4 Student Debt Sins You Must Avoid!

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Spooked by current or potential student loan debt???

According to Gail Marks Jarvis of the Chicago Tribune,

“Assuming you haven’t already committed a big student loan borrowing mistake, like piling up loans without finishing college or borrowing extensively from private lenders rather than the federal government, there’s no rush to pay off your loans. What’s more important is paying them off wisely, and avoiding one of these four deadly college debt sins.”

 Hanging on to Private Loans.

If you have Stafford Loans, Perkins Loans, and/or private loans, pay off the private loans first.  The Stafford and Perkins loans are the most lenient and least costly.

Rule of Thumb: Your total student debt should not exceed your starting salary following graduation.

As many graduates don’t have jobs or have a job with a salary below the average ($47,000), if jobs are lost or repayment is tough due to a below-average salary, the federal government will work with you.  Private lenders may not be so willing.

Remember, student loans must be repaid. They are not eliminated through bankruptcy.

 

2.  Utilizing a long repayment plan.

Don’t be tempted to utilize a long-term repayment plan because the monthly payment seems so easy to make.

Doing so will likely double the amount of interest paid on the borrowed amount, making the loan much more costly to your long-term financial situation.

Stay on the 10-year repayment plan whenever possible.

 

3.  Not paying a little extra when you can.

Once you’ve landed post-college employment, as your career progresses your pay should increase.

Pay more than the minimum monthly amount, thereby paying the loan off quicker and reducing the interest paid over the life of the loan.

 

4.   Paying off student debt too quickly.

While paying extra each month is good strategy, don’t go crazy!

Make sure if you have emergency funds in place to cover unexpected expenses (e.g., car repair, dental bill, etc.).

Without these funds, you’ll likely resort to high interest credit cards, damaging your ability to “get ahead.”

 

Start early and take the time to develop a proper college funding strategy.  For assistance, contact the Professional College Planners at College Planning Strategies.

 

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