Graduating from college is no small feat. This momentous occasion should be celebrated by anyone and everyone who receives their degree! However, after the celebrations have died down – the financial reality starts to set in. Student debt is a scary problem for a lot of folks in our country today. For a lot of people, it seems insurmountable to tackle by yourself. Even if you’re overwhelmed with your loans, don’t neglect them! Here are a few things to start doing right now that can help you as you work towards financial independence in 2021.
Tip #1: Build Good Credit
Paying back federal student loans might be your first attempt at establishing a credit score. Making sure you build good credit is crucial to your financial success. If you want to eventually buy a home in the Monmouth County area here in New Jersey, or buy a new car, you’ll need good credit. In fact, only 57% of undergraduates reported having a credit card.
If you have gone without a credit score of your own thus far, paying back your student loan debt on time and in full is critical. Federal student loan lenders report to the three major credit bureaus – Equifax, TransUnion and Experian.
If you don’t have a credit card yet, consider applying for one and using it to help further your credit score. Paying your credit card bill monthly can help boost it. We say this with the understanding that you will use your credit card WISELY. Abusing a new credit card will make your newly established credit score worse, and we don’t want that. If you’re unsure about how to properly use a new credit card, get in contact with a financial planner.
Tip #2: Always Pay Student Debt On Time
Paying your bills late (including student loan repayments) can not only have a negative impact on your credit score, but it can cause you to incur late fees or penalties. Even if all you can pay is the bare minimum, paying that on time is much better than not paying anything or paying late.
As we move into 2021, the likelihood of you being able to set up automatic, monthly payments online is pretty good. If for some reason you cannot set up automatic payments, set a reminder on the same day each month to make your payment. This would eliminate the possibility of forgetting or missing a payment. Making consistent, on-time payments will help your credit score.
Tip #3: Consider Reprioritizing Your Debt
There are a handful of effective ways to tackle debt, but all of them include having a plan. By reprioritizing your debts, you can focus your dollars to have the most impact as you tackle debt one at a time. This may sound counterintuitive, but maintaining your student loan debt and focusing on other debt types could be beneficial in the long run.
This doesn’t mean completely neglect all other types of debt and focus on one at a time. Continue to make the minimum payments, while focusing any extra dollars towards the most important debts (highest balance/highest interest rate/etc.).
High-interest debt can get out of hand quickly because outstanding amounts earn interest at a much higher rate than low-interest debts like student loans, auto loans and mortgages. Paying off your credit card amount each month will help you avoid paying unnecessary interest and help avoid hikes in interest rates.
Paying off your student loans isn’t likely going to be an overnight affair. Unfortunately, it will take most people years to fully get rid of their debt. However, there are ways to effectively manage your debt while not letting it get out of control. If making a plan for your debt is one of your financial goals for 2021, we’d be happy to help you out! Click this link here if you’d like to schedule an initial appointment with one of our team members. Student loan debt is not fun, but together we can help make it manageable!