There are many smart ways to go about paying off student loans. Most of the popular methods simply involve getting a consolidation loan. In my honest opinion, this is one of the dumbest ways to go about paying off your student loan debt. There are many reasons that consolidating your debt is a bad idea. I will explain why below.
When you get a consolidation loan, you are locked into the interest rate that was set at when you took out the original loan. This interest rate is one that is usually much higher than what you were paying on your credit cards and other unsecured loans. So, by locking yourself into an interest rate that is higher than what you were paying on those other loans, you are not only locking yourself into a high monthly payment, but you are also locking your credit rating from improving. This does nothing but harm your credit rating.
Why do I think this happens? Let me explain. When you have too much debt, it becomes harder to make payments on time because of the constant rise in your monthly payment. As you continue to make these high payments, you will get further into debt and be in a worse position than ever before. The problem with credit scores is that they tend to get worse over time when you consistently fail to make payments on time and in full.
When you consolidate your student loan, you are getting a new interest rate. This new interest rate will most likely be much higher than what you were paying previously. If you are trying to pay off your debt, how is it helping your situation? In most cases, the interest rate that you are being charged is much higher than what you were paying before. Is this something that you want to continue to do?
The worst thing that you can do right now is to continue to charge up your bills. It is time to take control of your situation and make a serious attempt at paying down your debt as quickly as possible. One of the best methods to do this is to focus on the big ticket items. These are the things that you must pay off on a monthly basis. You will make a significant reduction in the amount of time it takes to pay them off when you focus on paying these off first.
Start a snowball payment plan. This is exactly what it sounds like. Instead of paying the minimum amount required each month, start a plan where you focus on paying the smallest balance first. When that amount is paid off, go back to paying the next largest balance. Do this for five years or until you are finally out of student loan debt.
Another good method to use when paying off your student loan is to consolidate the payments. By doing this, you can combine all of your payments into one. You can choose to make the payment directly to the company or you can have the loan paid off by another individual. Whichever way you decide to go with it is a great way to not only save money but to reduce the stress that comes with juggling several monthly payments. You will no longer need to stress about which bill to pay or worry if it is a little past due.
These are only 5 intelligent ways to start paying off student loan debt. There are many more techniques that you can use. Remember that this is going to take some hard work and determination but in the end it will be well worth it. No one should have to spend their entire life paying off a student loan. Use these tips to get out from under your student loan today and start working towards financial freedom.