Student Loan Strategy for Recent Graduates

Many American families are celebrating the graduation of their offspring at this time of year.  Many graduates are starting their careers burdened with student loans these tips can assist recent graduates put together a student loan strategy to pay off the debt.

The Avalanche vs the Snowball Method 

Both methods require strict budgeting.  You must pay at least the minimum monthly payment of all your loans. Failing to do this will affect your credit score.

Start by adding a little extra to the one debt you choose to pay first. The avalanche method tackles the loan with the highest interest rate first.  When that loan is paid off, tackle the next highest interest rate loan and so on till al loans are paid. By concentrating on the loans with the highest interest rates you should save money over time.

With the snowball method, you pay off the smallest loan amounts as fast as possible. As each loan is paid you put that money towards the next loan and your payments snowball in size as you go along.

There is just one catch – instruct your loan company (by phone, online, or by mail) to apply overpayments to your current balance, and to keep the next month’s due date as planned.

	"Snowball Method"	"Avalanche Method"
1.	Make a list. Record the total amount owed, minimum monthly payments, and due dates.	Make a list. Record the total amount owed, the interest rate for each loan, minimum monthly payments, and due dates.
2.	Sort the list. Arrange the loans from smallest to largest by the total dollar amount owed.	Sort the list. Arrange your list of student loans from the highest interest rate to the lowest interest rate on each bill.
3.	Pay more than the minimum. Calculate how much the minimum payment will be for all loans. Then figure out how much over the minimum you can pay for the smallest loan. Remember, if you do not have enough for even the minimum on each of your debts, it can hurt your credit score	Calculate your payment. Work out a budget and determine how much extra you can pay off that high-interest loan after paying the minimum payments on all your other loans. Remember, if you do not have enough for even the minimum on each of your debts, it can hurt your credit score.
4.	Roll over payments: When you’ve paid off the smallest debt, take the money previously used — the monthly payment and the little extra you budgeted — and put it toward the next-smallest debt.	Roll over payments. When you’ve paid off the account with the highest interest rate, take the money previously used — the monthly payment and the little extra you budgeted — and put it toward the next-highest interest rate account debt.

“Starting your working life burdened by student loan debt can feel overwhelming,” says Michael Norton, Senior VP of Investments for David Lerner Associates. “Having a student loan strategy will make it easier to manage and you will see results faster.”

 

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