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College students walking in college building.

If you have student loan debt, welcome to the club no one wants to be in. In 2019, 44 million Americans currently owe money on their student loans. Student loan debt is causing many to postpone buying a home, getting married, having children or saving for retirement, so it’s no surprise that people are trying to pay off this debt as fast as possible. But this can be difficult to do with other debts and living expenses getting in the way.

The nation’s student loan burden may take some time to go away, but yours doesn’t have to. Paying off your student loans takes time, commitment, sacrifice and a little know-how. We’re here to help with that last part. We spoke to a few finance experts to find out what you should (and shouldn’t) do when paying off your student loan debt. If you follow their advice, it may get you closer to your final payment date much sooner than your servicer says you will.

Financial Moves You Should Make When Paying Off Student loans

These financial moves will help you put a serious dent in your student loans, helping you pay them off faster with less stress and more strategy.

Consider Refinancing Or Consolidating Your Loans With Caution

Student loan consolidation combines multiple federal student loans into one loan. With consolidation, you’ll have one payment and a fixed interest rate based on the average interest rate of the consolidated loans. On the other hand, student loan refinancing combines federal and private loans into a new loan with a private lender at a lower interest rate.

While there are certain advantages to consolidation or refinancing such as simplifying repayment and lowering your monthly payment, there are many disadvantages that leave our experts skeptical.

“If you can save yourself significant interest charges, consolidation or refinancing are worth considering. Be careful though,” warns David Cahill, founder and CEO of Finance Superhero. “Refinancing can trigger the loss of certain federal student loan benefits such as deferment, forbearance and loan forgiveness benefits,” he says.

Consolidation or refinancing can have negative psychological effects on your repayment approach, according to Cahill, who says “It can also give you a false sense of confidence and progress when you see a lower monthly payment on your statements.”

Cahill makes a good point. Just because these actions lower your monthly payment or interest rate, it doesn’t mean you’re getting a deal or any closer to paying off your loan.

“Lenders reduce the monthly payment by increasing the repayment term, which will cost you more money over the life of the loan,” says Mark Kantrowitz, Publisher and Vice President of Research at SavingForCollege.com. “If you are considering refinancing your student loans, compare both the monthly payment and the total payments on the loans,” he suggests.

By doing that, you may find you’re not getting as good a deal as you may think. In fact, you may end up paying more in the long run. According to Kantrowitz, it may be in your best interest to focus on paying off the loan faster no matter the new monthly payment, interest rate refinance or consolidation promises.

“Even if you can get a lower interest rate, most of the savings will come from a shorter repayment term, not the lower interest rate. You can get similar savings by making extra payments on your student loans,” he says.

Create A Budget

Budgets get a bad rap for being restrictive, but they’re embraced by the financial world as one of the foundations for financial success. A budget helps you gain control of your money and focus on your financial goals. You’ll be able to see where your money is going and identify and correct any unnecessary spending. You’ll also see how much extra money you can put toward paying off your debt each month.

To create a budget, figure out your monthly take-home pay and then subtract your required monthly payments from that income. Required payments are typically fixed and may include rent, groceries, utilities and the minimum payments on all your debts. With the leftover money, subtract the rest of your monthly expenses like entertainment, dining out, clothing, etc. Based on the money that’s left over after you take away your required expenses, you may need to put a max on your other spending categories. For example, you may limit yourself to spend only $50 on entertainment each month. As you work through your budget, you’ll want to track and categorize your spending and make adjustments wherever necessary. It may take a few months until you perfect your budget so be patient and learn from your mistakes as you go.

Build An Emergency Fund

You won’t be able to pay off your debt if you have to dip into your savings, use your extra money or go into even more debt because of an emergency you weren’t prepared for. That’s why having an emergency fund is so imperative, especially when you’re paying off your student loans.

Until you get better at budgeting, an emergency fund will also help cover costs of things you may have accidentally left out of your budget such as transportation costs or groceries. It can also pay for unexpected costs you don’t budget for including repairs or medical expenses. Emergency funds also help protect against incurring more debt if you lose your job or need to take an extended amount of time off due to illness or injury.

