If you graduated this spring and had any student loans, then you’re likely facing the end of your grace period about 10 days from now. May and June graduates, you’re looking at the end of this month or December.
In any case, this six-month period following graduation during which you don’t need to post payments on the majority of federal and private loans is coming to a close—and quick.
Given the rising cost of education and economic fluctuations, many new grads have hefty loan packages, translating into hundreds or even thousands of dollars of payments each month. (While the average debt held by U.S. borrowers hovers around $27,000, one out of eight borrowers has over $50,000 to pay off.)
Hopefully, you’ve already put a sound financial plan in place to cope with the costs—but we know the first months after graduation are a whirlwind. With such sizable bills winging their way towards your account, what can you do to get on top of things now?
To help out, we’ve outlined five steps you can take—in just hours—so that you can build your monthly loan payments into your budget and be ready to go by next week or next month.
1. Know Your Loans
For starters, it’s important to become completely aware of what loans you’ll soon be paying, to which parties, when your payments will begin, and how much they’ll run you.
If you have federal loans, a great starting place is the Department of Education’s National Student Loan Data System (NSLDS). Log on, and you’ll find detailed information on all of your federal loans consolidated in one place. For any private loans you’ve taken on, you’ll want to contact your school’s financial aid office or check out a copy of your annual credit report (as well as credit information available through sites like Credit Karma)—both should be able to show you a list of your lenders.
Once you have all of this info, make sure you understand exactly what you’ll need to be paying—and when. If you have any questions on the repayment process, now’s the time to ask!
2. Review Your Daily Spending
Whether you’re still interviewing or you’re happily installed in your dream job, you should be preparing for a significant uptick in your expenses once your loans kick in.
So, pull out your personal budget, and identify a few nonessential spending categories you can scale back on to accommodate your loan costs. (Don’t have one? There’s no time like the present to create it.) Beyond the usual suspects like takeout dinners and wardrobe splurges, consider adjustments to other aspects of your spending, like downgrading your gym membership or cable package for several months or increasing your time on public transit.
(Also keep in mind that your short-term spending is likely to spike due to the holidays, making it more important than ever to set firm spending rules now!)
3. Build Your Loan Payment Strategy
Now that you have a handle on both the terms of your loans and your personal budget, you should plot out your loan repayment strategy going forward. One key decision to make now: whether you’ll make the minimum payments or try to pay down your loans’ principal earlier, to avoid more interest payments in the long run.
Many loans come with 10-year or 25-year terms of repayment. By calculating your costs over the term, you’ll be able to identify when you could take the plunge and devote more money towards the principal. You can log into NSLDS and use the government’s repayment estimator tool to estimate your monthly costs on different repayment plans. Map out your next few months of earnings and expenditures to assess whether, for instance, a yearend bonus is better spent on your loan principal than other savings, spending, or investment options.
4. Consider Consolidation
If you have many loans—and especially if you’re like the majority of graduates and managing multiple loans with different interest rates and repayment terms—it’s worth considering refinancing to achieve a better interest rate. Take a look at the refinancing calculator at CommonBond, which breaks down your potential savings from refinancing on a monthly and annual basis. Depending on your lender, refinancing can also help you consolidate and streamline your loan payments on just one monthly bill.
Think of refinancing as a great way to start afresh, especially since you’ve come a long way since you first took out those loans as a student. Take this chance to choose the best payment plan for your new lifestyle.
5. Reevaluate Other Financial Milestones
We know it’s tough to reconsider your springtime Hawaii vacation, but it will be even tougher to fall behind on loan payments after two weeks in Maui. Take a step back and think about the rest of your financial goals (buying a new car, moving to a better place, or planning a wedding, for example), and decide how you’ll integrate them with your loan payments. Because you should never need to compromise your savings or emergency fund to repay your loans, it may make sense to push back some of these goals, set up separate savings accounts for them, or, again, find other ways to trim your budget or loan payments.
Starting the process of paying back your loans can be daunting, but with some careful planning, financial prioritization, and a payment plan that works for you, you’ll be able to put your grace period worries behind you in no time.