The prospect of paying off student loans for years, just as you’re beginning your career, can be daunting. One of the complaints we hear at BMG Money is that students are in over their head from the point of graduation. The good news is this debt load doesn’t need to be scary as long as you aren’t saddled with significant private loans or debt without a degree. Going forward, it’s important to avoid making mistakes that can cost you in the long run and make your debt stick around longer than you would like. Here are 4 essential rules for paying off your student debt.

#1. Don’t pay off your debt too soon

Paying off student loans is a balancing act: you want to pay off the debt as soon as possible to reduce your debt burden and save money, but you don’t want to neglect other expenses. It’s easy to put so much focus on paying down your loans that you fail to build an emergency fund to cover any unexpected expenses in life like car repairs or medical expenses. Without an emergency fund, you are more likely to accrue credit card debt or take out an emergency loan and set yourself back financially.

Make it a priority to set aside money every month for your emergency fund as this is actually more essential than paying off student loans. A good rule of thumb is putting aside 10% of your income in savings every month until you have an emergency fund that will cover three to six months of income. Even a smaller contribution will help you reach your savings goal. Of course, once you build an emergency fund, it’s important to keep saving for retirement. Contribute to your company’s 401(k) if one is offered, especially if your employer matches your contributions. If not, start an IRA to plan for the future.

#2. Don’t stick with a losing loan

If you have federal student loans, keep them. Federal loans usually cost much less than private loans and they have several repayment plans available, including income-based repayment and deferment programs if you don’t get a job right away. If you have private loans, it’s a good idea to shop around to see if you can get a better deal by refinancing your student debt with another lender. The student loan marketplace is highly competitive and you may find a refinance money loan for your student debt with a lower interest rate or better terms.

#3. Don’t sign up for a long repayment plan

It can be very tempting to get a long repayment plan for 20 years instead of the standard 10 years because your monthly payments will be much lower. This comes at a high cost. In addition to signing yourself up for decades of debt, your interest rate will be higher. Even with an identical interest rate, you will pay much more in interest charges over the life of the loan.

As an example, let’s say you have the option of a $30,000 loan at 4% for 10 years or 20 years. The 10-year loan has a monthly payment of $304 but the payment would be just $182 with a 20-year loan. The longer term may seem like a clear winner, but you would pay a total of $6,450 in interest with a shorter term and a whopping $13,600 if you opt for the 20-year term.

#4. Always pay extra when you can

As your pay increases, consider putting extra payments toward your student loan every month to reduce the interest you pay and shave years off your loan. There are usually no prepayment penalties for student loans and any extra amount you can contribute will pay off. This is especially important if you have private loans with high-interest rates.

CATEGORIESDEBT MANAGEMENT

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