- Strategies to Pay Off Student Loan Debt Faster – Experian Global News Blog
- 1. Paying down student debt strategically begins by knowing details about each loan
- 2. Know the pros and cons of refinancing (or consolidating) student loans to lower your monthly payment
- 3. Make bi-weekly student loan payments to save money on interest
- 4. Sign-up for automatic payments to earn an interest rate reduction by around .25%
- 5. Ensure that any over payments you make are used to cut down your principal
- 6. Stay motivated to pay off student loans by focusing on eliminating one loan at a time
- Questions We Discussed:
- View the Entire Discussion via Storify
- Recent Chats on :
- Which Student Loans Should You Pay Off First?
- Step 1: Get your student loans in order
- Step 2: Decide which loans to focus on first
- 1. Private student loans
- 2. Loans with the highest interest rate
- 3. Loans with the lowest balance
- Step 3: Consider consolidation or refinancing
- Step 4: Start using the method that works best for you
- Should You Pay Off Your Student Loans Early?
- 3 Things to Do Before Paying Off Your Student Loans Early
- 1. Build an Emergency Fund
- 2. Pay Off Higher-Interest Debt
- 3. Save for Retirement and Get Your Employer Match
- How to Pay Off Your Student Loans Early
- Set Up Autopay for a Higher Amount
- Pay Windfalls Toward Your Debt
- Increase Your Income and Reduce Expenses
- When it Doesn’t Make Sense to Pay Off Student Loans Early
- You Might Qualify for Student Loan Forgiveness
- Your Student Loans Have a Low Interest Rate
- You’re Fine With Carrying the Debt
- Should You Pay Off Student Loans Early? It’s a Personal Choice
- With Lots of Student Loans, Which Debts Should You Pay First?
- 2. Pay off loans with a cosigner
- 3. Pay off loans with variable interest rates
- 4. Pay off unsubsidized loans with the highest fixed interest rates
- 5. Pay off subsidized loans with high interest rates
- 6. Pay off unsubsidized loans with low interest rates
- 7. Pay off subsidized loans with low interest rates
- Some tips on paying your student loans early
- Don’t give up!
- Read more:
- Which student loans should you pay off first?
- Start with organizing your loans
- Choose a payoff method
- Set the order for student loan repayment
- Avoid repayment missteps
- Student Loans vs. Other Debt: Find the Most Powerful Debt Payoff Strategy
- 1. You’re facing high student loan rates
- 2. Your student loan has a small balance
- 3. You have private student loans
- 4. You’re close to defaulting or declaring bankruptcy
- 1. You’re following the debt snowball or avalanche method
- 2. You value federal loan protections
- 3. You hope to qualify for PSLF
- 4. You want to improve your credit
- 5. You want to claim interest tax deductions
- Start strategizing your way debt today
Strategies to Pay Off Student Loan Debt Faster – Experian Global News Blog
The average 2016 grad holds $37,172 in student loan debt — which is why we hosted a special #CreditChat on Periscope, Blab, , and Snapchat to discuss ways to manage and eliminate college debt.
Our featured guest on was: Wayne Weber, CEO of Gift of College
The video panel included: Andrew Josuweit: CEO of StudentLoanHero.com; Shannon McNay: Director of Content at MyBankTracker.com; Rod Griffin: Director of Public Education at Experian; Mike Delgado:Director of Social Media at Experian.
We also featured student loan pay off tips on Snapchat with 4 Strategic Ways to Pay Off Student Loan Debt Faster.
Here are some tips we discussed in more detail …
Paying back student loans is a lot of work — and especially difficult if you’re living paycheck-to-paycheck. Right now, the average 2016 grad holds $37,172 in student loan debt, which continues the trend of increased debt per borrower every year: Here are some suggestions for helping you manage (and pay off) student loans:
1. Paying down student debt strategically begins by knowing details about each loan
The first step to building a strategy to paying down student loan debt is knowing how much you owe across all your different loans. If you’re unsure of how many loans you have, go to the National Student Loan Data System for info on your federal student loans.
To track your private student loans, check your credit reports to ensure you know each of your lenders. Remember, student loans are reported on credit reports so ensure you pay all loan bills on time to avoid hurting your credit scores.