It can be tempting to put all your extra money toward paying off your student loans, but before you start really attacking your debt, make sure you have some sort of emergency fund in place. There’s some debate on how much you should save before you focus on paying off your debt. Some people suggest building it to $1,000 (or one month’s worth) of expenses, while others recommend saving 3 – 6 months’ worth of expenses. Consider your financial situation, money goals, health and job stability to determine what amount you’re most comfortable with. Then save!

Choose A Debt Repayment Method

When it comes to paying off debt, you need to have a plan in place for how you’re going to do it. The two most popular and proven debt repayment methods are the debt snowball and the debt avalanche.

Debt Avalanche

With the debt avalanche, you attack the debt with the highest interest first. While making the minimum payments on all your debts, you focus on paying off your highest-interest debt by putting any extra money toward it. Once that debt is paid off, you move onto the next highest-interest debt by paying the minimum payment on the loan plus the amount of money you were paying on the first debt.

Many people recommend the debt avalanche method since it gets rid of your highest interest rates first. Higher interest rates mean you’re paying more money, so it makes the most financial sense to pay those first. However, you may want to go with the snowball method if you need more motivation. 

Debt Snowball

With the debt snowball method, you go after the debt with the lowest balance first regardless of its interest rate. Just like you do with the avalanche method, you continue making the minimum payments on all your debts. While you do that, you focus on paying off the lowest balance debt first with any extra money you have. Once that debt is paid off, you move on to the next lowest balance debt, putting all the money you paid to the previous debt toward the new one.

Fans of the debt snowball love it for the motivation it provides. You’ll be knocking off your smaller balances faster, which can provide a sense of accomplishment that keeps you going. As you knock out those smaller debts, the amount you can pay toward the next one keeps getting bigger. This builds excitement and helps you feel closer to achieving your goal.

If you have any other debts (including credit cards and car loans), lump those into whichever repayment method you choose. You’ll need to continue making payments on these debts while you work on paying off your student loans. You may even want to pay some of these debts off before tackling your student loans. 

Debt Snowflake

Whether you choose the debt snowball or the debt avalanche, enhance your results by adding the debt snowflake method to your plan.

The debt snowflake method pays off debt with micropayments from “found” money. This money can come from anywhere. For example, you may find change in the couch cushions, discover $10 in a coat pocket or have been repaid a debt you forgot was owed to you. You can also use the money you save from making small lifestyle changes such as using coupons, packing lunches or canceling subscriptions.

This method works best in conjunction with the snowball or avalanche method by applying these small, snowflake payments to the debt you’re trying to tackle at the moment.

Pay More Than The Minimum

The more you pay on your loan each month, the faster you will pay it off. So, pay more than the minimum balance due whenever you can. Just make sure you provide specific instructions to your servicer on how to apply the extra money. If you don’t, the lender will roll it over to next month’s bill as an early payment. Or if you have multiple loans, it may spread the payment across all of the loans on your account instead of applying it to the loan you’re targeting first.

To avoid this, you’ll need to give your servicer specific instructions on how to apply any additional amount paid over the minimum. You can do this by contacting your servicer via phone, email or a letter with your next check payment. If you aren’t sure what to say, use a sample letter from the CFPB which provides instructions for people with multiple loans on their account. If you have one student loan and don’t want your servicer applying the extra money to your next payment, specify that the extra money should be applied to the principal and not used to pay next month’s installment early.

Make Biweekly Payments

Instead of making your loan payment once per month, split it in half and make biweekly payments instead. You’ll still pay the same amount each month but, because there aren’t a consistent number of days in every month, you wind up making an extra full payment by the end of the year. By simply making biweekly payments instead of single monthly payments, you’ll shorten your loan term and save money on interest.

Biweekly payments could also help your budget. Instead of taking out a huge chunk of money in one paycheck, you can split it between two paychecks. And when you make biweekly payments, you won’t have that money sitting in your account taunting you for a couple of weeks. You’ll be able to get it out of your account before you spend it on something else.

Set Up Automatic Payments

The best part of automatic payments is that once you set it up, you won’t have to remember to pay your bill each month. Auto payments will automatically withdraw the amount you owe from your account on or just before the due date. This will ensure you’re making your payments on time which can improve your credit score and help you avoid any late fees.

