By John C. Fales and Ryan W. Brooke
Student loans are as American as apple pie, yet many people are embarrassed to ask for help with learning about and taking care of their student loans.
Why? They may believe their loans are too high, think they should be more knowledgeable on their own, or don’t want to show how desperate they feel about their situation.
The first thing to recognize when it comes to student loans is just how common they are and how getting help can save a lot of frustration in your future.
Loans come in many varieties (public, private, subsidized, unsubsidized...) with varying interest rates and repayment plans. Because of this mix, there is no one right way to tackle repayment, but you can start by asking yourself these 3 questions:
1. Do I have a grace period for repayment and if so, where in that period am I?
Many providers have a grace period from the time you are done with school to the time you start repaying your loans, and this is generally six months. Use this time to understand your financial situation and make a plan.
2. What are the totals of my loans, their interest rates and their repayment requirements?
You should receive information on your loans from your carriers that includes this information and the date of your first payment. If you do not receive this information, call each carrier and request these details.
3. Should I consolidate/refinance?
If your loans are spread across multiple carriers, you may want to consolidate your loans so that you are paying fewer entities. Generally, consolidating federal loans is done as a weighted average of your old loans’ rates and consolidating private loans comes with a new interest rate based on multiple factors. If you might qualify for a lower interest rate on all your loans, refinancing might be a good option for reducing your overall cost.
Pay attention to perks, discounts and breaks that come along with your situation and determine if you lose these benefits if you consolidate or refinance. They may include options for people working in the public field or medical field, breaks for using auto-pay, or lenient repayment options.
There are two common methods for paying off debt: the snowball and the avalanche.
With the avalanche method, you pay more principal on your biggest loan or loan with the highest interest rate until it’s paid off, then apply your former payment amount to the next highest until you’ve paid off all loans.
With the snowball, you pay off the smallest loan then add that payment to your next biggest and keep rolling the payment up until you’ve paid them all.
The repayment method you choose is based on personal preference. An advisor can lay out the math to help you choose the method. They can also help you factor in saving for retirement, building an emergency fund, mortgage payments and other financial considerations to help you understand which loan repayment options are best for you without sacrificing your long-term financial goals.
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.
The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Published for the blog on September 5, 2018 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.