The transition from college to the job can be intimidating, with the challenge of settling down in a new environment. You have to manage a long list of expenses because of the moving, from furniture to security deposit. And there is no guarantee over the recruitment right after the college is over.
Lenders provide a moratorium period to their borrowers during this transition period. They don’t have to make any payment for 6 months to a year, based on the agreement. However, you can use this period to get a head start for the student loan repayment.
Here are some tips you should use if you want to repay the students loan early with some efforts in the moratorium period.
Create an Estimation of Total Amount
The total repayment amount is the sum of interest, loan amount, and other charges that will incur during the repayment. The lender will use it down into monthly instalments based on the selected duration. The common tenure for a student loan is 10 years, and the shorter durations are not very popular.
Here, you need to calculate the total amount you need to pay if you want to create a repayment plan. It will help manage the different long-term goals and liabilities with early repayment. You can use the monthly instalments and multiply them with the loan duration in months to get the total amount.
Check the Options
You need to verify the repayment options with the lenders before you start with the instalments. It will help you create a strategy for repayment while managing various expenses. These options will be useful during a financial emergency.
Your lender may offer a repayment plan based on your income. This will help keep the instalments manageable or repay the loan early. You should ask the lenders about repayment options a few months before the moratorium ends with understanding them.
Take Employee Benefits
Businesses are working hard to acquire the best talent in the industry right after their graduation. They cannot wait for some big corporate to lure them away with a heavy paycheque. For the millennials, perks and benefits are more critical than some salary increase.
Companies want to use this to attract younger talent by offering them some loan repayment perks. They contribute some amount for the student loans of the employees. Even a small contribution adds to a significant amount in the long run.
Create an Optimised Budget
Budgeting is essential if you don’t want to end up with overwhelming financial problems because of the loan repayment. This starts with allocating space in the budget for the debt repayments. You need to add some money to the long-term goals as well, especially the retirement fund.
The amount left is what you can use for essentials and amenities based on your present salary. The repayment will get easier if you follow a budget from the first month of repayment. Therefore, it is crucial to prioritise the expense if you don’t want to add the cost of fees of missed payments.
Always keep a line of credit ready for a sudden cash crunch. You cannot afford to miss the instalments as it will negatively impact the credit history. You can apply for bad credit loans to keep up with the debt repayment to protect the credit rating.
You don’t have to wait for the moratorium period to end if you can manage the repayment early. It will have many benefits on your finances and relationship with the lender. Make sure you can manage the expenses for the next few months as well before hurrying into the repayment.
You will get free from the debt earlier than the agreed term. Some lenders allow the borrower to use the left-over moratorium period as a repayment holiday during uncertain times. Also, the lender may offer you better terms and interest rates for future applications.
Refinance the Loan
You can also reduce the stress of the repayment by refinancing the loan. The lenders may present a better offer based on your current paycheque. The overall cost of the loan will decrease even with the same term.
If the salary is below expectation, you can increase the loan tenure to make the instalments manageable. However, the lenders may charge an unreasonable foreclosure fee to increase the cost. In these situations, the current loan is a better option in the financial sense.
You should ask the lender for some relief if you cannot afford the repayment even after the moratorium period. They may extend the moratorium period with minimal charge. However, the cost of the loan will further increase because of the additional interest.
To sum up, you can use the moratorium period for sitting back and completing the transition from college to a job. Your focus should remain on planning for the repayment combined with some long-term goals. It may sound extreme, but you will enjoy the benefits in the long run.