Education is expensive and one of the ways provided to help make education affordable is student loans. They are purposely available to almost anyone that is in a recognized course and this has meant that many people that would not have been able to complete college have been able to.
The cost for all courses has increased dramatically and this has meant that people that are entering the workforce after three or four years of education have a huge amount of debt hanging over their heads. It is important to realize that student loan debts need to be managed prudently or they can end up ruining your finances.
Always keep your student loans in mind
Managing your student loan is very important and the very first goal you should have is reducing your student loan debts as quickly as possible. This can be the last thing you want to do when you finally have a reasonable pay check after years of doing low paid work and scraping by and almost nothing. It is important to keep them in mind or you can find many of the things you wish to do in the future are blocked by these debts.
The worst possible thing you can do is to increase your debts by taking out credit cards, purchasing an expensive car on credit and spending all of your income on an enjoyable life. All it can take is a small accident or an emergency situation to put you in a financial situation that can be very difficult to cope with. The best way to be able to cope with an unexpected situation that can put strains on our finances is to be in a strong financial position. A strong financial position can be defined as:
- Having a plan to quickly pay down existing debts
- Not increasing debt levels
- Having an emergency savings account that is contributed to regularly
- Not having any arrears or unpaid bills
- Having an up to date budget
- Not making unnecessary purchases
When you have a strong financial position then you can make paying down your student loan debts a priority. It is important to select a payment plan that suits your ability to pay and finding out the best ways to make extra payments to reduce your debts. The debt management company may have special offers that offer better rates or debt forgiveness for extra payments that you make. It is important to understand all of the rules and contacting the debt management company and asking them can be a great way to find the best way to repay debt.
One of the common mistakes that people that have student loan debts make is not treating then the same way as their other debts. Some people treat the repayments as something that they can ignore when they are a little short because most loan management companies do not report late payments until they exceed 30 or 45 days.
If you are already one payment behind and then find yourself with a problem then you have a very short time to sort something out or find your credit report with a black mark and big negative added to your credit score. You may also be hit with extra fees on your student loan debts and if you are on a special interest rate this may revert to your original rate costing you hundreds or even thousands over the life of your loan.
What you can do to minimize the negatives of making a late payment:
- Contact your student loan management company immediately
- Have an emergency savings fund
- Keep up to date with your payments
- Keep a credit card for emergencies only
- Modify your spending so that you have more of your income available
Defaulting on student loans
There is a lot of misinformed information about defaulting on student loans. Some people are of the opinion that student loans are not the same as normal loans and when they are not paid the government and loan providers do not really care. This is far from the truth and the loan management companies are very stringent in treating people fairly but also in recovering money owed. The do generally have longer period before they report a default but they actually have wider powers to recover outstanding student loan debts. These include:
- Garnishing your wages
- Sending your loan to collection
- Taking part of social security or disability payments
- Removing eligibility for federal government aid
When you are placed in default then your credit report will be seriously damaged and this will affect your ability to gain auto loans, home loans and investment loans for many years. This can affect your financial position and prevent you making financially prudent moves such as owning your own home or apartment, financing a move into your own business and even getting your dream job.