As you collect info about each of your student loans, make a list to track:
- Type of Loan (Federal or Private)
- Fixed-Rate or Variable-Rate
- Interest Rates
- Term Length
- Total Due (w/ Interest)
- Grace Period (Interest Accrues)
Knowing these details can help you figure out what loans are costing you the most — and how to approach which loan you want to focus on paying off first. The Office of the U.S. Department of Education provides some helpful calculators to help you understand your loan terms and repayment estimation.
2. Know the pros and cons of refinancing (or consolidating) student loans to lower your monthly payment
After knowing details about each of your loans, you might be tempted to consolidate (or refinance high-interest rate student loans) into another loan program.
Refinancing can help you lower your monthly payments, but can also increase the term length and interest rates. You will also lose your federal borrower benefits (e.g. grace period, Perkins loan forgiveness, federal loan protections, etc).
Consolidation or refinancing your student loans can be a great option for you — just know how it will impact you financially.
3. Make bi-weekly student loan payments to save money on interest
“Paying half your student loan payment every two weeks works out to a full extra payment a year,” says Betsy Mayotte at the American Student Assistance (ASA). And you’ll also save money on the total interest you’d be paying. Check out this helpful calculator to see how much you can save by making bi-weekly payments. The key is to ensure you’re making both payments before the due date.
4. Sign-up for automatic payments to earn an interest rate reduction by around .25%
Many lenders are offering a small reduction in interest rates simply by signing up for automatic payments. Typically, a lender will discount your interest rate by .25%. Signing up for direct deposit not only lowers the cost of your total loan, but also ensures you won’t miss a payment (which is key for improving your credit scores).
5. Ensure that any over payments you make are used to cut down your principal
The swiftest way to cut down your student loan debt is to make payments against your principal balance. If you want to make bigger payments on your loan, just make sure your lender is informed to use that payment to your principal. Sometimes lenders need to be instructed to do this.
6. Stay motivated to pay off student loans by focusing on eliminating one loan at a time
When you have several student loans to pay off, it’s easy to get overwhelmed and stressed out. This is why it’s important to get hyper-focused on eliminating one loan at a time.
This means making minimum payments on all your student loans — but making additional payments on one particular loan. As you begin cutting down the principal balance, celebrate every win (e.g. each time you knock of $1,000).
To learn more, don’t miss our #CreditChat on Wednesday at 3 p.m. ET
Questions We Discussed:
- Q1: What mistakes are easy to make when applying for college loans?
- Q2: How can students keep college costs down?
- Q3: Where can college students learn about scholarships and grants available?
- Q4: What are differences between federal and private student loans?
- Q5: What are steps to take when ready to tackle college loan debt?
- Q6: How soon should you start paying down college loan debts? How?
- Q7: How do you determine what college loans to pay off first?
- Q8: What are pros/cons of student loan consolidation programs?
- Q9: What should students do if they are struggling to make their loan payments?
- Q10: Any final tips to help our community to pay off their student loans?
View the Entire Discussion via Storify
Join our #CreditChat every Wednesday at 3p.m. ET on and Google Hangouts. If you’ve never heard about #CreditChat, here is a brief overview:
Recent Chats on :
Which Student Loans Should You Pay Off First?
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
After graduation and a possible grace period, it’s time to start paying back your student loans. But if you have a lot of loans, it can be hard to determine which student loans to pay off first.
Before you begin structuring your repayment plan, make sure you’re making minimum monthly payments towards all your loans. Even if you start making a plan to pay off your loans after the grace period is over, it’s important to stay current on all your bills. Late student loan payments and non-payment can cause you to go into default, which can derail your credit score.
Now, here’s your step-by-step plan to help you manage your loans and figure out which student loans you should pay off first.
Step 1: Get your student loans in order
If you have many different student loans, it can be hard to keep track and get them in one manageable place. Create a document or spreadsheet that details:
- Your lender(s)
- The total amount you owe for each loan
- Minimum payment
- Monthly payment due date
- Cosigners (if any)
- How you pay (online, auto-pay, check, etc.)
If at any point you’ve consolidated or refinanced your loans, make sure that’s in your spreadsheet.
Step 2: Decide which loans to focus on first
Now, there are a couple of helpful methods to choose from when it comes to figuring out which loans to focus on first.
1. Private student loans
Best for: Anyone who has private student loans.
