Which student loan should I pay off first?


Pay off the student loan with the highest interest rate first. That will save you more money over time.

But if ditching small balances one by one motivates you more, go that route regardless of interest rate. When your goal is pay off student loans quickly, the best strategy is the one that keeps you on track.

Pay off private student loans first

Private student loans come from commercial lenders, not the federal government. These loans generally have fewer repayment options or forgiveness opportunities than federal loans, and higher interest rates.

You will likely want to get private loans off your plate first. Consider doing the following to help with this:

  • Refinance at a lower interest rate. There are few downsides to refinancing private student loans if you can qualify for a better interest rate. Refinancing can lower your monthly payments, saving you money and helping you pay off private loans faster.

  • Pay the minimum in federal loans. If you go to make extra student loan payments, put them on your private loans. To increase the amount you can overpay, consider enrolling in an income-based repayment plan to lower your federal loan bills. More interest will accrue on those loans if you do so, so calculate your total costs.

Always pay at least the minimum on all your student loans.

Pay off high-interest loans first

Once you’ve decided which type of loan to attack first, choose a strategy. Getting rid of loans in order of the highest interest rate is called avalanche of debtsand it will save you the most money. Paying off a loan with an interest rate of 4.53%, for example, allows you to pocket 4.53% of the balance each year that it would have been in payment.

Here’s an example: paying off a $ 10,000 loan at 4.53% interest over five years, instead of the standard 10-year repayment term, will save you about $ 1,259 in interest. However, paying off a $ 10,000 loan at 7% interest over five years instead of ten years will save you an additional $ 2,050 or $ 794.

Pay off small loans first

Some borrowers like to see their loans disappear, which encourages them to continue to focus on repaying their debt. If that sounds like you, use the debt snowball method. You’ll pay off the smallest student loan first, rather than the one with the highest interest rate.

You can also go for a combined method. Classify your loans by interest rate and, if several have the same or similar rates, pay the smallest first. You will still get some savings by choosing the debt avalanche strategy, but you will also enjoy quick and early gains.

As you pay off each loan, roll over your payment to the next highest interest rate or the next smallest balance.

Pay attention to the big picture

  • I save at least one month of expenses for emergencies.

  • You automatically started saving for retirement, either by getting the company contribution in a 401 (k) or by putting money in a Roth IRA.

  • He made a plan to pay off credit card balances, which often have the highest interest rates of all.

If you’re not ready to aggressively pay off student debt, some strategies can still help you lower your balance. For example, doing biweekly loan payments It is a simple way to reduce the repayment period. Refinancing is also fee-free and a no-brainer if you have private student loans.

Calculate your potential refinance savings

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