How to Handle Education Loan Repayment after Graduation
While graduating from college is a major accomplishment, it comes with a financial obligation that can easily be stress-inducing like an instant loan for students. You are now responsible for repaying your education loan, if you borrowed from a government bank, a private lender, or a lending service provider, a strategic approach to successfully managing debt is an important step to achieving financial health in the early parts of your career. Here, get a more thorough representation of how you can effectively and confidently handle your education loan repayments.
Know the Terms of Your Loan
Before you make your first payment, take some time to revisit the terms of your loan agreement. You should make sure you know your interest rate, repayment begin date, loan term and whether there is a grace period. Knowing all of this will help you make sure you know the total amount you ultimately owe and when individual payments are due so you can plan for them in your monthly budget to avoid missed payments. If you took a personal loan for education purposes, the repayment terms may deviate a bit from typical education loans.
Setting a post-Grad Budget
A loan repayment strategy starts with a budget. Start with your regular income and deduct your fixed expenses (e.g., rent, groceries, transportation and utility expenses). The amount remaining should be divided amongst discretionary, loan repayment and savings. You shouldn't assume that small expenses don't add up, they certainly do! Plan for the loan payment to help establish a repayment habit.
Review All Grace Periods and Loan Repayment Options
Most student loans have a grace period of 3 to 6 months post-graduation. This is the time for you to find a job before repayments begin. Use this time to save money and formulate a repayment plan. If you find employment at this time, that is even better to start making small payments from that job. Every little bit will lower the interest paid and the rate of loan repayment in time. Some of my graduate students have refinanced their loans or converted their loans into a personal loan with lower EMIs, depending on their credit and CIBIL scores.
Improve and Monitor Your CIBIL Score
Your credit history is embodied in your CIBIL score. If you decide to refinance a loan or take on any credit in the future, the state of your CIBIL score will matter. Paying your education loan EMIs on time will enhance your credit situation - be sure to never miss an EMI, and if possible, pay more than the minimum to reduce the length of time you are paying interest! The information creditors give to CIBIL should reflect your repayment practices. Therefore, you should regularly inspect your credit-related reports for accuracy.
Use Windfalls and Unexpected Income to Pay Down Faster
In the event that you receive any form of unexpected income, e.g. bonuses or tax credits, consider using a portion of that to pay down your loan faster. Even a small number of payments on top of your regular required payment can substantially reduce your loan tenure. Additionally, lenders offer even flexible repayment schedules, so you could be making progress while still having a viable budget.
Do Not Add More Debt Too Soon
While it is a good idea to apply for as much money as you can lend yourself upon graduation or use a credit card for some nice upgrades to your lifestyle, you do not want to add more debt on top of your education loan if you can help it. Taking and paying off multiple loans too soon will just place additional stress and potential harm on your credit rating.
Automate Your Payments
One of the best ways to minimize the risk of missing EMIs is to set up auto-debit. It is exactly what it sounds like- automatic electronic funds transfer. When you enroll in auto-debit for EMIs, you are ensuring timely payments and building a positive credit history.
With a personal loan app, you may be able to enroll in auto-payment that not only makes the EMIs easier to pay but may unlock interest rates. By utilizing the technology that auto-pay, you minimize your risk of missing a deadline, paying a late fee, and remaining consistent - a mindset you need to establish to grow a healthy financial ecosystem.
Contact a Lender If Struggling
If you are unable to make the payments, then it is imperative to take action right away. Contact your lender - or a loan manager and assess the options available to you regarding deferment or restructuring. A financial counsellor may help you in budgeting strategies and repayment plans that consider your income and lifestyle.
Summary
Repaying your scholar loan will take planning and commitment. It is possible to manage your debt without stress once you know your repayment terms. Keep the right financial particulars, know your credit history and report, and keep your payments organized - it helps order your long-term financial journey, goals, and aspirations for success.
