Saving for future goals, such as buying a home, retirement, or an emergency fund, can be challenging when you also have student loan debt. However, you can pay off your student loans with the right plan while striving to meet other long-term financial goals. These five strategies can help you prioritize how to tackle your debt and save money in the process.
Know exactly what your debt is.
Before strategizing, take the time to know precisely how much money you owe. Make a list of all your credit debts, outstanding balance, interest rate, and monthly payment dates. This list should include your student loans and any other debt, such as a credit card balance or car loan. Having a complete picture of your financial obligations will help you prioritize and determine the best repayment strategy. A general rule of thumb is first to pay off the highest interest debt or focus on the lowest outstanding balances (the “snowball method”).
Consider the differences between each type of loan you have, such as a subsidized versus an unsubsidized or private loan. They will likely have different annual percentage rates and interest accrual rates. In general, unsubsidized loans have more interest over the life of the loan than subsidized loans, so you may want to pay those loans off first.
Increase your monthly payments if you can.
Paying more than the minimum required may help reduce the interest you pay over the life of the loan, and you’ll get out of debt faster since it equates to making more payments each year. Review your budget to assess how much you can afford to pay each month, which could change throughout the year. To create additional income source, check this article about students’ jobs for international students. An easy way to make additional payments is to set up automatic transfers regularly, such as when you receive a paycheck.
If you have an income-generating side job or receive unexpected financial income, consider using the extra funds to increase your student loan payments. Similarly, if you get a pay raise at work, use the difference between your new and your old salary to send an additional monthly or bi-monthly payment on your loan.
Consolidate your debts.
If you’re managing multiple monthly payments, an excellent way to ease the burden of student loans is to consolidate them into one low-interest loan. Similarly, you could also consolidate balances from student loans, credit cards, and other high-interest loans. This repayment strategy could help you save money and pay off your debt faster. Find out the annual percentage rates associated with each type of debt to determine if this approach fits your situation. It’s essential to evaluate the pros and cons of consolidating or refinancing federal student loans. A new loan with new terms means you could have a more extended repayment period. Also, when you refinance these loans, you may no longer benefit from certain government protections, such as student debt cancellations or repayment suspensions.
A reduced monthly loan payment could also help lower your debt-to-income ratio and increase your credit score, which could help you get approved for a mortgage in the future.
Reevaluate your payment plan.
You may have been asked to choose between various payment options when you graduated from college. Repayment plans, including the standard method (in which borrowers typically become debt-free within a decade), the income-based plan (which depends 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 change your repayment plan by talking to your loan servicer.
Don’t neglect saving money, even on small things. If now, being already a student, you want to take advantage of, let’s say, study-assistance services and ask yourself, “Who can do my paper for me?” You don’t have to pick the first and most expensive one service -read reviews, compare prices, and choose the more acceptable one. As an example of a good essay service, we can recommend PaperHelp.
Take advantage of employer matching contributions, tax deductions, and credits.
Check to see if your employer offers any student loan repayment assistance, as more and more companies are offering various programs as part of their employee benefits. Also, when you file your annual federal income tax return, be sure to apply the allowable $2,500 tax deduction on interest paid on student loans offered by the federal government. This will also help reduce your taxable income. If you work for a government or nonprofit organization, you may qualify for Public Service Loan Forgiveness (PSLF).
What about deferment or forbearance?
If you cannot meet your monthly student loan payments, the last resort is to apply for a deferment or a forbearance. While both of these methods can help, they are generally temporary solutions and involve several financial factors, such as interest accrual. If homeownership is your goal, this option could interfere with your ability to qualify for a mortgage, as your student loan payments could increase when you start making payments again.
These were our tips on how to pay off your student debt sooner. We know it’s not easy and stressful, but it’s doable if you’re smart about it.
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