You’ve worked hard, achieved results, and now you’re faced with a big ‘real-world’ problem: how to pay off that student loan.
Before we get started, here are two key questions to think over:
Should I save or repay debt first?
So, right now a lot of savings accounts will earn you good interest, meaning that you can earn more from savings after tax than your loan is costing you. In this case, it is better to start saving than paying off the loan. However, the more tax you pay on your savings, the worse this gets.
By saving now, you minimise the chance that you’ll need to borrow again to cover things like a mortgage or car, which would come from a higher interest rate loan. Student loans don’t affect your ability to qualify for a mortgage, so it might be worth thinking about saving some cash for that deposit instead.
Should I start repayments during the grace period?
Most loans come with a grace period. But chances are, if you plan ahead, you’ll be able to muster a few payments before you really have to. This means taking advantage of your side gigs during studies, or any savings if you’re still looking for a job – take the opportunity to start repaying as soon as you can.
The opinion on this is mixed, as most people never repay off their debts (and after 30 years in the UK, it gets written off). But chances are, if you don’t want to be repaying 9% on everything you earn for your whole working life), you might just want to take advantage of a few extra repayments upfront. It’s a lot easier to do this early on rather than when you also have a mortgage or other responsibilities down the line. It’s up to you to decide what suits your goals and lifestyle best!
With this information in mind, let’s get on to the tips….
Know your loan
Definitely don’t let debt surprise you down the track. Before anything else, it’s really important to know what your loan terms are in detail. If you started studying after 2012, chances are you have the income dependant loan, which means your repayments depend on your earnings. You’ve got a bit of time before this starts up, but from the April after your graduation, English and Welsh students pay 9% of everything they earn over £21,000. For Scottish and Northern Irish students, this threshold is lower – it’s 9% on everything above £17,495.
You won’t be able to do much about this baseline repayment requirement, as the money is taken automatically from your pay (though of course you have to declare that you have a student loan!). Don’t risk not declaring as there is a hefty fine involved. Get acquainted with these ins-and-outs – ignorance isn’t bliss when it comes to debt!
Focus on high interest loans first
If you took out extra loans during your studies, they may have different terms attached than the standard student loans. If they have higher interest rates attached, it’s worth focusing your energy to get rid of those first.
This is just logical: you don’t want to be paying back more than you have to! So concentrate efforts on the highest interest rate loans first, if you have a few debts outstanding.
Automate extra payments
Once you’ve got a budget in place, you should be able to figure out at least a minimum additional payment which can be made automatically. That way you just know it’s all happening without you having to stress about repayments every month.
Have a side gig
Whatever else you can do to scurry away some cash is only going to help. There are lots of ways to earn some extra money on the side of a ‘proper’ job, to make those repayments easier. Student Money Saver has a guide to extra ways to make money.
Scrimping will pay off!
Nobody likes going without, but it is probably worth it while you initially pay off your debt. Set a reasonable budget and consider a few initial cut backs to make this process move along faster.
Take advantage of any discounts you can. Every little helps. Being debt-free is a huge relief and you should consider, where you can, making some savings to minimise the length of time that debt-cloud is overhead…
Once you do get your foot in the door, you might hesitate about negotiating a starting salary at a new job. But chances are, there will be room to move on this. There’s generally no harm in asking, so make the most of your wage upfront to make those repayments easier in the long run! If you’re really not sure when is the right time to ask, read more about the etiquette behind salary negotiation.
Don’t forget to have fun in the meantime – student loan debt shouldn’t take over every aspect of your life. Whenever you reach a new milestone, take the time to enjoy it.
I know that student loans can seem intimidating, but if you are set up right, you will pay them off without too much stress – just be patient. Good luck!