Loan payment

5 steps to take before making your final student loan payment

Over the years, you have patiently watched your student loan balance shrink with each payment. Although you thought that day might never come, your final student loan payment is finally in sight.

Still, before everything is settled, there are a few issues to keep in mind. Here are five steps to making that final student loan payment and what to watch out for:

1. Calculate if you can afford your final student loan payment
2. Find your winning amount
3. Send your final payment
4. Get (and keep) your receipt
5. Make a plan for your extra cash

1. Calculate if you can afford your final student loan payment

If the money you have is more than the remaining balance of your student loan, good news: you can pay it off! But that you should using this money to make a lump sum final payment may depend on your situation.

First, make sure you can repay your student loan and have enough money to cover your living expenses. Determine how much a month of your living expenses is costing you. Anything above this amount is disposable income that you can afford to use to pay down student debt.

However, leaving enough money for an emergency fund in your bank accounts is also a good idea. Most experts recommend having at least two months of living expenses in savings, and possibly more depending on your situation.

If you have enough money to make a final lump sum payment on your student loan and keep your budget and emergency savings intact, go for it. You will save on interest and achieve a major victory.

If you’re not there yet, paying extra each month will help you pay less interest and reach your repayment date sooner.

2. Find your winning amount

If you’re able to make the final payment on your student loan this month or next month, it’s a good idea to figure out your repayment amount.

Your student loan officer has a current balance that shows how much you currently owe, but your repayment amount might be different. This is the amount you will need to pay to fully meet the terms of your loan and pay off your debt. It may include any unpaid fees or interest that have accrued but not yet been added to your balance.

To find out the amount of your refund, you can usually log on to your repairer’s website and check your current account statements. The amount of your payment should be included, clearly labelled, with a date until which it is valid. You can also call your repairer’s customer service to get your refund amount.

3. Send your final payment

Once you know your repayment amount, you’ll know how much you need to send to your loan officer to pay off your student debt in full. When you’re ready, simply make a payment through your student loan account.

When you make your final student loan payment, send it before the date the repayment amount is valid. If you wait, additional charges may accrue and your payment may not cover the total amount due.

You might end up having to pay your student loan, but not pay it because mentally you crossed it off as paid off. This could cause you to miss payments and possibly even result in chargebacks or defaults.

4. Get (and keep) your receipt

Once your payment is made, you should receive a letter from your student loan officer confirming that your loan has been repaid. Read the letter carefully to make sure it is accurate and that you have fully paid the debt. If you do not receive this confirmation automatically, contact your student loan officer and request it.

Having this confirmation will protect you from any potential errors on the loan officer’s part, or even on your credit reports. If they claim that you still owe money for this debt, you will have tangible proof that you have paid it off in full. Save a copy to your computer and print another for your financial records.

5. Make a plan for your extra cash

By making the last payment on your student loan, you get rid of a monthly expense and free up more cash. After sending in your final student loan payment, comes the fun part: deciding how you’re going to use the new “extra” money in your budget each month.

If you have other loans that you’re working to pay off, it’s always a good idea to defer the freed up cash to pay extra on your remaining debts. Other financially responsible choices could include building your emergency fund, increasing your retirement contributions, or even saving for your child’s college education.

Whatever you want to do with that money, be intentional about how you use it. Make sure it’s going toward important financial goals instead of being swallowed up by frivolous spending or low-priority purchases.

And last but not least, congratulate yourself on getting rid of your student debt.

Rebecca Safier contributed to this article.

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