Paying off student loans: essential tips for college grads
Provided by RBC Wealth Management
and Dave Dupont
Graduating from college? If you’re like many recent grads, you’re probably excited about the prospect of getting a job and earning a real salary for the first time, but also concerned about paying back the student loan debt you’ve accumulated over your years in school. You’re not alone. Today, college graduates are weighed down with much higher debt than previous generations, with the average student loan debt topping $26,000. If you take the right steps now, you’ll reach your debt-free future quicker.
Don’t put it off. The longer you put off paying back your loans, the more total interest payments you’ll make. If you’ve landed a good job, you may be tempted to buy a new car or make another large purchase. Hold off for a few years.
Prioritize. If you have credit card debt, pay it off. While student loans charge relatively low interest rates, credit cards usually charge much higher rates. You must learn to prioritize — pay off the highest-rate card first, then work your way down until your lowest card is paid off.
Know the terms and conditions of your loans. Each lender offers flexible repayment choices, and it is up to you to know the terms and conditions of your loans. To make the right decision for your personal situation, you must fully understand your options regarding grace periods, deferment options, loan forbearance, consolidation, adaptable payment schedules and flexible payment methods.
Don’t ignore financial priorities. Even with student loan debt, you should consider investing in a retirement plan, setting aside at least 10 percent of your income. The best place to contribute, if available, is to a 401(k) — especially if your employer matches contributions — but you can also contribute to a traditional IRA or Roth IRA. You should also build an emergency fund that covers at least three months of expenses, which can save you from having to charge unexpected expenses and tide you over in case you lose your job.
Consider your potential. How aggressively you pay off your debt depends in part on the long-term income possibilities of your career path. If you’re fortunate enough to be in a field that is likely to provide you a strong and steady income, perhaps you can forego some of the more aggressive methods of repaying your student loans.