to qualify for a repayment plan that’s based on your income. There are several options:

  • Saving on a Valuable Education Plan (SAVE): This plan limits monthly payments to no more than 10% of your discretionary income.
  • Pay As You Earn Repayment Plan (PAYE): With this option, your monthly payment will typically be 10% of your discretionary income but no more than the amount of the Standard Repayment Plan.
  • Income-Based Repayment Plan (IBR): If you qualify for an IBR, the amount may vary based on when you took out your loans. For new borrowers after July 1, 2014, the amount is limited to 10% of discretionary income; for people who took out loans before 2014, payments are typically 15% of discretionary income but no more than the 10-Year Standard Repayment Plan.
  • Income-Contingent Repayment Plan (ICR): With an ICR plan, your payment will be the lesser of 20% of discretionary income, or what you would pay with a 12-year repayment plan, adjusted for your income.

If your monthly income puts the Standard Repayment Plan out of reach, we strongly recommend applying for an income-driven payment plan.

Student Loan Forgiveness

Student loan forgiveness is available to some people based on their payment history, occupation or disability status. In terms of employment, you may qualify for student loan forgiveness if you work in one of these occupations:

  • Health care professional: doctor, nurse or other medical professional
  • Teacher
  • Government employee, including active military service
  • Non-profit employee

You may also qualify if you’re totally and permanently disabled or if you’ve been making payments for 20 or 25 years under an income-driven repayment plan.

Student Loan Consolidation or Refinancing

If you took out multiple student loans and would prefer to have a single monthly payment, you may want to consider either student loan consolidation or refinancing, both of which are available to you.

Student loan consolidation is not the same as refinancing although it may result in a lower monthly payment. There’s no application fee. The advantages of consolidation are that you’ll have a lower monthly payment while maintaining the availability of income-driven repayment plans and loan forgiveness options. The downsides are that you’ll make more monthly payments, you’ll pay more interest over the life of the loan, and you may lose access to certain loan benefits that were available with your original loans. You don’t need to consolidate every loan you have if you would prefer to retain those loan benefits.

Student loan refinancing is something you’ll need to discuss with your loan servicer. Refinancing may allow you to reduce your interest rate and monthly payment, resulting in savings over the lifetime of your loan.

Manage Your Student Loan Debt with Help from Addition Financial

Student loan debt repayment can be stressful for many, but the 9 dos and don’ts we’ve listed here can help you avoid common mistakes and get out of debt as quickly as possible.

Are you looking for a student loan or options for refinancing? Addition Financial can help! Click here to learn about our student loan options and apply today.

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