The difference between being a lazy borrower and a proactive borrower can mean saving hundreds or even thousands of dollars. Even though being a proactive borrower sounds like a ton of work, in reality, it only takes a few minutes a month. This little bit of extra effort can dramatically alter your finances.
Lazy Habits to Avoid
- Not keeping an eye on your account balance – Lenders make mistakes processing payments. Sometimes you get a late fee by mistake, other times payments get applied to the wrong loan. If you do not periodically check on your account and the transactions, you will miss an errors.
- Paying the minimum each month – Obviously making payments on your student loans is a good thing. Minimum payments can also be part of a comprehensive strategy where you attack certain loans. However, if you are just paying the student loan bills as they come in, you are making a mistake. Minimum payments over the life of a loan is the way you maximize interest spending. Lenders will love you, but you will be spending way more than necessary.
- Avoiding calls with your student loan company – Dealing with student loans and the stress they cause can be a major hurdle. Unfortunately, not dealing with student loans only makes things worse. If you have a question or concern, call your lender. These phone calls may be tedious, but not making them could result in some serious errors or missed opportunities.
- Missing Deadlines – One big deadline that often gets missed is the due date for your student loan bill. Missing this deadline means part of your payment goes towards late fees instead of reducing your loan balance. Another important deadline that shouldn’t be missed is income certification for federal borrowers on income-driven repayment plans. Missing this deadline can cause interest capitalization which can be very expensive.
- Not having a debt elimination plan – Borrowers without a plan let high interest debt linger too long and they miss opportunities that could eliminate student debt. Whether your budget is super tight, or you are comfortably meeting you obligations, spending the time to put together a detailed strategy for your finances could result in significant savings.
The Effective Habits of Proactive Borrowers
- Keep yourself motivated – The more personally invested you are in eliminating student debt, the more success you will experience. Motivation doesn’t have to be elaborate, just figure out a way to stay engaged in the process. A little creativity can really help.
- Make a monthly budget – People who make a budget are more likely to avoid unnecessary spending, and they know when they have extra money that can be used to eliminate debt.
- Have a student loan strategy – Know which student loans are the highest interest rate loans. Figure out how your student loan situation interacts with your retirement, housing, and other financial goals.
- Revisit student loan decisions – Once or twice a year it is a good idea to take a second look at your student loan plan. Life changes can shift your goals or priorities. Changes in the student loan world may make things easier. Planning is critical, but never forget that things can change.
- Keep a close eye on student loan accounts – Lender errors can result in late fees or payments being processed incorrectly. With each payment, verify that your balance was properly reduced. Don’t be afraid to call your lender to make them justify anything that seems fishy.
- Take advantage of your financial circumstances – If you have a tight budget, don’t be afraid to ask your lender for help in the form of an interest rate reduction. Similarly, if you have a good job and a high credit score, you really shouldn’t be paying high interest rates on your private loans. Look for opportunities to refinance and lock in lower interest rates.
The good student loan habits to follow take very little time. Once or twice a year you will need to do some research and education, but for the most part, it just requires spending a few minutes each month to follow-up on things. The little bit of time and effort needed can pay off handsomely in the long run.