Managing student loans is easy as there are tons of advices or tips readily available, with some of them are good and some not so really good. However, students must be cautious of those not so good tips. To shed light, Parent Herald enumerates some common tips for managing debt that could actually go wrong.
Americans presently owe about $1.3 trillion in student loan debt, disperse among nearly 44 million borrowers, according to Student Loan Hero. In fact, the report said the average graduate of class 2016 has $37,172 in student loan debt.
Now, it's easy to manage student loans with hundreds of thousands of student loan tips available. However, not all is good as some could actually backfire.
Here are three most common tips for handling student loans that could actually flop. Take a closer look, before following these tips.
First, consolidating federal student loans. Consolidating federal loans means merging all federal student loans into one. A lot of people choose this as it is practical, simple and efficient. However, there are drawbacks, not the least is that the debtor could result in paying a lot more money by the time he/she finished.
Moreover, US News added consolidating federal loans can lose the debtor the grace period. Thus, it's not worth the effort.
Second, shift to income-driven repayment plans. Income-driven repayment plan caps loan repayment in a percentage of the income of the debtor and extends the term of the loan up to 20 or 25 years. When the debtor has still balance after that term, it is now absolved.
Due to the repayment plan that extends the payment term to 20-25 years, however, debtors will have longer loan term. It is actually double the term with a 10-year Standard Repayment Plan.
Third, prioritize student loans. Student loans can be a huge burden in the neck of fresh graduates. That is why when they got their jobs, they wanted to pay the debt quickly and start saving for emergency fund and retirement.
Unfortunately, the entry-level wage, can only go so far. Thus, one should know first what he or she want to focus on and start setting realistic goals. According to Huffington Post, one may decide to spread the income to other financial goals instead of contributing a huge amount to the loan payment.
It is essential to consult a financial advisor before following those steps. When it comes to preventing great sums of debt, prevention is definitely better than cure.