Private student loans tend to have high interest rates compared to federal student loans. Because of this, you might want to wipe those out before turning to federal student loans. You can continue to make minimum monthly loan payments usual, but put all your extra cash towards private student loans until those are complete.
2. Loans with the highest interest rate
Best for: Anyone motivated by saving the most money, even if it might take longer to pay off a loan. You’ll save the most in interest over the life of your loans with this method.
Once you’ve outlined all your loans, you can choose which repayment plan best suits your financial situation and budget. The debt avalanche technique requires you make minimum payments on all your loans. But with this strategy you’d make bigger payments towards the highest interest loan. So, once you’ve tackled your private student loans, move on to the next loan with the highest rate.
Because high-interest loans can cost you more in the long-term, you tackle these first. Use any extra income you can to pay off the loan with the highest interest. Then, when that loan is paid off, you can use all that new money towards the next-highest interest rate loan. You’ll do this until all your loans are paid off.
3. Loans with the lowest balance
Best for: Anyone who’s motivated by quick wins (even if they’re small). You’ll start paying off loans more quickly which could jumpstart your student loan debt payoff.
Instead of concentrating on high interest, you could use the debt snowball method — which concentrates on loans with the lowest balances.
With this method, you’d make your minimum payments so you’re up-to-date on all your loans, with any extra cash going towards the loan with the smallest balance.
Once your lowest loan balance is paid off, put all extra cash towards the next lowest loan balance. Continue until all your loans are paid off.
Step 3: Consider consolidation or refinancing
Staying on top of many different loans can get confusing. While your handy spreadsheet is helpful, it could be limited. You might want to think about student loan refinancing or consolidation.
- Consolidation: This is only available for federal student loans. All your federal loans are combined and your interest rate is the weighted average of your loans. Your monthly payment might not be lower than what you were paying before, but it does make it more manageable with one payment.
- Refinancing: This is open to federal loans, private loans, or a mix of both. Student loan refinancing is a form of consolidation, but instead of combining all your loans, you’ll get one new loan to replace all your loans. This includes a new interest rate and terms.
To qualify for refinancing, lenders will check your credit score to make sure you’re a viable candidate to loan money to. If you don’t have a great credit score, you might need to get a cosigner.
Both consolidation and refinancing are good options to help manage your loans, but they aren’t for everyone. If you have higher interest rates than what you’d pay without doing so, they might not be worth it.
Additionally, this starts you with a new loan term, or how long it’ll take you to pay back your loan in full. If you’ve been paying off your loans for a while, refinancing will start a new term. This could mean you’re paying your loans off for a much longer time than you anticipated. You’ll also lose any federal protections — student loan forgiveness — if you refinance your federal loans.
However, if you’re early on in your repayment plan and you can get a lower interest rate than what you’re paying now, refinancing your student loans might be worth it. Make sure you review many different lenders to check out loan terms before signing up.
Compare Rates Now
Step 4: Start using the method that works best for you
Once you’ve laid out your loans and budget, you can see all your income and bills at a glance. If you realize you don’t have any extra money to put towards paying more on your student loan debt, it’s OK.
You don’t need to pay off your student loans early.
As long as you’re continuing to make minimum monthly payments until you can get more cash to put toward extra payments, your credit score will get a boost and you can explore other student loan repayment options down the road.
The important thing, aside from paying at least the minimum balance of all your loans on time, is that you find a method that works for you. Review them all to see which one makes the most sense for your financial situation, and start using it as soon as possible to get results.
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Should You Pay Off Your Student Loans Early?
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It’s getting harder to graduate from college without taking on student loan debt. And whether you owe $5,000 or $500,000, sometimes it seems it’s more than just a number. It’s a monkey on your back that’ll never go away, and so, of course, you’d want to do everything in your power to pay that debt down.
If that’s you, then congrats: That fire to pay off your student loans early can be a powerful motivator to help you succeed. But you might still be wondering, should I pay off my student loans? Is that really the best use of my money?
Paying off your student loans early is a smart move in many cases, but there are also times when it makes sense to wait. Here’s how to decide whether paying off your student loans early is a good financial goal for you.
3 Things to Do Before Paying Off Your Student Loans Early
Depending on your circumstances, paying off your student loans early may be a great financial goal. However, it’s also important to not develop tunnel vision and neglect other important areas of your finances. In particular, here are a few things you should focus on first.
