The decision about whether or not to take out loans to pay for a portion or all of your education can be a tough one. If you don’t have enough money to cover the costs, don’t have an employer who will foot the bill, or don’t qualify for enough in scholarships, all situations that apply to few people, your only options may be to take out loans or to obtain your degree slowly, taking classes as you are able to pay for them. If you’re thinking of going into debt for your education, keep the dos and don’ts below in mind.
Do Understand the Role of Interest
There’s nothing inherently wrong with taking out loans for your education, and in fact, it is one of the few types of debt that most personal finance experts consider acceptable. However, if you don’t understand how interest works and how it can drive up the costs, you may find yourself in a situation where you are struggling with your repayments. You should also understand how compound interest can result in paying interest on the interest. While interest is an inevitable feature of borrowing money, being smart about keeping it low and always paying more than the minimum can help you stay on top of things.
Don’t Ignore Your Loan Payments
If you’re struggling financially, you might feel tempted to skip a payment or even stop paying altogether. However, defaulting on your student loans, which is what it’s called when you don’t pay for a certain period of time, could lead to a number of different consequences, up to and including a lawsuit. As stressful as being unable to keep up may be, it’s always best to handle these things head-on. There are things you can do to make the debt repayment process easier that you can consider. The first step might be to contact the servicer for your student loan and discuss the issue. Refinancing might be another option.
Do Consider Refinancing
If the terms of your original loan aren’t great or even if they are pretty good, look to whether you are eligible for refinancing and if that would make a difference in your interest rate or anything else about your repayment. Even if a refinance doesn’t substantially lower what you are paying overall, if you are in a period where you need to pay less monthly, they may allow you to do so. You can research whether you are eligible to refinance student loans with NaviRefi or another company and what the benefits of doing so might be.
Don’t Wait to Repay
In general, you’ll have a grace period after graduation before you have to start paying back what you owe. This can feel like a great little reprieve, and for some people, it will be necessary, but, if at all possible, you should start repaying your loans as soon as possible. This could even mean starting while you are still in school. While this might require tightening the belt for some and won’t be possible at all for others, if you can do it, over the long run, it can save you a lot of money.
SUBSCRIBE FOR MORE! HERE'S WHY:
1. You get 7 free books
2. You get the best money & productivity articles
3. You get the latest updates - all in one email per week