Money

The Best Ways to Pay Off College Debt

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Paying back student loans early comes with various benefits. First, you'll wind up paying less interest to your lender, leaving that cash in your bank account. Second, knowing how to pay off college debt early also frees up your money towards other financial goals, like buying a house or saving for retirement.

Check out our best ways to reduce college debt, so you can look ahead towards your financial future instead of worrying about your past. 

Adjust your budget to make extra payments on your balance

The best way to pay off student loans is to make extra payments. This lowers your balance faster than making the minimum payment, and it reduces the amount of interest you'll pay over the life of your loan. 

Begin by looking at your monthly budget and decide how much additional money you can put towards your student loans. If it's your top financial priority, funnel as much extra cash as you can into paying off your debt—even an additional $10 or $20 per month toward your principal will help. You may want to consider a part-time side hustle to boost the amount of money you can dedicate to paying off student loans. 

When making that extra payment, be sure you designate that you want the money to go towards your principal balance rather than your next scheduled payment.

Prioritize your payments

Not all student loans are created equal. If you have multiple student loans from both federal and private lenders, look up the interest rate for each one. Then prioritize the one with the highest interest rate, when you're able to make payments beyond your fixed monthly bill. Most importantly, remember to pay your student loan minimums each month, or you'll face late fees, delinquency charges, and a drop in your credit score.

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Avoid income-driven repayment plans

If you're facing financial hardship, most federal student loans allow you to apply for an income-driven repayment plan. This lowers your monthly payment amount to make it more affordable. But that extends your repayment period from the standard 10-year term to 20 or 25 years, depending on the program you choose. 

That's an extra 10 to 15 years of interest accruing on the same balance. Some people genuinely do need income-driven repayment plans in times of hardship. But once you've found your financial footing again, start making those full payments. 

Check refinance rates

As you get older and potentially establish a more robust credit score, you may qualify for better student loan rates. This lowers your monthly payment and the overall cost of the loan. Compare rates with multiple lenders to see if you can find a better rate —confirm they'll start with a soft pull on your credit report rather than a hard pull. That could temporarily drop your score by a few points. 

Remember that you lose out on benefits like income-driven repayment plans and public service forgiveness programs when you refinance a federal student loan.

Get life insurance to protect your cosigners

When you're planning how to pay off student loans fast, remember to consider comprehensive financial protection as well, especially if you have a cosigner on the loan (such as your parents). If you pass away with a balance, that person becomes financially responsible for the rest of your student loan. A life insurance policy can protect cosigners on your student loans by leaving enough money to cover the balance and avoid placing any extra hardship on your family. You can always take advantage of a free look period to test a policy before committing long-term. 

Put additional lump sums towards your student loans

Another strategy for how to get rid of student loan debt is to put extra cash like a work bonus or a tax refund towards that balance. Those lump sums can make a big difference in your debt payoff journey, especially if you do it consistently for a few years. For a faster payoff timeline, you can also apply a percentage of any salary raise towards your extra payments.

Set milestones to stay motivated

Anytime you tackle a significant financial goal like paying off your student loans early, it's essential to track and celebrate your progress. This keeps you motivated to keep making those extra payments, even when you'd rather spend the money on something fun. Download a financial goal app or print out a debt payoff tracker to fill in each month. That way, you have a visual reminder of how much you've achieved.

Bottom line

Paying off your student loans early is an essential component of your larger financial plan. Remember to protect your finances, especially if you fall into the category of people who need life insurance. And when you're ready to get that financial protection in place, find out how Ethos works so you can get the best quote for no-medical-exam life insurance.

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