I graduated from college in 2014, and like many recent graduates, I have student debt. And today, when I look back at my college years and how I handled college loans, credit and debt, I did it all wrong.
Starting college was an exciting time, and yet, I had many unknowns. I had to quickly “figure it out”, as my family was going through a bankruptcy. That meant I was on my own to pay for my move to San Francisco, tuition, housing, and expenses. I needed money fast, but because I heard so many horror stories of people going into debt because of college loans, I decided to find a different solution.
I applied for many credit cards – 10 to be exact. I was denied for each one…and what I later learned was that my credit report took a hit and went lower with each application! So, my next plan of action was to walk into local banks, where I was told that I could get a secured credit card. This essentially acts like a debit card, and in time – maybe a year later – I would be eligible for a “regular” credit card. But here’s the catch…in order to get a secured credit card, you need to have money in your bank account. Since I had no money, this would not work.
I was scared and desperate. I didn’t have money to pay for housing, so I lived in a hallway for 6 months. Credit and loans were my only way to get what I needed, and when you’re in a desperate situation with no money and no access to credit, you’ll sell your soul to get what you need.
I ran out of options, so I went to my school’s financial aid office and asked for an emergency loan. I signed a bunch of papers, checked a lot of boxes, and didn’t read all the fine print. In a week, I was approved and got the money I needed. At that point, all I felt was relief – but looking back, I realize now that there was no clear explanation as to what those loan payments would look like.
All I knew was that finally, I could focus on school and enjoy the college experience. I got a place to live and was able to pay my rent. I was even able to go out and enjoy life in San Francisco. I didn’t think about paying back my loans – it was something to worry about after I graduated. After all, when I did my paperwork, I was told that I wouldn’t need to pay back my loans until 6 months after I graduated. But, little did I know that, as I’m living my college life, I’m already accruing interest on my student loans. In fact, the interest started from the first day I received my loan.
After four years of hard work, graduation day arrived! And soon after, it was time for me to take part in the mandatory federal loan out boarding process. It was time for me to select a payment plan to pay back my loans. I was told that I would not have to worry about paying for 6 months. Did I want to start with low payments, and as I saved money, pay more? Did I want to pay the same amount each month for the next 25 years? Did I want to pay a percentage based on my income? As someone who just graduated from college, how was I supposed to know where I was going to be in 10, 20, 30 years? So, like many others, I decided to wait 6 months and figure it out later.
When that day came, I learned I had loans of approximately $30,000. I made paying back my loans a priority, and in the first year, I paid more than the minimum, totaling $4,000. I thought I was on the right path, and payback process was easy – all I had to do was click the “pay now” button. Then, a year later, as I was clicking through the website, I saw I made a dent of only $230! The rest of my payments went to paying off the interest that accrued while I was in school. That was the turning point for me. It was time for me to educate myself and take control of my financial future.
And by following these two simple tips, you, too, can take control of your student loans and your personal finances:
Find out your loan details: Little did I know that I actually had 9 college loans, and each loan was different – some subsidized, some were not, and each had a different interest rate. Once you know your loan details, go beyond clicking “make a payment” and select which loans to pay first, making high interest rate loans a priority.
Pay more than the minimum: Just like any other loan, you can save money by paying more than the interest alone. But also, pay what you can afford; which means know your budget.
Today, I’m still paying off my college loans, and I still have questions on how repayment plans work. I’m also proactively impacting my credit score by finding responsible ways to add new credit lines to my credit report, like having my rent payments reported to TransUnion.
With my responsible financial behaviors, I am changing my credit score and changing my life. I signed up for RentReporters to boost my credit score. That, coupled with my other financially responsible behaviors, has enabled me to get my apartment, be billed for utilities in my name, and even buy a car with a 4-year loan and a low interest rate. By educating yourself and paying your debts on time, there is a silver lining.