How should you schedule your student loan payments? Should you get rid of student debt as early as possible? To answer that, first look at all of your needs and financial obligations. Then weigh your options and choose the right payment plan.
Should You Pay Off Your Student Loans Early?
Depending on the type of loans you have and the amount of interest they accrue, you might not need to pay off your student debt early. For example, if you have a loan with a low interest rate, it would be wise to stick to a longer pay period. It might cost more in the long run, but you’ll have extra money on hand each month.
Not all of your extra money should go toward paying off student loan debt. You should plan ahead to build up your savings to prepare for your retirement and set aside extra money in case you have a medical emergency or lose your job. After accounting for your savings, prioritize your other expenses.
Do You Know How to Prioritize All Forms of Debt That You Carry?
You have to pay off student debt, but you also have to manage other forms of debt, such as a mortgage and a car loan. These types of debt take priority over your student loans. Also, a credit card bill would take priority because it generally has a higher interest rate than other debts. Likewise, a loan with a high interest rate takes priority over a loan with a low interest rate.
Which Options Should You Choose to Get Rid of Your Student Debt?
If you have multiple loans, consider consolidating or refinancing them. The former is part of the exit counseling for federal student loans because you’ll need to choose a loan management service. You also have to choose a specific plan for loan repayment.
If you can afford it, try a standard repayment plan, such as a graduated repayment program or an extended repayment program. If you want lower monthly payments, consider one of these four income-based federal repayment plans:
- Revised Pay As You Earn (REPAYE)
- Pay As You Earn (PAYE)
- Income-Based Repayment (IBR)
- Income-Contingent Repayment (ICR)
If you would like to pay a lower interest rate, look into refinancing your student loans.
What Is Student Loan Refinancing and Why Should You Opt for It?
When you refinance your student loans, you allow a loan servicer to buy your existing student debt and give you another loan, potentially at a lower interest rate. Refinancing student loans is a smart choice if you need to pay off both federal and private student loans. If this sounds like the right choice for your financial situation, you’ll find plenty of highly rated companies that offer student loan refinancing.
As you can see, there are many options to weigh for student loan repayment, but the first thing you should do is prioritize all your debts and investments. Once you settle on a budget, find a repayment plan that works best for you.