Paying off student loan debt is a challenge many post-grads face entering their careers. While it can seem daunting, the first steps in tackling student loan debt are to inform yourself and strategize a plan of action. Below are a few tips to help you strategize and pay off those student loans:
- Make more than the minimum payment. Increasing payments is one of the easiest ways to reduce your debt. Anything above the minimum payment goes straight toward your principal.
- Consolidate and refinance. Refinancing your loans is one of the best moves out there for paying off student loans faster. The goal of refinancing is to decrease interest rates, meaning more of your payments go towards paying down the loans.
- Use a cash windfall. If you receive a large sum of cash such as an inheritance, a settlement from a lawsuit or insurance claim, bonus, or even a tax refund, use it to pay off student loans faster.
- Apply your raises. If you work at a job where annual raises are part of your compensation, instead of buying a new TV or a newer car, put a chunk of your raise towards student loans.
- Trim your budget. While it may sound extreme, there are several common options to trim your budget. The key to success is that you only have to do this short-term to focus on paying off student loans faster. A few common options include canceling cable TV, limiting how often you go out to eat, working extra hours, or taking a second job.
- Pay attention to interest rates. Adding more money to your student loan repayment is important, but be careful as to how you apply that extra money. Make sure to pay off the high interest student loans first, and this may not be the default option. Contact your student loan provider to ensure your additional payment is going towards the loan with the highest interest rate.
- Utilize interest rate reductions. Certain student loans offer an interest deduction for signing up for automatic payments. Many servicers offer a 0.25% interest rate deduction on federal student loans for enrolling in automatic payments.
- Take advantage of tax deductions and credits. You can deduct up to $2,500 of student loan interest paid in a given year. The student loan interest deduction is claimed as an adjustment to income, so you can claim the deduction even if you don’t itemize deductions on your Form 1040. There are income limitations on taking the student loan interest deduction. Contact an Anders advisor to find out if you qualify for the deduction.
- Realize student loans aren’t “good debt” to keep around. While student loans are generally a good investment based on increased income potential in your lifetime, along with some deductions, it’s not good debt to keep around. The “good debt vs. bad debt” is really about how that debt helps you increase the value in something. In this case, it’s the value of a salary.
- Pay every two weeks. Another popular extra payment strategy for student loans is to make a student loan payment every two weeks. You don’t need to pay double the amount of your monthly payment to make this work. Split your monthly payment in half and make a payment of that amount every two weeks. By doing this, you’ll make a full extra payment over the year.
Paying off student loans quickly is possible with a defined plan. Contact an Anders advisor if you have any questions about student loan interest tax deductions, or need assistance in setting up a plan of action to pay off your student loan debt.All Insights