During the month of July, JD Wealth is focusing on student loan debt. With student loans on the rise due to rising tuition and employment rates on the decline, many recent grads are faced with the hassle of having the loans without a means to pay it back. Today, we are going to address what you should and should not be doing with your student loan debt:
1. DON’T: Ignore student loan collection calls.
Some borrowers rather not deal with the collection calls. Avoiding it feels better at the moment, because no one wants to face the fact that they are not paying as promised. But please know this, defaulting on your student loans is not an option. Defaulting hurts your credit score in a big way, and will prevent you from attaining other types of credit (i.e. mortgage, car loan, installment loans, ect.). DO: Stay in touch with your student loan lenders.
2. DON’T: Shy away from YOUR number.
There are so many commercials from financial planners and companies stressing that consumers should know their retirement number. In the same way, you should know how much you owe in student loans. Although it may be painful to see, and may make your heart skip a beat, wouldn’t it be worse if you found out later there was some mistake in how much you owe? If you are on top of your game and know exactly how much your owe, mistakes like this won’t happen. One graduate explains the horror of having a loan payment and loan balance that didn’t mesh, and was charged over $1,000 each month in interest for a six-month forbearance. Lucky for her, she was keeping track. DO: Know how much you owe!
Many recent graduates make the mistake of being complacent with NOT making payments. This is especially easy after graduating from law school [as I did]. Even after graduation, law school graduates spend three long grueling months studying for a bar exam. Grace periods generally last six months. That only gives recent law grads three months to find a job! According to CNN, 42% of the unemployed have been without a job for more than six months. On average, it takes about 40 weeks to get a job. If you are not paying attention, it can be easy to “forget” and avoid the fact that the payments are due, especially if the statements are going to your “permanent address” at your parents’ house [if you haven’t smartened up and moved back in with them]. So, make sure you are keeping an eye on all of your grace periods because some can be shorter than others. Also, take advantage of this time period to really put in work to get the job you want. If you cannot find a job, there may be some good alternatives from an author who said you should stop looking for a job. DO: Know your grace periods.
4. DON’T: Make extra payments without requesting where they should be applied.
For those of you who have student loans, AND are lucky to have steady employment that allows you to pay extra money toward your loans on a regular basis, make sure it’s applied to the principal. Usually when you pay extra payments, the money is disbursed in this order: late fees, interest, then principal. This order will not change unless you request it, so make sure you provide a written request that the money be applied to your principal. If you want to pay your student loans off fast, check out this article. DO: Pay extra payments toward your principal [if you can].
5. DON’T: Forget about consolidation.
Consolidation could be a great option for you! When you consolidate your loans, you are taking several small loans and condensing them into one large loan. There are many benefits to doing this, including:
- it could increase your credit score,
- gives you a lower monthly payment,
- gives you only one lender,
- consolidation is free [for a Direct Consolidation Loan], and
- you can retain the subsidy statuses of your accounts.
Take a look at this as option. Use this loan calculator to determine whether it’s a good option for you. DO: Consider consolidation.
6. DON’T: Forget about your tax deductions.
When your student loans are in repayment, whether private or federal loans, you are eligible for a tax deduction on the interest you pay on those loans [up to $2,500 each year]. Of course there are rules and exceptions that come along with the deduction. Check out what qualifications have been set by the IRS. DO: Take your tax deduction, if you qualify.
7. DON’T: Roll your debt into your equity in your home.
If you have student loan debt, own a home, and have equity in a home, DO NOT roll over your student loan debt into the equity in your home. Your student loans are unsecured debt – so, if you default, they can sue you but nothing else. However, once you roll your student loans into the equity in your home, if you miss too many payments, your house is gone! Unless you are 100% sure that you can make your mortgage payment on-time for the length of your mortgage, do not sacrifice shelter to pay off student debt. Do: Pay student loans WITHOUT rolling the debt into the equity in your home.
Don’t learn things the hard way when it comes to your student loans. These tips are here because there are people who have made these mistakes. Educate yourself, this time on personal finances, and make good choices. Want to maximize that expensive education? Check this article out. You will thank yourself in the long-run.
This month, we will be tackling all of your student loan questions. Join us for our LIVE show every Tuesday at 7P (EST). Submit your questions to email@example.com.
What are some of your Do’s and Don’ts in relation to student loan debt?