1. Build an Emergency Fund
Building an emergency fund has always been important, but chances are 2020 has shown you why it’s an especially crucial first-step when building your finances. You never know when rogue wildfires, social unrest or a life-threatening pandemic will wreak havoc on your income.
Rather than paying off student loans early, it’s better to focus on building up your emergency fund first. After all, once you pay that money to your lender, you can’t get it back if you run into financial problems down the road.
2. Pay Off Higher-Interest Debt
Student loans can come with their own emotional baggage—especially if you were young and naive when you took them out. But that doesn’t mean there aren’t better types of debt to pay off first.
Specifically, paying off more expensive debt credit cards or personal loans can save you more money in the long run—money you can then use to pay off your student loans even faster when you’re ready.
3. Save for Retirement and Get Your Employer Match
It’s easy to put off saving for retirement until later in life.
After all, you’ll be making more money later in your career and will have less student loan debt then, right? But here’s some food for thought: Every dollar you save while you’re in your 20s grows to be worth $15 by the time you reach retirement age if you invest it in the stock market earning an annual rate of 7%. By saving today, you’ll need to save far less than if you wait.
Start building your 401(k) by contributing enough from each paycheck to maximize your employer’s match.
It’s free money, after all, and means you’ll need to save even less on your own to enjoy a comfortable retirement.
If you don’t have an employee sponsored 401(k), consider maximizing your IRA—currently $6,000 per year. You can accomplish this by contributing $500 per month or contributing it all at once.
How to Pay Off Your Student Loans Early
Assuming you have all of your first-line financial goals under control, there are things you can do to make it even easier to pay off your student loans.
Set Up Autopay for a Higher Amount
In order to pay off your student loans early, you’ll need to pay more than the minimum required payment. If you’re serious about this, it’s a good idea to set up autopay for a larger-than-normal amount. This way, you’re committed to a larger payment and don’t have to decide whether to make additional payments each month.
How much? That depends on your personal situation. This is where it’s helpful to review your budget and see what you can afford. You can also reduce the sting of higher payments by starting with a small extra payment each month—say, $25—and then ramping it up over time.
Pay Windfalls Toward Your Debt
If you come across any extra money, whether it be an inheritance, a tax refund or the $20 bill you found in the parking lot, put it to good use: paying down your student loans. You weren’t expecting the money in the first place, so you’re less ly to miss it.
Increase Your Income and Reduce Expenses
Another time-tested approach to paying off student loans earlier is adjusting how much you have left over each month to pay toward debt. You can accomplish this in two ways: cutting costs and earning a higher income.
Start by reviewing your bank and credit card statements for the past few months and write down everything you spent money on—and how much you spent.
Now, consider each charge in turn: are there things you can substitute with cheaper options or even eliminate entirely? Some common expenses people cut are cable (substitute cheaper streaming TV), dining out (substitute cooking at home) and groceries (plan meals around store sales to avoid wasted and overpriced food).
If you’re financially savvy, you may have already reduced your spending. However, most people still have areas where they can cut back on monthly expenses. This may not be as easy as cutting out avocado toast or lattes, so take some time to review your transactions to see where you might be overspending.
Depending on your position, you also may be able to increase your income by taking on additional hours or talking to your boss about a raise.
If you already maxed out earnings at your current job—or if you just can’t spend another minute there—it may be worth exploring other roles.
Finally, if you’re looking for a creative outlet or new hobby, consider building a lucrative side hustle to accelerate your debt-payoff timeline even faster.
When it Doesn’t Make Sense to Pay Off Student Loans Early
As much as you might want to get rid of your student loans early, there are a few situations where it doesn’t make sense to do so.
You Might Qualify for Student Loan Forgiveness
One of the redeeming qualities of student loans—especially federal student loans—is that there are quite a few student loan forgiveness programs.
For example, the Public Service Loan Forgiveness program forgives your loans after you make 120 loan payments while working for a public employer and meet other qualifications. In cases this, it might be better to carry that debt until it’s forgiven. That way, you can put that extra money to better use elsewhere— saving for retirement or a down payment on a house.
