Saving for future goals like homeownership, retirement or an emergency fund can be challenging when you also have student loan debt. However, with the right plan, you can pay off your student loans while working toward other long-term financial goals. These five strategies can help you prioritize how you attack your debt and save money along the way.
- Get clear on what you owe
Before you can start strategizing, take the time to understand exactly how much you owe. Make a list of all of your debts by creditor, plus the outstanding balance, interest rate, and monthly payment dates. This list should include your student loans plus any other debts you have like a credit card balance or a car loan. Having a full view of your financial obligations will help you prioritize and figure out the best payment strategy. A general rule of thumb is to either pay off your highest interest debt or focus on the smallest outstanding balances (the “snowball method”) first.
- Increase your monthly payments if you can
Paying more than the minimum required could help reduce the interest you pay over the life of the loan, and you’ll get out of debt faster because this equates to more payments each year. Review your budget to assess how much you can afford to pay each month, a number that may change throughout the year. One easy way to make additional payments is to set up automatic transfers regularly, such as when you receive a paycheck.
- Consolidate your debts
If you’re managing multiple monthly payments, a good way to help ease the burden of student loans is to consolidate them into a single, low-interest loan. Similarly, you could also consolidate balances from student loans, credit cards and other high-interest loans—a repayment strategy that could help you save money and pay off your debt faster. Research the annual percentage rates associated with each type of debt to determine if this approach suits your situation. It’s important to weigh the pros and cons of consolidating or refinancing federal student loans. A new loan, with new terms, means you may have a longer repayment period. In addition, when you refinance these loans, you may no longer benefit from certain government protections like student debt cancelations or payment suspensions.