Automatic payments don’t just benefit the forgetful. Many student loan servicers provide incentives for enrolling in autopay, like reduced interest rates. To take advantage of autopay, you must enroll in the program and grant your servicer permission to withdraw funds.

The one drawback of autopay is that the money is taken out whether you have it or not. Always make sure you have enough money in your account to avoid overdraft charges from your bank.

Work A Side Job

No room left in your budget to make any extra payments on your loans? Consider taking on a side hustle. Thanks to the internet, there are more ways than ever to earn cash on the side. Rent out your room, become a rideshare driver, work for a delivery service, wait tables on the weekend or find freelance work. Whatever money you earn from your side job goes right into your student loan repayment fund.

Put Cash Windfalls Toward Repayment

It’s always nice to come into unexpected money, and it can be tempting to spend it on things you wouldn’t normally have the money for. But these cash windfalls are the perfect source of extra money to put toward paying off your student loans. Any time you come into some unexpected money, use it to pay off some debt. Examples of cash windfalls include a bonus, raise, tax refund, gift money or inheritance.

Contribute To Your 401(k)

If there’s one thing our experts all agree on, it’s that you should be contributing to your 401(k) while you’re paying off your student loans. While they don’t recommend contributing a ton of money to your retirement plan, they do recommend at least meeting your company’s match.

Seek Advice From A Financial Professional

Before making any major financial decisions, talk to a financial advisor. They’ll be able to dig into your finances and make recommendations based on your specific needs and goals. They may also have additional ideas to help you.

Financial Moves You Should NOT Make When Paying Off Student Loans

Taking any of the following actions while paying off your student debt will take you off course, extend your payoff timeline and even affect your credit history and credit score. Avoid them at all costs if you can.

Miss A Payment

Missing a payment is the number one no-no when paying off your student loans. For one, you’ll incur even more debt because your loan servicer will charge a late fee. On top of that, any missed payments will be recorded in your credit history and could negatively affect your credit score. If you’re having difficulty making your payments each month or you’re worried that you can’t afford to keep paying, don’t hesitate to get help.

Wait To Get Help

“Because student loans are such a universal issue, there are plenty of legitimate resources designed to help you manage them,” says Sean Messier, a credit industry analyst at Credit Card Insider. “Start by reaching out to your lender or your university to discuss possible solutions, like adjustments to your payment plan.”

There are also several other resources including student loan forgiveness programs, nonprofit credit counseling agencies, consumer advocates and online sources like StudentLoans.gov. When seeking assistance, make sure you’re working with a reputable resource. Messier cautions against using “debt relief” companies that make false promises.

“Avoid looking for quick-fix debt relief options because companies that flaunt such services can often land you in even more trouble,” he warns.

One way to avoid one of these companies is to remember that you never have to pay for student loan help. If you’re asked to pay upfront or monthly fees, you’re probably working with a fraudulent company. Here are a few other ways to spot a scam:

  • You’re pressured by a salesperson to sign up.
  • You’re asked to share personal information, including your FSA ID.
  • You’re asked to give the company permission to make decisions on your behalf.
  • You see the company advertised on social media.
  • You’re promised immediate loan forgiveness.
  • You notice grammatical and spelling errors on company communication documents.

Miss Out On Benefits

If you’re paying interest on your student loans, you may be able to get a tax deduction of up to $2,500 on interest paid in the past year. However, there are some stipulations and you’ll need a few pieces of information (including your income, filing status and education expenses) before you qualify for the deduction. We recommend speaking to your financial advisor if you have any further questions about tax deductions.

Other benefits you may be missing out on are employer benefits that help with student loans. Many employers are now offering tuition reimbursement or assistance and some are even offering student loan repayment benefits. Sit down with your human resources department and see what your company offers. Depending on where you work, you could have your loans forgiven altogether. Teachers in low-income schools, government workers and nonprofit employees can have their student loans forgiven if they meet the qualifications.

You may also be eligible to have some (or all) of your student loans forgiven, canceled or discharged if:

  • You’re permanently disabled.
  • Your school falsely certified your loan eligibility.
  • Your school closes during your time there or soon after you withdraw.

