5 ways to pay off your student loans faster
Consider these tactics to tackle your student debt, and save for other financial goals
Read, 3 minutes
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
Before you can start strategizing, take the time 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.
Increase your monthly payments if you can
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
Consolidate your debts
If you’re managing multiple monthly payments, a good way to help ease the burden of student loans is to 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.
Reevaluate your repayment plan
When you graduated college, you may have been asked to choose between . 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. Depending on your situation, you can switch your plan at any time by talking with your loan servicer.
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. Also, be sure when you file your federal taxes annually that 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 .
What about deferment or forbearance?
If you can't afford to make your monthly student loan payments, a last resort is to seek . 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.