Your Student Loans Have a Low Interest Rate
Another benefit of student loans is that many come with ultra-low interest rates. For undergrad borrowers right now, federal interest rates are as low as 2.75%. Compare that to the average car loan interest rate, which is twice as high at 5.14% APR, and credit card rates, which average out at 15.78% APR.
Even more important, consider what else you could be doing with that money. Instead of paying interest at 2.75%, you could earn an average annual return on the stock market of around 7%, although it will vary from year to year. In general, though, if you have a low-interest debt student loans, you’ll often come out ahead financially by investing rather than paying off the debt.
You’re Fine With Carrying the Debt
There are many reasons not to pay off your student loans early, but these largely ignore the psychological impact of having student debt.
Sometimes, borrowers just want the satisfaction of eliminating their student loans once and for all.
However, if the idea of carrying debt doesn’t keep you up at night, it might be better to keep student loans on your books and focus your extra cash elsewhere.
Should You Pay Off Student Loans Early? It’s a Personal Choice
No decision is ever made in a vacuum—and that’s especially true when deciding whether to pay off your student loans early.
That’s why it’s important to carefully consider whether paying off student loans early is the best use of your money.
In many cases it’s a good idea, but it may mean postponing your other financial goals, buying a house or retiring early. Then again, few people have ever become debt-free and regretted it.
With Lots of Student Loans, Which Debts Should You Pay First?
I graduated from law school in 2011 with a whopping $208,000 of student loan debt. To make matters worse, the job market was horrible for new lawyers.
It would have been easy to sulk, complain, and make excuses. But, I refused to do that. A negative attitude wasn’t going to help me get debt. As part of my decision to take control of my financial future, I decided to tackle my student loan debt head-on. In order to do that, I needed to know the smartest way to pay off my loans.
After you’re on a repayment plan and making regular minimum payments, you can determine which loans to pay off faster and in what order.
Note that you should also have other savings established – such as a 6-12 month emergency fund -prior to paying down your student loans faster. But once you’re ready, here’s what you should do.
Private loans are the most dangerous student loans for a variety of reasons. Often, they have variable interest rates, require a cosigner, may not be consolidated, are ineligible for deferment or forbearance, and have limited repayment options.
If you die before repayment in full, the loans become due (which is why, if you have a cosigner, you should have life insurance to cover the amount of debt you have in private loans). For these reasons, private student loans should be your priority.
At this stage, you should also consider student loan refinancing, which could be a great way to lower your interest rate and possibly reduce your total monthly student loan payments.
Check out SoFi for some low-rate refinancing options. Another company to consider here is Credible, which will scour many of the lenders available and present you with the best refinancing loan for your needs.
Fiona can also give you refinancing quotes from multiple lenders without affecting your credit score. That way you can get a sense of what your rates are from a variety of top-tier lenders.
Check out some of those lenders below:
2. Pay off loans with a cosigner
Your cosigner did you a favor by helping you get loans you otherwise couldn’t have, and she trusted you to repay them. You should pay off loans with cosigners to repay the favor, maintain a good relationship, and keep your word with your cosigners.
Anything could happen to you, and you don’t want someone else to be on the hook for your loans if you’re unable to pay.
3. Pay off loans with variable interest rates
A variable interest rate on student loans means that the interest rate changes over time, an underlying benchmark rate or index. The risk associated with variable interest rates is that the rate can go up, and you’ll have to pay more. Typically, these will be your private loans (except for some federal loans disbursed between 1998 and 2006).
4. Pay off unsubsidized loans with the highest fixed interest rates
An unsubsidized loan is a loan that accrues interest from the disbursement date.
When an unsubsidized loan is accruing interest, the amount of interest is added to the principal, and you’ll have to pay interest on the increased principal amount (this is called capitalization).
Since high-interest rate loans will have grown the most by the time you’re in repayment, these loans should be a priority to pay off.
A fixed interest rate means that the interest rate is set and will not change over the life of the loan. With fixed interest rate loans, there is no risk of the rate increasing, making them less risky than variable interest rate loans.
Most federal student loans have fixed interest rates that are set by federal law. The higher the interest rate, the faster the interest on the loan grows, and the more money you owe.
Therefore, you want to pay off high-interest-rate loans quickly.
5. Pay off subsidized loans with high interest rates
A subsidized loan is a loan that the Federal Government pays the interest on while it is deferred, in the grace period, and during some other times.
