Tips on Reducing Student Debt on Graduation

Graduating from college will typically leave the majority of students with a massive pile of debt to contemplate which can appear to be a daunting task. It needs to be addressed head on and reduced before further borrowing mires you down even further. Although the debt can be an overwhelming sum to face up to, graduating students are in the unique position of having relatively few other obligations at this stage of life, so can concentrate on paying off the debt rather than have it hanging around for years.

Student debt is usually made up of three parts: credit card debt; private student loans; federal student loans. Each debt will need to be serviced on a monthly basis but by tackling the debts you can reduce the overall amount you will repay. Usually the credit card debt will be costing the most to service due to the interest rate so this needs your full attention first.

If you are able to obtain a balance transfer credit card offering zero percent interest this is a good option to consider. You then transfer your current credit card debt to the balance card and repay the debt as quickly as you can without paying interest. If you investigate this route you will need to consider if the balance transfer fee (usually around three percent) will make this a financially sound move.

You need to also be aware that the initial offer of zero percent will only apply for a set period of time so try to find a card with a longer period such as 18 months. The zero percent interest will only apply if you maintain payments; if you miss payments your interest rate will move onto a penalty rate making the whole exercise pointless. Do not use the zero percent balance card for any other spending but solely to pay off the original credit card debt aggressively.

Obviously whilst you are paying down the credit card debt your student loans need repaying monthly as well. If you have private student loans these will be more expensive than the federal ones and need repaying first. Most likely if you do have a private student loan you will have a co-signer which makes it crucially important that all payments are met in a timely fashion so that the co-signer will be able to be released from their obligation to the loan at the earliest opportunity, with their credit record intact.

As soon as you are in a position to do so then start to repay the principal on private loans to reduce the overall interest payments. You may consider consolidating the loans to obtain a better interest rate but be careful of locking yourself into any deal if paying them off early is your next strategy after eliminating your credit card debt.

Finally your federal student loans will cost you the least to service so it makes sense to deal with them last. It is probably worth consolidating your various federal loans into one loan, but if you want to pay them off early don’t extend the term of the loan. Once the credit card debt and the private loan debt are paid off you can then start to repay the principal early on the federal loans.

If you approach your student debt in this way it is possible to reduce the overall debt burden much more quickly and thus save yourself thousands of dollars in unnecessary interest payments. Pay as much as you are able each month in order to be free of college debt early.