When paying off student loans, it is a good idea to do it on your own. By working at your own pace and saving money, you can pay off your loan debt in just a few years. However, it is a good idea to hire a consolidation company to help guide you through the process and make sure you get the best terms.
Most people find paying off student loans faster easier if they start paying their principal balance at the end of each academic year. This helps reduce any snowballing of late fees and penalties that may accumulate because of missed payments. Also, starting payments earlier allows you to spread the amount of money that you are paying out over a longer period of time. Also, avoid making any large, immediate payments until the end of the loan term.
Paying off loans more slowly allows you to pay down the total amount more slowly, so the actual savings will be smaller. The drawback to this option is that you may not see the full benefit of lower interest rates until much later. For most people, however, the payoff period for these types of loans is well worth the slightly longer payment schedule.
Another thing to consider when paying off student loans is how long you plan to stay in school. If you plan to graduate and become eligible for federal government assistance such as Social Security or Medicare, then you can defer your payments until you finish your degree program. If you plan to complete your degree and remain registered in school, you may have less of a chance of deferring your loan obligation. Regardless of what your plan of action is, it is always a good idea to consider refinancing to put more money back in your pocket and free up more time for you to return to school or get a new job.
Refinancing comes in two forms: a fixed-rate loan that is set at a certain rate throughout the life of the loan and an adjustable-rate loan that varies according to a predetermined index, like the prime rate or an applicable federal inflation index. In general, the fixed-rate option is more financially stable and is typically offered by banks and credit unions. The adjustable-rate option offers more flexibility and is more likely to be chosen by a private lending institution. It also allows the borrower to choose from a variety of potential interest rates.
There are several ways you can refinance your student loan to lower your payments or even pay them off completely. One of the easiest is to simply bundle all of your federal student loans into one larger loan with a lower interest rate. The advantage of doing this is that you only need to make one payment rather than multiple payments on multiple loans. However, it also means that you will probably pay more interest if you opt for a fixed-rate consolidation.
Another way to start paying off student loans quickly is to start increasing your income while making your loan payments. For example, if you earn an extra degree, enroll in an introductory course or volunteer, or take an internship, you can increase your income. By increasing your income, you are reducing the amount of time that you will have to repay your loan. You can save a considerable amount of money by doing so.
Your repayment plan will depend on how much money you have saved and how much you are able to borrow from your 401(k) and other federal student loans and savings accounts. You may want to talk to a financial advisor to find out which options may be best for you. Some of these savings options will also allow you to consolidate your loans and qualify for a larger loan that will have a lower interest rate. This would mean paying off your debt faster while paying less interest.