Thus, subsidized loans are not accruing interest while you’re in school. Your interest on subsidized loans should be zero when you begin repayment.
However, you’ll want to pay down the principal of subsidized loans with high interest rates to avoid future growth.
6. Pay off unsubsidized loans with low interest rates
Again, an unsubsidized loan means that the interest accrues from the time of disbursement. However, if the interest rate is very low, you won’t have much capitalization by the time you’re in repayment. For this reason, pay unsubsidized, low interest, loans after subsidized high-interest loans.
(Note: an exception to this rule would be if your unsubsidized, low interest, loans have been in deferment for so long that the capitalization is high. In this case, you’d want to pay down the unsubsidized, low interest, loans prior to the subsidized high-interest loans.)
7. Pay off subsidized loans with low interest rates
Subsidized loans with low interest rates are the best types of student loans. You want to put extra money toward these last because the government will have paid for the interest while you were in school, and the interest that accrues during repayment will be the lowest all your loans.
Some tips on paying your student loans early
Regardless of which loans you choose to put more money toward, remember to put the additional amount on the principal of the loans, not the interest. Each lender varies as to how you’re able to pay more than the minimum.
To make sure you are paying off the principal, contact your lender to find out how it accepts payments toward the principal.
For example, a lender may require additional payments be made over the phone, or it may require a letter stating that the monthly payment is paid and the additional money should go toward the principal.
Sallie Mae only requires that you enter the additional amount in the “payment amount” box online. So, it depends on your lender.
Make sure to find out because you do not want to put extra money on the interest. By putting additional money on the principal, you lower the amount of future interest.
To recap, I’ll use my loans as an example. I committed to the standard repayment plan (with a plan to pay off my loans in 10 years), and began putting additional money on my private loans (both of which my mom was a cosigner and had variable interest rates).
After paying off my private loans, I put extra money on a high interest, unsubsidized loan (that had accrued thousands of dollars in interest throughout law school). After those are paid in full, I will put additional money toward my loans with lower fixed interest rates, both of which are subsidized.
Don’t give up!
Hopefully, you are in a position to pay off your student loans early. However, if you have to choose which debt to pay because you can’t afford all your minimum payments, pay your student loans first (over credit card and medical debt).
Student loan debt is arguably the most dangerous type of debt because it is usually not dischargeable in bankruptcy. This means that if you claim bankruptcy, your credit card debt and medical debt will be discharged, but your student loan debt will not (i.e., after bankruptcy, you still owe your student loan debt).
Student loan debt should not discourage you. Your past is your past. It’s an opportunity to learn how to overcome debt and face today’s challenges. I’ve taken my student loan debt as a learning experience on how to get rid of debt quickly and build wealth (something I knew nothing about prior to graduating from law school).
Now, I can’t get enough of financial planning; I’ve even started blogging about it. Intentional living, believing in myself, and adapting to changing times is what success means to me. There are no excuses.
Which student loans should you pay off first?
After the college graduation celebrations wind down, the reality of student loan repayment kicks in. Deciding how to pay off student loans begins with working out a budget, but there's more to it than that. When creating a repayment plan, it's helpful to approach paying down student debt in the right order.
Start with organizing your loans
The first step in deciding how to pay off student loans is drilling down to the details. Specifically, you should know:
- The total number of loans you have outstanding
- Whether loans are federal, private or a mix of each
- Which loans are cosigned, if any
- Whether your federal loans are subsidized or unsubsidized
- Minimum payments for each loan
- Loan interest rates and whether they're variable or fixed
- When each loan's grace period ends, if applicable
WHAT IS A STUDENT LOAN INCOME-DRIVEN REPAYMENT PLAN?
Federal student loans offer a six-month grace period following the end of undergraduate studies before payments kick in. PLUS loans are the exception–repayment for those begin immediately after they're disbursed.
The grace period gives you a chance to pick a repayment plan and come up with a strategy. Private student loan lenders can offer a grace period but it's not required.
Choose a payoff method
When deciding how to pay off student loans, there are two basic approaches you can try: debt snowball or debt avalanche.
The snowball method involves paying off loans from the lowest balance to highest. The avalanche method means paying down loans from the highest interest rate to the lowest.
