Repaying your student loans can be intimidating. Many millennials make the mistake of underestimating the importance of settling their student loans, which affects their financial standing in the long run.

Discovery Certified Financial Planner Claire van Wyk says it’s crucial to have a plan as to how you will settle your debt or you risk the chance of having a bad credit rating.

“Failing to settle your student loan debt within a reasonable period and diligently repaying the monthly installments due is a costly mistake that will take time and more money to fix. This will impact you moving forward, as you will struggle to get credit to buy a car, you may not get approval for your first bond and you may not even be afforded a credit card,” she warns.

How do student loans work? 

Van Wyk says the most common mistake graduates make is not knowing how their student loan works and failing to make it a priority when drawing up a monthly budget.

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Generally, a student and a parent who earns an income apply for the student loan together. A parent pays the monthly interest while the student is studying and the capital sits in the student’s name until they begin working. Once you graduate, you are usually given up to six months before you need to start repayments. Should this grace period expire, your parent may be asked to make the repayments.

“When applying for a loan, it’s essential that you consult a banker or an experienced financial adviser to ensure that you understand the capital amount borrowed, the interest you will be paying over the period and the minimum repayments you will pay once you start working.

“Student loans are not 0%-rated on interest – which means you will always pay back more than you received. You need to have a general estimate of what you may potentially earn and know that a significant part of your income for the first few years of working will go towards settling your loan,” advises van Wyk.

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How to repay your student loans

  • Start paying as soon as you can: Start your repayments as soon as you start earning an income.
  • Learn how to budget: Develop a well thought-through plan of how you will manage your monthly income. Aim to pay as much as you can towards the outstanding student loan, cover your expenses and only then spend money on nice-to-haves.
  • Pay as much as you can: Don’t apportion the bare minimum towards repayment because the interest is significant. Use your bonus or any cash windfall to settle the debt as soon as possible because it will leave you in a better position moving forward.
  • Don’t take out more debt: Steer clear of taking out any other debt, particularly to repay your student loan.
  • Seek advice: Speak to a financial adviser as soon as you may feel you are running into trouble with the repayments – do not simply default.
  • Attend a personal financial-planning workshop: It’s always a great idea to learn how to best manage your money and repay your debt.