When it comes to dealing with student loans, they can be expensive and cause financial stress in your life. By the time you are ready to pay off your student loans, they may cost significantly more than the amount that you had borrowed.
While student loan debt may vary among students, they can significantly impact your ability to get a house, a new car, or an instant cash loan in Singapore. Here are 5 essential tips to help you save up money and pay for your student loan.
1. Limit your borrowing
Over 50% of your student repayment cost comes from the principal fee and not the interest. The loan provider will charge interest only on the outstanding balance. Thus, borrowing less can help you to reduce the total amount that you will have to pay.
Additionally, you can opt to save money rather than borrow as this approach is much more affordable in the long term.
2. Collate your loans
By consolidating all of loans, you can reduce the total amount that you will have to pay into one single loan. This is an excellent way of reducing the total amount of interest you will have to make. You can do this manually by taking out a lower-interest loan to pay off your student loan and other high-interest loans. Or, if you have multiple other large debts, you can opt for a consolidation loan in Singapore.
3. Avoid interest capitalisation
Should you fail to pay your interest balances, the amounts may compound and be added to the loan balance. Interest capitalisation can add about 25% more to the principal amount by the time that you graduate.
Avoiding interest capitalisation can also help you keep your outstanding balance at manageable levels, and ensure that you can make seamless and stress-free monthly payments. Additionally, some loan providers may reduce the interest rates of loans to students who are able to pay their interest at fixed amounts every month consistently.
4. Shop around for low-interest rates
The interest rates for student loans mainly depend on your credit scores and the co-signer – if you have one. In several cases, lenders may advertise interest rates that might not work for your financial situation. Thus, you should seek multiple loans and compare the interest rates to know which will suit you best.
You can also look for loan discounts that can reduce your interest rates by 0.25% to 0.5%. Some loan providers may also offer discounts to students who graduate early, make consistent monthly payments, and set up automatic loan repayments.
5. Choose income-based repayment
If you need to restructure your loan, an income-based repayment option is ideal. Income-based repayment can significantly lower your monthly payment and qualify you for forgiveness after 20-25 years. Forgiveness occurs when you reach the maximum repayment period under an income-based repayment. Your payment will increase considerably as your income rises too.
Additionally, this option can restrict you from adjusting your loan terms for the rest of your repayment method.
Not choosing the right student loans can lock you in an endless circle of debt and prevent you from progressing financially. Some of these loans can accrue sky-high interest rates where you might have to pay large amounts in the long-term.
Thus, it is essential to select your student loan with care, and implement viable money-saving options such as the above to help you eliminate student debt as much as possible.