Mathematically, you'll save more money over time by choosing the avalanche method, said Meagan Landress, CSLP®, advisor for student loan consulting firm Student Loan Planner. According to Landress, the snowball approach is more behavioral since you're getting small wins along the way which can help with staying motivated.
HOW TO ESTIMATE YOUR STUDENT LOAN PAYMENTS
Set the order for student loan repayment
When there are multiple student loans in the mix, prioritization matters. When mapping out a repayment plan, consider following this order:
First: Variable-rate private student loans
Private student loans tend to have higher interest rates than federal loans. Variable-rate loans have an interest rate that's tied to a benchmark, meaning the rate could increase if the benchmark rate rises so it could be wise to get those the way sooner rather than later.
Second: Fixed-rate private student loans
After variable-rate private loans, consider your fixed-rate private loans next. Though the rate is guaranteed for the life of the loan, it may still be higher than rates for federal loans, potentially costing you more in interest.
Unsubsidized federal loans, then subsidized loans.
Unsubsidized federal student loans begin accruing interest right away so it makes sense to work on paying those down after making a dent in private loan balances. “Subsidized loans do not charge interest during in-school deferment, deferment or forbearance,” Landress said.
With unsubsidized and subsidized loans, you could follow the same snowball or avalanche approach. For example, you might pay down the highest rate unsubsidized loans first, then highest rate subsidized, followed by unsubsidized and subsidized loans with the lowest rates.
STOP STUDENT LOAN WAGE GARNISHMENT WITH THESE 3 TIPS
Avoid repayment missteps
Loan consolidation or refinancing could help to streamline student loan repayment by combining multiple loans into one. But you should consider any trade-offs involved. That includes sacrificing deferment and forbearance periods, income-driven repayment options and public service loan forgiveness.
Finally, watch out for these other mistakes when managing student loan repayment:
- Avoiding your lenders when you're struggling to keep up with your payments.
- Overlooking income-driven repayment options for federal loans.
- Missing out on interest rate discounts because you haven't signed up for autopay.
- Falling prey to student loan debt relief scams.
Student Loans vs. Other Debt: Find the Most Powerful Debt Payoff Strategy
Getting a handle on your student loans and other debt can be intimidating. To start, consider a strategy that prioritizes your various types of debt, following the framework below. Then, familiarize yourself with the flexible financial products that can help you combine and pay off your debt, such as a personal line of credit.
A personal line of credit offers convenient access to funds that borrowers can use for a variety of purposes, including refinancing existing debt from multiple lenders into one convenient monthly payment. Use this personal line of credit calculator to find out if you can pay off student loan debt faster, or save more over time, by refinancing at a new low interest rate.
Paying off your debt without a strategy is throwing spaghetti against a wall to see what sticks — a messy process of trial and error that probably won’t yield results.
Plus, if you have a mix of debt in addition to your student loans thanks to credit cards, mortgages and other loans, you might find it tricky to decide where to start.
However, prioritizing your debt so you know which debt to target first (and then which to target next) can be a game-changer. Your debt strategy can bring the light at the end of the tunnel into view and motivate you to keep working toward it.
Here’s a helpful guide for deciding when you should prioritize paying off your student loans first and when you should pay down other debt instead.
Note: Currently, all payments for certain types of federal student loans are suspended until September 30, 2021 per an executive order by the president. Interest will not accrue during this time period. (Note updated on 2/22/2021)
1. You’re facing high student loan rates
The debt avalanche strategy calls for a borrower to pay down their debt with the highest interest rate first. So if that’s your student loans, then that’s where you should begin. By paying down your most expensive debt, you’re putting your money where it can save you the most by paying less interest in the long run.
If you have multiple student loans, start by targeting the one with the highest interest rate. Then, when that student loan is paid off, you can roll your monthly payments on that debt (both the minimum and any extra payments) to the next student loan.
You also might want to explore refinancing your student loans. If you can qualify for a lower interest rate, refinancing can help you lower your monthly payments and save on interest.
2. Your student loan has a small balance
If you have a small balance on your student loan debt compared to the rest of your debt, consider following the debt snowball method and paying off your smaller debt first.
The debt snowball method helps you see results and get a win under your belt — fast. That can be the motivation you need to stick with your debt payoff plan.
It also more quickly frees up the money you’re spending on your minimum payment to use for other goals. Take a look at your student debt as a whole and as individual loans.