For more information and eligibility requirements, check out the Federal Student Aid office’s site.

Take On More Debt

Taking on more debt while paying off your student loans pushes your completion date back. That’s because adding another monthly payment to your budget takes away from the money you can contribute to your student loan payment. If you’re able to, avoid using credit cards, taking out a personal loan, purchasing a home, leasing a car or getting an auto loan while you’re repaying your student loans. If you need a car, consider using cash to purchase a used car that’s in a good enough condition to take you places safely.

Make A Big Purchase

Before you make any purchase (especially a big one), ask yourself if it’s worth taking that much money away from your student loan repayment plan. Is it something you can wait to buy until after you pay off your student loans? If so, put that money to your student loan payments instead. After your last loan payment is made, reward yourself by purchasing it.

Borrow From Your Retirement

“Before you pull money from a retirement account, you need to crunch the numbers very carefully and thoroughly. It’s tempting to pay down loans with a Roth IRA or a 401(k), but you’ll pay steep penalties and, depending on the account, taxes,” warns Robert Farrington, founder of The College Investor.

Along with having to pay in order to borrow, Farrington points out that you’ll also miss out on earning potential. And when you try to make up for that loss later, it can be difficult to put the money back in. As Farrington notes, that’s because there are limits on how much you can contribute to your retirement accounts each year.

“When you’re limited on how much you can save in a Roth IRA, for example, how long will it take you [to make up for that loss]?” he asks. It’s a question you should sit on for a while before you consider using the money in your retirement accounts to pay off your loans.

Go Out For Lunch And Coffee

“Once you have a budget in place, it’s time to adopt what I call a ‘scorched Earth’ mindset and reduce your spending down to the bare essentials,” says Cahill, who has seen his own success with this approach. “When my wife and I put this strategy into action, we were able to live on approximately 40% of our combined incomes.”

Taking on this strategy will require sacrifice. And one of the first things to go may be those daily coffee runs and takeout meals. These are two of the easiest adjustments to make to your budget because you can simply bring coffee and food from home instead. Take a look at your budget and see where you can cut costs without disrupting your life or putting your family in dire straits. That could mean going on spending freezes, finding free entertainment or purchasing your clothes at secondhand stores.

Compare Yourself To Others

Comparison isn’t just the thief of joy, it’s also the reason many people fall further into debt. When you compare yourself to others and try to live a life as good as theirs seem to be, you can easily rack up more debt buying a bigger house, fancier car and nicer clothing. Keeping up with the Joneses – who are probably in debt, too – can delay your goal of paying off your student loans. It can also make you feel insecure, envious and defeated. This kind of attitude won’t help when you have to be motivated and resilient while pursuing your goal.

Remember that everyone’s financial situation is different. And just because you have student loan debt doesn’t mean someone else doesn’t have credit card debt, personal loan debt or any other kind of debt. As staggering as the number of student loan borrowers in the U.S. is, it also shows that you’re not alone. The important thing is that you’re working on paying off your debt and meeting your own financial goals.

Lose Hope

When you’re just starting on your mission to pay off your student loans, it can be hard to see the light at the end of the tunnel. Throughout your experience, the task will seem daunting at times and it may feel like the amount isn’t even going down. You’ll question if it’s worth it. But try to stay motivated and don’t lose hope.

If you’re a visual thinker, create a vision board with everything you want to do once you’re out of debt and look at it every day. Celebrate little victories. Treat yourself occasionally with a small purchase, like coffee or a trip to the movies. Read personal finance blogs for tips and inspiration. Many of these are written by people who have paid off thousands of dollars of debt through hard work and strategy. They’re living proof that it can be done.

Benefits Of Paying Off Your Student Loans

Still wondering if it’s worth it? Think of the benefits. When you pay off your student loans, you can:

  • Lower your debt-to-income ratio.
  • Have financial peace of mind.
  • Save thousands of dollars on interest.
  • Have more money available to use toward your savings, retirement plan or other debt payments.

Are you successfully paying off your student loans and have some helpful tips for others? Share them in the comments below!