College graduates often leave school with a large and unwelcome burden: student loan debt.
According to a story by U.S. News & World Report, the average 2013 college graduate has $28,400 in student loan debt. That’s a big number, and paying back that much debt can be problematic — especially for graduates who are just entering the workforce and beginning their careers.
The good news is there are options for graduates who can’t afford their monthly student loan payments. The bad news? Those graduates who ignore these options could face serious consequences.
Here are some tips to help you live with your student loans.
Don’t ignore them
It may be tempting for graduates to ignore student loan bills and hope that the problem goes away. However, if you don’t make your student loan payments on time, you could face serious financial penalties and late fees.
You could also damage your credit score, and lenders of all kinds — home, auto and personal — rely on that number to determine who gets loans and at what interest rates. Borrowers with weak credit scores will either not qualify for financing or will incur sky-high interest rates.
So, what should you do if your loan payments become too much of a burden? Call your lender. This might be embarrassing, but most times lenders will work with graduates to come up with a solution.
Under consolidation, multiple loans are combined into one. This simplifies paying back these loans; graduates now have to make just one payment every month. Consolidation can also lower your monthly payments because the process can give you up to 30 years to repay your loans.
The downside? If you increase the length of your repayment period, you will pay far more in interest over the life of your loan.
Some lenders allow graduates to postpone their student loan payments during times of unemployment or financial hardship. This gives you extra time to shore up your finances or find a better paying job.
Unfortunately, when you add months to the life of your loan, you will usually have to pay more in interest. Once you get back on your feet, the best option is to pay off your student loan debt as quickly as possible.
Create a budget
If you can’t consolidate or postpone your student loan payments, it may be time to consider a budget. Include your student loan payment as a necessary expense and see what else you can cut to live within your means. Need help? BancorpSouth’s BudgetWi$e tool is an easy way to track your spending, monitor your expenses and more. Click here to learn more.
Get a new repayment plan
Another option is to request a new repayment plan from your lender. Lenders may be willing to lower the monthly payment amount or the interest rate attached to the loan.
Borrowers with federal student loans might also qualify for income-contingent repayment plans. Under these plans, your monthly payment is a set percentage of your monthly income.
Find other alternatives
Certain careers or programs can help you reduce the amount of student loan debt you owe. For instance, graduates who sign up to volunteer for the Peace Corps can eliminate up to 70 percent of their Perkins student loan. Those who took out Stafford or consolidated loans can receive a deferment of up to 27 months. AmeriCorps volunteers receive nearly $5,000 to pay off their student loans after one year of service.
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