Figure out which student loan has the smallest balance and start from there.
3. You have private student loans
Private student loans can be a riskier form of debt than federal loans — and you should work to get rid of them sooner rather than later.
That’s because private student loans don’t offer the same repayment protections and options as federal student loans, such as income-driven repayment (IDR), deferment and forbearance. Plus, if you have a co-signer, how you manage your private student loans will affect the finances and credit of both you and your co-signer.
What’s more, private student loan default can be triggered more easily than federal student loan default. Federal student loans have set rules for default, and you get 270 days (or nine months) to avoid it. Private student loan lenders, on the other hand, have their own rules for when a loan is in default. Missing even one payment could lead to default.
4. You’re close to defaulting or declaring bankruptcy
If you’re in danger of student loan default or bankruptcy, paying off student loans could help you avoid some nasty consequences.
For example, defaulting on federal student loans can lead to wage garnishment much more quickly than lapsing on credit card payments. So if you’re struggling with federal student loan payments, make it a top priority to adjust or suspend payments through IDR or deferment. This will keep you default — and your servicer away from your paychecks.
In most cases, student loans are not dischargeable in bankruptcy. So if you’re considering this step, discuss your options with a bankruptcy lawyer. Depending on your other debt, your overall financial situation and the kind of bankruptcy you choose to file, you might need to continue making payments on your student debt.
1. You’re following the debt snowball or avalanche method
If you’re following the debt avalanche or snowball method, you might target student loans first. But it’s possible these strategies could lead you to target other debt with higher interest rates or lower balances.
Personal loans and credit cards often carry higher rates than student loans, with credit card APRs ranging all the way up to 20 percent and higher. Plus, revolving debt, such as credit card debt, often has smaller balances that can be knocked out quickly.
The only way to know for sure where to start with the debt snowball or avalanche method is to list all your debt and loans in one place. Then, you can compare and sort by debt amount and interest rate to figure out whether to pay off student loans or other debt first.
2. You value federal loan protections
There aren’t many other types of debt that provide the borrower protections and repayment options federal student loans offer.
For instance, maybe you’re enrolled in an IDR or other non-standard payment plan for your federal student loans. If this flexibility to adjust payments is important to you, paying down other debt first before federal student loans might be your best option.
3. You hope to qualify for PSLF
Public Service Loan Forgiveness is a program slated to forgive federal student debt for more than 550,000 Americans. Any balance remaining after 10 years will be forgiven for PSLF-eligible borrowers.
The more you pay on this debt, the less will be left for the government to forgive. Focusing on other debt can make more sense if you’re counting on student loan forgiveness later on.
4. You want to improve your credit
Paying down your debt quickly can improve your credit.
However, you’ll see your credit score increase even faster if you pay down certain kinds of debt, such as credit cards and lines of credit. This debt affects your credit utilization ratio, which measures how much of your available credit you’re using.
Ultimately, higher balances on revolving debt will give you a higher utilization ratio — which can damage your credit. So if you have maxed-out credit cards, targeting that debt first can help you build credit faster.
5. You want to claim interest tax deductions
When you’re deciding which debt to prioritize, it can help to consider the potential tax benefits you can claim. Most consumer debt can’t be claimed as a tax write-off, but student debt and home mortgages are exceptions.
Both offer taxpayers the chance to deduct loan interest from their taxable income. This can offset some interest costs, making this debt less expensive to hold overall.
However, keep in mind that these benefits aren’t unlimited. As of 2020, you can claim only $2,500 a year in student loan interest, for example. Plus, for the 2019 tax year, a student loan tax deduction starts phasing out at $70,000 in modified adjusted gross income (MAGI) for an individual and at $140,000 in MAGI for a married couple filing jointly.
Estimate your student loan tax deduction and then include it in your total debt cost calculations to get the most accurate picture of which loans are costing you the most.
Start strategizing your way debt today
The hardest part of any race is the first step, and the most difficult debt to repay is the first dollar. Figuring out where to start is scary and requires you to take a hard look at your debt.
Choose a debt payoff strategy that makes the most sense for you and keeps you motivated — then, stick with it.
This article was updated in July 2020. It was written by Andrew Josuweit from Forbes and was legally licensed through the NewsCred publisher network.