Almost everyone with student loan debt usually has a common goal for their repayment – financial freedom.
With some loan totals, it may seem like you’ll be paying off student loan debt forever. Here are a few strategies to help you create a plan to pay off student loans.
1. Figure out how much you owe. To figure this out, look at the principal borrowed and the interest rate on each loan to prioritize the payoff order. You will want to pay off the balances with the highest interest rate first. Once you have the first loan paid off, apply that monthly payment to the next loan, and so on.
2. Make extra payments toward the principal. This is one of the easiest ways to reduce your debt. Just take the payments you are making and put extra money toward the payment. One easy way to do this is to set up autopay with the extra amount added, this will go straight toward your principal. Consider switching to making biweekly payments, as this will allow you to make an extra payment each year.
3. Consolidate and refinance. Refinancing loans can be a great way to pay off student loans faster. Refinancing can decrease interest rates, meaning more of your payments go toward reducing the principal of your student loans. When you refinance student loans, you’ll get one consolidated loan with one monthly payment. You’ll want to ensure any loans you consolidate result in a lower interest rate. For example, if you have five loans at 5% and one loan at 2%, consolidate the five and leave the 2% rate loan separate so you maintain the lower interest rate.
4. See if your job offers loan forgiveness. Some employers may offer forgiveness for part, or all, of your student loans if you meet a set of requirements to qualify. One important point to consider is, you will usually need to meet all the requirements first to receive forgiveness. Since these programs are typically used in conjunction with income-based repayments, your monthly loan payments will decrease, but interest charges will accumulate. Keep in mind, if you decide to leave the job early or become ineligible for forgiveness, you could end up with greater interest charges.
5. Apply your raises or bonuses. Hopefully you work somewhere where annual raises and bonuses are part of your compensation. Consider taking 50% of your raise or bonus amount and adding it straight toward student loan payments.
6. Take advantage of tax deductions and credits. If you’re paying off student loans, you may be eligible for the student loan interest deduction on federal taxes. While you may need to meet other requirements, a lot of student loan holders are eligible for this deduction. In many cases, the deduction can be taken even if you don’t itemize your taxes.
Following these tips will put you on track to have less debt and more financial freedom. Speak with a banker or financial advisor for more debt strategies.
