Tips for dealing with the debt — effectively and efficiently.
You went to a good college. Got the awesome degree. And now you’ve got the private loan debt to match.
Private loan debt might seem like an overwhelming, scary green monster especially when you compare ‘em with federal student loans. But don’t worry. You can work with this.
The good thing with public loans is that if times get tough, you might qualify for extended, income-based repayment. Private loans . Private loan holders sometimes offer forbearance, but generally not for an extended period of time.
If hearing that sort of thing tempts you to pretend your loans don’t exist and go play Angry Birds then keep reading. Put down the cell phone and tackle this problem one piece at a time. Here’s how:
First, sit down and look at your overall financial picture. Figure out how much you really need to live by calculating essential expenses like food and rent. In an interview, Mark Kantrowitz, publisher of Fastweb.com and FinAid.org, said things like cable and dining out aren’t necessities. Cancel the cable contract and look for entertainment options that are free instead.
Be sure to get copies of your student loans and read the fine print. Heather Jarvis, an attorney and student loan consultant with , said you need to physically read what you’re entitled to. If you don’t have copies, call the lender and request them.
Next, make sure you have enough money to meet your monthly payments. If you don’t, consider getting a second job or . Yeah, it might not be the most appealing option but it’s better than having your credit history marked with a big red ‘X’. If you default on your student loans, your credit history and potential job offers will be affected for .
Consider consolidating. If your credit score has improved since you took out your private loans, you may save some money by consolidating. But if you’ve borrowed loans at different rates and still have a low credit score, Kantrowitz said it may . It’s also a good idea to work to improve your credit score.
Set up an automatic payment plan for paying down your private student loans. Doing this will ensure you’re always on time with your monthly payments. Some lenders will also reduce your interest rate when you set up an automated payment plan. Private loans sometimes offer other perks, like releasing a co-signer from being responsible for a loan after a certain amount of time. Research these options for each private loan.
If you have extra money after paying your monthly loan bills, put it towards the loan with the highest interest rate over its life. If a loan has a variable interest rate and you plan to pay it down over the entire time you are allotted, this will likely be the one you should pay first. “It may be low now but it won’t be a low rate indefinitely,” Kantrowitz said.
If you have both federal and private loans, see if you can reduce or delay paying back the federal loans. If that isn’t an option and you are only going to pay one loan and default on the other, pay for your federal loans, Jarvis said. One of the only benefits of having private debt is there are fewer ways for private loan holders to get their money back. The federal government will “get their money one way or another and the collection powers are so intense that you absolutely have to pay your federal student loan debt back, period,” she said.
If you have a windfall that allows you to make a huge repayment on a loan, negotiate! A lender will sometimes agree to a settlement that treats your debt as paid in full though you pay a lower amount than the total. If you do this, make sure to get a paid in full statement that says your payment covered the whole loan.
So there you have it. Go deal with the debt and get those loans payed off!
Katie Zemtseff is the environmental reporter at The Seattle Daily Journal of Commerce. She writes about sustainability, green buildings, food and architecture and can be reached on Twitter .