Grace period over? How to manage your student loan payments

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Grace period over? How to manage your student loan payments

You've graduated college and now your grace period on your student loans is coming to a close. Soon, a chunk of your monthly budget will start going toward your student loan payments. But who do you pay? How much do you owe? You may be full of questions on how to repay your student loans -- but left without many answers.

Here are four steps you can take to make the transition easier.

Step 1: Gather your student loan information.

The first step in surviving student loans is knowing all of the important details such as the amount you owe, your interest rates and your loan servicer. "Know what you need to pay to get (your student loans) paid off in a reasonable amount of time," says Certified Financial Planner™ Adam Hagerman.

If you have federal student loans, you can find information about the loan servicers on the Federal Student Aid website. Then you can log in to the National Student Loan Data System (NSLDS) to retrieve information on your loans. After you log in, you'll see a list of your student loans, including total loan amount, when the loan was disbursed, and your total outstanding principal balance and interest.

Photo courtesy of Melanie Lockert (from National Student Loan Data System)

In order to find out the interest rates on each loan, click on the numbers on the left-hand column to see an expanded view of each individual loan.

Photo courtesy of Melanie Lockert (from National Student Loan Data System)

Under the detailed view, you'll find your interest rate on the top line and your loan servicer at the bottom of the page. Your loan servicer isn't necessarily the same as your lender. Your lender is where you borrowed money from, while your loan servicer is who will be managing your repayment.

If you have private student loans, you can find your loan information in your credit report or a recent statement.

Once you know how much you owe, the next step is to create an online account with your loan servicer to start repayment. When you're registered, you can also sign up for auto pay so your payments are automatically deducted from your bank account.

Bonus: Most loan servicers offer a 0.25 percent interest rate deduction for signing up for auto pay if certain conditions are met.

Step 2: Choose a repayment plan.

If you borrowed federal student loans, you may have various repayment options available depending on the type of loans you have.

When choosing a repayment plan, consider how it will affect your monthly payment and how much you'll pay in interest.

Once you choose a repayment plan, it's important to pay on time each month. Remember, you can also pay more than the minimum if you can afford it, as there are no prepayment penalties on federal student loans.

Hagerman advises taking advantage of this when you can. "As your income increases, pay more on your loans. Sticking with some of the income-based plans could mean you'll pay on them for 20-plus years. That shouldn't be your goal," Hagerman says.

If you have private student loans, you can talk to your lender about your repayment options. Unfortunately, private student loan lenders typically don't have as many options or as much flexibility as federal student loans.

Step 3: Create a budget.

Another important part of conquering your student loans is to create a budget. A budget is a spending plan that helps you decide where your money goes in advance rather than having you wonder where it went after it's gone.

Base your budget on your post-tax income and allot a certain amount of money for things like rent, food, transportation, entertainment and more. Prioritize your debt repayment and savings, while limiting unnecessary expenses.

The key is to spend less than you earn so you can continue to pay off debt and save. To make things easier, consider using Credit Karma's My Spending tool, Mint or You Need a Budget to track your income and expenses.

Step 4: Consider consolidation or refinancing.

If you have various loans and various lenders, you may feel overwhelmed with managing your student loans. Student loan consolidation or refinancing may be a good fit for you.

Through the Direct Consolidation Loan program, you can merge your federal student loans into one monthly payment. Refinancing, though similar, is different in that you can combine your federal and private student loans and potentially get approved for a better interest rate. In order to qualify for the best rates, you typically need to have an excellent financial profile.

Consolidation and refinancing can make it easier to manage payments and may help you save money. Just be aware of any federal student loan benefits you may lose through consolidation or refinancing, such as flexible repayment terms and loan forgiveness.

Bottom line

The key to successful student loan repayment is to be consistent and make on-time payments each and every month. It can be helpful to sign up for auto pay or online alerts so you don't forget a payment. If you ever have trouble making payments, discuss your options with your loan servicer immediately.

Hagerman says, "If you won't be able to make the required payment, call your student loan servicer and see what they can do to help. They should be able to help you get on a payment plan that works for your current situation."

Not paying your student loans can have serious consequences, such as damaging your credit score or having your wages garnished, so it's good to be proactive and stay in touch. Student loans may feel overwhelming, but coming up with a plan can make the process easier.

About the author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of their finances. Her work has been featured on Rockstar Finance, GoGirl Finance, The Globe and Mail and more.

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