How to pay off student debt sooner
Posted: Thursday, August 18, 2011, 5:33 PM GMT
Doing well in college is easy. It's in paying for it where you run into problems. In 2009, the average American student graduated with $24,000 dollars in student debt. Since 2008, the amount of student debt has risen 25 percent.
If you're a recent graduate and are struggling to pay back loans (or you're entering school and anticipate having to take out loans), nationally-renowned debt counselor Steve Rhode says there's some strategies you can use to pay back your loan quickly and reduce the amount of money you end up paying.
Government loans better than private loans
In many cases, the government will subsidize its loans, meaning you won't have to begin paying the interest until after you graduate. Government loans also provide more flexibility than private ones.
Pay off your loan as soon as possible
"The longer that balance sits there--it doesn't really matter what the interest rate is--it's going to grow and grow and grow," Rhode said.
To do this, Rhode recommends keeping your expenses to a minimum while in school.
Consider the payment plan
You typically pay off your loan on a monthly basis. There's a variety of payment plans out there. Rhode recommends choosing what's called an income-based repayment plan. Monthly payments are based on how much you can afford to pay.
While you're still in school, pay attention to how much you'll end up paying in student loans. "If you're working through the financial aid office, keep nagging them about what your payment will be when you graduate, and how much in loans you are anticipated to have to take out for graduation and what your payment will be at that point."
Pay more than the minimum
"The minimum payment is designed just to keep you on a treadmill of just generating interest for the lender. I like to call it minimum payment crack, and people get addicted to it," said Rhode.
Alternatives to loans
Rhode says you might also consider some alternatives to taking out a loan, such attending a community college. It's cheaper, and you can transfer a lot of the credits to other colleges.
Rhode says you shouldn't pay back loans with credit cards, because you'd be essentially swapping one loan for another loan.
Steve Rhode is a debt counselor. His website is GetOutOfDebt.org.
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