Have you ever been gripped by nausea because you suddenly remember you missed a payment? Automating your bills, especially your student loans, will help relieve your worries.
“Automation” carries a stigma of losing control and even dramatizations of evil robots collecting your data. The fact is, automation within the financial world is easy and protects your financial health.
Auto-pay will automatically withdraw your student loan payment from your checking account. The loan servicer will only withdraw the monthly payment that was set up when enrolling in auto-pay, giving you control over your payment and peace of mind.
Why You Should Set Up Auto-Pay
1. Never Miss a Payment
Paying off your student loans should be on your mind, but making the monthly payment when due should not take up your time.
A late payment is never a good thing. You will be charged a late fee and could lose your borrower benefits or repayment incentives. On top of this, late payments are reported to credit bureaus and will lower your credit score, which is a key marker of your money management skills. Set up auto-pay to avoid the mistake of missing a payment.
2. Pay Less Interest
Signing up for auto-pay is about more than just convenience. It is also about saving money with a lower interest rate.
Federal student loan servicers offer a 0.25% reduction of your interest rate for the automatic payment option. If you enroll in an income-driven repayment plan, signing up for auto-pay may be required.
Private student loan options are dependent upon the lender. If your private student loans are with Sallie Mae, they offer the same 0.25% interest-rate reduction as federal student loan servicers for automatic payments.
0.25% is a small number, but over time the savings will grow, and that is a financial win. It can save you a month’s payment on a 10-year term and a dozen or so payments on a 25-year term.
3. Pay Down Your Debt in a Timely Manner
Staying on auto-pay during the life of your loan will ensure you pay off your debt in a timely manner. Missing payments would set you back with your debt pay-off journey, along with entering periods of deferment or forbearance. Avoid this by scheduling an expected and budgeted payment each month.
4. Easily Make Larger Payments
You can enroll in auto-pay for the current amount due each month. However, if you are on a mission to pay off your student loans faster, you can also increase the amount you pay each month with auto-pay. By doing this, you will reduce the total cost of your loan. This is an effective strategy to pay off your student loan faster.
How to Set Up Auto-Pay
First, track down your student loan servicer and set up online access to your account.
If you don’t know who to contact, you can track them down by signing into Studentaid.gov or the National Student Loan Data System (NSLDS). For a private student loan, you will need to read their policies to see if they offer the incentive of interest reduction for auto-pay. You must be current on your loan payments in order to start auto-pay, so you should also review the state of your account.
Second, solidify your payment plan with your budget.
If you do not have adequate funds in your checking account this can lead to hefty overdraft fees and another headache. Look over your finances and make sure you have enough money in your bank account every month to cover the student loan payments. This would also be a good opportunity to consider what repayment plan options you have and how much you can afford to pay each month.
Next, verify that the payment date aligns with your payday.
Similar to making sure you have the money each month in your account, double check the date your payment is taken out of your checking account and that this aligns with your income schedule. Most loan servicers allow you to choose your own monthly payment date. If you schedule the auto-pay date to be the day after your paycheck is deposited in your account, you’ll quickly get used to having less cash available to spend.
Then, enroll in auto-pay.
Student loan servicers offer a user-friendly sign-up system for auto-pay online. You can always call if signing up online does not seem intuitive. You will need your bank account information on hand, including the bank’s routing number and your account number.
Lastly, monitor your payments.
Automatic payments should not be totally forgotten about, especially right after signing up. Check in and make sure everything is processed correctly.
If you are struggling with student loan debt, there are ways you can lower your student loan payments, including enrolling in an income-driven repayment plan, temporarily going on a deferment or refinancing student loans to lower your interest rate. Keep in mind that refinancing federal loans into private loans means the loss of federal loan perks, including any federal student loan forgiveness, income-driven repayment plans and more.