5 ways to pay off your student loans faster
Consider these tactics to tackle your student debt, and save for other financial goals
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Saving for future goals like homeownership, retirement or an emergency fund can be challenging when you also have student loan debt. However, with the right plan, you can pay off your student loans while working toward other long-term financial goals. These five strategies can help you prioritize how you attack your debt and save money along the way.
Get clear on what you owe
The first step is to understand exactly how much you owe. Make a list of all of your debts by creditor, plus the outstanding balance, interest rate, and monthly payment dates. This list should include your student loans plus any other debts you have like a credit card balance or a car loan. Having a full view of your financial obligations will help you prioritize and figure out the best payment strategy. A general rule of thumb is to either pay off your highest interest debt or focus on the smallest outstanding balances (the “snowball method”) first.
Keep in mind there are different types of loans, for example subsidized versus unsubsidized or private loans—which likely have different annual percentage rates and interest accruals. Unsubsidized loans generally have more interest over the life of a loan than subsidized loans, so you may want to consider paying off those loans first.
Increase your monthly payments if possible
Paying more than the minimum required could help reduce the interest you pay over the life of the loan, and you’ll get out of debt faster because this equates to more payments each year. Review your budget to assess how much you can afford to pay each month, a number that may change throughout the year. One easy way to make additional payments is to set up automatic transfers regularly, such as when you receive a paycheck.
If you have a side hustle that generates income or receive an unexpected financial windfall, consider using the extra funds to boost your student loan payments. Likewise, if you earn a raise at work use the difference between your new take home pay and your old pay to send in an extra monthly or bi-monthly loan payment.
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Consider consolidating your debts
If you’re managing multiple monthly payments, a good way to help ease the burden of student loans is to consolidate them into a single, low-interest loan. Similarly, you could also consolidate balances from student loans, credit cards and other high-interest loans—a repayment strategy that could help you save money and pay off your debt faster. Research the annual percentage rates associated with each type of debt to determine if this approach suits your situation. It’s important to weigh the pros and cons of consolidating or refinancing federal student loans. A new loan, with new terms, means you may have a longer repayment period. In addition, when you refinance these loans, you may no longer benefit from certain government protections like student debt cancelations or payment suspensions.
A reduced monthly loan payment could also help lower your debt-to-income ratio and boost your credit score, which are two factors banks consider when you apply for a mortgage.
Reevaluate your repayment plan
When you graduated college, you may have been asked to choose between several payment options. Repayment plans—the standard plan (where borrowers are usually debt-free in a decade), the income-driven plan (which is based on your income and family size) or the extended plan (for loan balances exceeding $30,000)—can have a significant impact on your monthly payments. Most loan servicers allow you to switch your payment plan throughout the life of your loan.
Take advantage of employer matches, tax deductions and credits
Check if your employer offers any type of student loan repayment assistance—an increasing number of companies are offering varied programs as part of their employee benefits. Starting in 2024, employers may offer matching contributions to retirement plans (up to the employee’s allowed contribution amount) based on an employee’s qualified student loan repayments. If your employer offers this kind of match, it can help you save for retirement while paying off your loans. Also, be sure when you file your federal taxes annually that—if you meet the income limits—you are applying the up to $2,500 allowable tax deduction on interest paid on student loans available by the federal government. This will help reduce your taxable income, too. If you work for a government or non-profit, you may be eligible for Public Service Loan Forgiveness (PSLF).
What about deferment or forbearance?
If you can't afford to make your monthly student loan payments, a last resort is to seek loan deferment or forbearance. While both methods can help, generally they are temporary and come with several financial factors to consider, such as accruing interest. If homeownership is your goal, this option could interfere with qualifying for a mortgage because your student loan payments may get larger once you resume paying.
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