7 Important Tips for Repaying Your Student Loans

For college students, especially those just graduating, the prospect of repaying student loans can seem daunting and fraught with anxiety. 7 Important Tips for Repaying Your Student Loans.

However, there are many options available to help you pay off your debt as quickly as possible so that you don’t end up paying more than you have to and can get on with your life.

Here are seven tips to help make repayment easier and more bearable.

1) Make a Budget

The first step to repaying your student loans is creating a budget. This will allow you to determine how much money is going towards paying down your student loans and if that amount is sufficient or if adjustments need to be made.

A good rule of thumb is to not take on more debt than what you can comfortably afford. If student loan payments make up too large of a percentage of your total income, it can be difficult to continue repaying your loan with any sort of regularity.

Make sure that you are able to pay off your debts in a timely manner while also maintaining other responsibilities like saving for retirement or saving enough money each month to cover emergencies such as health issues or vehicle maintenance issues.

You can also use your budget to track how much money you’ve been spending on non-essential items and figure out if you can cut back.

The easiest way to reduce your expenses is by creating a list of what it is that you’re spending your money on and determining if any of those expenses can be reduced or eliminated.

2) Sign Up for AutoPay

When you sign up for automatic payments through your student loan lender, it helps make sure that your loans are paid on time and that you don’t forget to make payments.

This is one of those tips that may not seem like a big deal at first, but could save you a lot of trouble later on. For example, if you get behind on payments (or just plain forget to pay), lenders can and will take action to recover their money.

Depending on your situation, that might mean charging high interest rates or even putting a lien against your property.

By taking care of payments early—and automatically—you protect yourself from these types of problems while also keeping your credit report in good shape.

Keep in mind that you’ll also need to enroll in an income-driven repayment plan—if you haven’t already.

These plans, including Income-Based Repayment (IBR) and Pay as You Earn (PAYE), allow you to adjust your monthly payments according to how much money you make each month.

3) Calculate Your Loan Payments

One of the first steps to repaying your student loans is figuring out how much you owe and how much your monthly payments will be.

Unfortunately, loans can get confusing with all of their different repayment options. It can be a good idea to sit down with a financial advisor and figure out exactly what your repayment options are before making any decisions.

But if you’re confident in your ability to make sound decisions on your own, use one of these online calculators to help you understand what your monthly payments will look like.

Once you know how much you owe and how much your monthly payments will be, it’s time to start thinking about how to make those payments.

Start by figuring out exactly how much money you have coming in every month, including income from all sources.

Make sure that any extra money you have goes directly towards making a payment on your loans—and if there isn’t any extra money each month, take steps to increase your income.

4) Automate Savings

The easiest way to make sure you’re saving enough is to automate it—and set a reminder on your calendar every six months to check in.

Be realistic: if you’re not saving much, start with what you can. A good rule of thumb is $5 a week, then add more once you get into a routine and have extra money to throw at debt repayment or retirement.

You can also use automatic savings tools like Acorns (which rounds up purchases and invests the change) or Digit (which analyzes your spending patterns and decides how much it should save).

There are tons of ways to save without really thinking about it—you just need to find something that works for you.

If you’re paying interest on a credit card or other loan, also consider transferring that balance to a 0% APR card.

Just keep in mind that you will pay transfer fees and it can be hard to find one with no penalty APR, so plan ahead.

It’s worth doing if it helps you knock out debt faster and save thousands of dollars in interest over time.

5) Refinance Or Consolidate

Before you consolidate or refinance your student loans, be sure you’re aware of any potential tax implications.

If you refinance your student loans, you might be eligible to deduct up to $2,500 in interest paid (and some portion of your origination fees).

However, if that deduction would lower your overall tax bill by more than $600, then it may not be worthwhile.

For example: Let’s say that your total federal income tax bill comes out to $1,400 per year. If refinancing your student loans means a reduction in interest by $600 each year, then it’s not worth it—you would have to reduce it by more than 50% ($300) just to break even.

On top of that, if you refinance or consolidate your student loans, it can change which income-driven repayment plan you qualify for.

Most federal loan forgiveness programs require that you be on an income-driven repayment plan to be eligible.

6) Start An Emergency Fund

Having an emergency fund means you’ll have cash on hand in case of an unexpected car repair, medical bill or any other unexpected expenses.

The general rule is to keep a cushion equal to three months of your salary in a savings account where it’s available if you need it but isn’t subject to checking account fees.

If possible, try to stash even more money away for emergencies—six months is generally considered ideal.

That way, you don’t have to worry about taking out high-interest credit card debt when disaster strikes.

One way to do that is to open a high-yield savings account and deposit money into it regularly, such as when you get paid.

When you need money in an emergency, it’s already there waiting for you. (Here are our picks for best online savings accounts.)

Another strategy is to set up an automatic transfer of funds from your checking account to your emergency fund on a regular basis—say, every two weeks.

Related: 10 Tips Before Applying for a Home Loan

7) Consider Income-Driven Repayment Plans

There are four income-driven repayment plans: Income-Based Repayment (IBR), Pay as You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR).

All four require you to make monthly payments that are based on your adjusted gross income and family size.

IBR, PAYE and REPAYE all cap your monthly payment at 10 percent of your discretionary income—meaning if you earn $1 more than expected, you’ll likely pay less than what you could under a traditional repayment plan.

On REPAYE, your payment is equal to 10 percent of your discretionary income, but will never be more than what you would pay under a traditional repayment plan.

On IBR and PAYE, your payment is calculated by weighing 25 percent of your discretionary income against your annual interest rate.

For both plans, if you’re married and file taxes jointly with a spouse who has income too, then you’ll need to include their debt in determining how much you can afford to pay.