Once you are out of college, the first thing in your mind would be to clear off your student loan as early as possible. However, before the mounting interest rate associated with the loan starts to weigh you down, you must learn to manage your various commitments as soon as you start working. You must decide whether you want to make lump sum early repayments or whether you want to set aside an amount for your monthly repayment plan. To help you start, here is a list of tips that will go a long way in repaying your student loan quickly:
1. Start With Paying Off Your Principal Amount
Most student loans in Singapore let you make extra payments without incurring any penalty. If that is the case, use the yearly bonus you get from work or any earnings from your part-time job to regularly reduce the principal loan amount.
Whenever you get a raise or when your financial condition improves, do not forget to make an adjustment to your instalment amount. This will surely help since education loan interest rates vary from 4.5% p.a. to 5.39% p.a. and the earlier you pay off your loan, the lower you pay as interest.
2. Consider Opting for a Forbearance
If you have been regularly paying your student loan instalments and you have not defaulted on any instalments, you can ask your bank for deferment. If your lender agrees, you will be excused from paying a specific number of instalments, although during this period the interest will continue to accumulate.
However, your lender will agree for a forbearance only under certain circumstances such as medical conditions, personal problems or other issues for which you can provide documents to validate an effect on your ability to make payments.
You can opt for this alternative when you are faced with unexpected financial emergencies. It will help you take care of the immediate requirements and then get back to paying your loan later.
3. Understand Your Loan Payment Requirements
Go through your loan repayment policy properly and find out if there is any window between your graduation and the time you have to start making repayments. Some lenders offer flexibility in terms of the tenure or the monthly repayment amount. If your lender offers an interest-free loan and lets you make early repayment, you might want to pay off a portion of the loan before the interest gets accumulated. By doing so, you will incur interest only on a small portion of the overall amount.
4. Stay Well-Organised and Clear Your Loan as Quickly as Possible
You must prioritise your loan repayments each month over all your other expenses. Because the earlier you pay off your education loan, the quicker you will be able to take the next steps towards becoming financially independent. Mounting interest is one big disadvantage of prolonging your loan tenure.
For example, if you only pay the minimum monthly repayment amount of S$100, there is a good possibility that the interest incurred could go beyond the minimum repayment amount. This means that the loan amount is not coming down, but is essentially getting bigger.
5. Consolidate All Your Loans
If you are someone having multiple loans with different lenders, you should think of consolidating your loans as the sum of payments can become insurmountable. Under such circumstances, you should speak to your lender and understand the various options available. There are numerous advantages of opting for a loan consolidation such as lower payments, fixed or reduced interest rate, discounts for scheduling automatic payments, and more. As a result, make sure you know the repayment options available with you before you require them.
6. Come up With a Reasonable Budget
If you secure a job right after you graduate, use the time you get between starting your job and the onset of loan payments to save or to reduce your loan by creating an emergency fund. Such funds can be useful when you face difficult times like job loss or when you have to pay for a medical surgery of a family member. To work out a repayment sum, list out your living expenses and financial commitments. From the balance, fix a sum that you can easily afford.
There is no single strategy to clear your student loan. However, being thorough in paying off as much as you can will put you in good stead and you will be able to reap the rewards of that hard-earned degree earlier.