For new college grads who leave school with student debt, the so-called “real world” doesn’t allow them much time to mess around. If you move to a new city saddled with loans from multiple lenders, it’s easy to lose track of one or two—and pay a hefty price for your mistake.
Andrew Josuweit, CEO and co-founder of StudentLoanHero, found that out the hard way. “I moved to Asia after college carrying 16 separate loans, and I lost track of two of them,” he says. He defaulted on those two, and his debt ballooned from an already whopping $74,000 to more than $100,000.
You can probably guess his first tip for recent grads. “Make sure you update your contact info with your loan servicers, especially if you get a new cell or move to a new address,” he says.
Assuming you have that part worked out, here are seven more mistakes to avoid when it comes to your debt.
DON’T DEFER PAYMENTS UNLESS YOU HAVE TO
You can defer your loan payments for up to three years if you’re jobless or traveling after college. But you’re still accruing interest during that time, Josuweit says. If there’s any way for you to make your minimum payments while you globetrot or search for work, you’re better off doing that than pausing your payments and allowing the interest to add up.
BE CAREFUL WITH INCOME-BASED PROGRAMS
There are many income-based repayment programs that allow you to lower your monthly payment based on your earnings. But the same caveats that apply to payment deferments apply here, Josuweit says. “You won’t default or pay penalties, and that’s a good thing,” he says. “But you may just be treading water and not paying down any of your principal.” In fact, your principal might actually be going up—even though you’re paying something every month.
PAY MORE IF YOU CAN AFFORD IT
The flip side is if you’re in a situation where your paycheck is sufficient to easily make your monthly payments. Don’t just pay the minimums, Josuweit says. “The easiest way to pay down your principal and get out of debt is to make extra payments,” he explains. If your piggy bank can handle it, pay more than your minimums.
DON’T TARGET YOUR LARGEST LOANS FIRST
Arguably the greatest burden of student debt is psychological, not financial. If you’re directing all your extra payments at your highest-interest loan, it can feel like you’re fighting a forest fire with a water pistol. For that reason, Josuweit recommends paying off your smallest loans first. “It’s not always the most financially efficient strategy, but successfully paying off a loan is psychologically rewarding, and can lower the burden you feel,” he says.
DON’T PASS UP FREE MONEY
If your company offers a 100-percent match for retirement contributions, it might—might—make sense to divert some of your paycheck into your 401k so you can take advantage of that free cash. “Our philosophy is to treat debt like it’s a house on fire, and you need to put it out as soon as possible,” Josuweit says. “But if you can get a company match for your retirement savings, it’s worth doing the math to see if that makes more sense than paying down your debt.” One more thing to consider: Whether you’ll be looking to buy a house or car any time soon. “Carrying debt can make it hard to secure a mortgage or car loan, so you need to weigh all these factors,” he says.
DON’T FORGO AUTOPAY DISCOUNTS
Most lenders offer a small discount if you set up your payments to automatically come out of your checking account each month. It’s a small benefit, Josuweit says. But any discount is worth grabbing. Automatic deductions will also lower the odds of you missing a payment, he says.
ASK YOUR EMPLOYER FOR HELP
A lot of employers—most recently, PricewaterhouseCoopers and Fidelity—are offering a student loan repayment benefit. These work a lot like company 401k matches. But instead of giving you money for retirement, an employer matches a portion of your loan repayments, Josuweit explains. “It’s worth asking your employer if they offer this,” he says.