You've done it. You're a college graduate! And now it's time to pay those loans. Here's how to prioritize your multiple payments and get out of debt.
Once you graduate from college, you’re ready to finally launch your career.
Landing your first job is exciting and challenging, and can be the first step to the life you’ve spent years preparing for.
Less exciting, of course, are some of the responsibilities that come along with graduation – including the repayment of student loans. The average class of 2016 graduate had $37,172 in student loan debt, and the numbers are only going up.
So, what’s the best way to attack your loans without letting them become a hindrance to your new life? The answer is simple: prioritize your payments.
Organize Your Loans
The first step is to fully understand what loans you have and what their interest rates are. Only by knowing how much you owe and who you owe it to can you begin to prioritize.
Some of the things you should make a note of regarding each loan include:
- Whether the debt is private or federal
- What the interest rate is
- Whether the interest rate is fixed or variable
- Whether you have a cosigner on the loan
- What repayment options the lender offers
Once you have these details written down, it’s time to make a plan.
Private Loans First
Private loans are funds that you borrowed from banks rather than from the government. These should be your first priority because they have a lot less flexibility in their repayment terms. They usually offer a fixed minimum payment with no other options.
Private loans don’t offer repayment plans based on income the way federal loans do, and there’s no loan forgiveness and fewer hardship options. As a result, you should focus on repaying private loans first. They will be the hardest to adjust if you have financial problems in the future.
Cosigned Loans Next
A cosigned loan is a loan that someone else helped you get. You may have had your parents or a trusted friend sign a loan document with you so you could finish school.
These should be your next priority because mistakes in repaying cosigned loans don’t just affect you. Missed payments can impact the credit rating of your cosigner as well, and they will be contacted to make the payment if you don't.
You don’t want bad blood between you and your family or close friends. Prioritize payments on cosigned loans.
Don’t Forget Federal Loans
Federal loans have the most flexibility, but that doesn’t mean you can ignore them.
The great news with federal loans is that they offer repayment plans that include standard payments, graduated payments that start low and increase over time, income contingent, and more.
You may choose to pay the minimum payment on your federal loans while you focus extra payments on private and cosigned loans. Or if you have federal loans with different interest rates, you can focus extra money on the highest interest loans.
Consolidation and Student Loan Forgiveness
When you’re juggling multiple student loans, it pays to be strategic. You may choose to consolidate your student loans, or you may decide to take advantage of forgiveness programs like Obama student loan forgiveness.
Whatever you do, don’t ignore your student loans. They won’t go away. Loans that aren’t repaid can impact your credit and cause significant problems. Instead, make a plan and get them paid off!