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When you take out student loans it’s hard to imagine how long those debts can be with you. When you’re younger and tackling your educational goals, the last thing on your mind is paying off student loan debt and what strategies you can use to pay it down sooner than later.

$37,584is the national average student loan debt per person

Then reality hits. You’re out of school and working. The minimum payments you’re making seem to have little to no effect on the loan balance. You pay every month and the debt load barely seems to diminish. The payments become a constant mental load and a constant drag on your finances.

This scenario has become all too common. With over 42 million Americans now carrying federal student loan debt, averaging $37,584 per person[1], student loan debt is an omnipresent reality. That doesn’t even include the more than $130 billion in outstanding private student loans. 

📰 The CARES Act of 2020 provided some relief to borrowers of federal student loans. From March 2020 to January 2021, your federal student loan borrowers are granted a forbearance, where payments are temporarily halted. If you continue to make payments, the interest rate is 0%. But with the program expiring and its continuation in limbo, millions of Americans are now facing resumed payments.

Despite government legislation and an armload of statistics, student loan debt is personal. There are several ways to attack student loan debt, and any of them can have you free of student loan debt once and for all. You just have to choose a strategy that fits your individual needs.

Let’s review some steps that can help you find solutions that work for you.

In this post:

1. Understand Your Student Loans

Before you develop a strategy for loan payoff, you have to understand what you’re working with. Take time to pull together the details of what you owe. You should know:

  • What type of loans you have (federal, private, personal).
  • The interest rate of each loan and whether it is fixed or variable.
  • The balance remaining on each loan.
  • The term length of each loan.
  • The minimum monthly payment on each loan.
  • The total amount of the loan to be paid, including interest.

Having this information at your fingertips will give you a sound basis for developing a debt payment strategy.

2. Payoff Strategies: Avalanche vs. Snowball

There are two main strategies for paying off student loans. One is called the snowball, the other is the avalanche. The goals of paying off debt are the same for both, but the approach is different.  

The Avalanche

The avalanche method requires you to pay off the loan with the highest interest rate first, preferably applying all available money in your budget towards it. While you’re doing this, you make only the minimum payment on all other student loans. Once you’ve paid off the first loan, you move on to the loan with the second-highest interest rate. Once the first loan is paid off you won’t have to make that payment anymore. Roll that money over into paying off the second-largest loan. 

This method knocks out high-interest loans first, which means you pay less in interest over the long run. This method also means you might not see real progress against your loans for a while. It’s easy to get discouraged when you feel like you’re not seeing results. 

Learn more about the debt avalanche method →

The Snowball 

With the snowball method, you pay off your loans from smallest to largest. Your first goal is to put all available money towards your smallest loan, while making only minimum payments on the other ones. 

The snowball method lets you see results quickly. Retiring those smaller loans will motivate you to keep paying and tackle the next one on your list. Your total interest cost may be larger than it would be with the avalanche method, but you might pay your debt off sooner since you’re more motivated to stick with the snowball strategy.

Learn more about the debt snowball method →

There’s no right or wrong answer to which one of these strategies to use. You have to decide which method will work best for your debts, income and personality. If you’re easily motivated by “instant” gratification, the snowball might be better. If the thought of paying a penny too much in interest gnaws at you, you might prefer the avalanche. 

☝️ It’s important to keep making progress no matter which method you choose. If one doesn’t work for your situation, reevaluate and make changes.

3. Refinancing and Debt Consolidation

Debt consolidation and refinancing are not payment strategies, but they can help you manage your student loans. You can use these methods in conjunction with the snowball or avalanche payoff strategy. 

Debt consolidation and refinancing are often lumped together, but these two terms have different meanings.

Student Loan Refinancing

Refinancing involves taking out a new loan at a lower interest rate and using it to pay one or more old loans. If you took out private student loans when you were young and your credit was poor, refinancing may be a viable option. Interest rates are at historic lows, and if your credit has improved you may be able to get a new loan at a substantially lower rate. 

If you’re thinking of refinancing you may want to check with several lenders to see what rate and loan costs they offer. Be sure to consider any fees in your cost assessment. Work through the numbers to see how much you’ll save.

Be sure to consider the term of your new loan. A longer term can lower your monthly payment, but it can also leave you paying more in total interest even with a lower rate. That may be an acceptable trade if your monthly payments are stressing your monthly budget, but always consider the total cost of the loan and the disadvantages of being in debt for a longer time.

Common Question

Can you refinance federal student loans?

You cannot refinance federal student loans with another federal loan. You may be able to refinance a federal loan with a private student loan, but it's generally a bad idea. You'll lose access to the payment plans and opportunities for deferral, forbearance, and forgiveness that federal student loans offer. Once you refinance a federal student loan you cannot reverse that decision.

Refinancing can be a viable move if you are paying private loans with relatively high interest rates. Before you make the move, think it through and be sure you’re saving enough to make it worth the effort.

➗ Use our Student Loan Refinance Calculator to see how much you could save by refinancing your student loans.

Debt Consolidation

Debt consolidation is the process of combining several loans into one monthly payment. If you have multiple federal student loans you can consolidate them with a Direct Consolidation Loan. This is also a federal loan and you will retain all of the privileges that come with federal loans. You will not get a lower interest rate, but you will simplify your payment process, as you’ll only be making one payment a month.  

You can also consolidate private loans. If you consolidate private loans with another private loan, you are effectively refinancing several loans at the same time, and the considerations for refinancing should also be applied.

➗ Use our Debt Consolidation Calculator to see how much you can save with a debt consolidation loan.

4. Use Automatic Payments

Many private lenders offer a slight deduction on your interest if you make your payments with an automatic deduction from your bank account. While it may not seem like much, the discount could add up to hundreds of dollars in savings over the life of your student loan.

If you choose to refinance your loans, search for a lender offering this option. In case that refinancing isn’t an option, contact your current lender and see if they offer a rate deduction for automatic payments.

If you have scheduled an automatic payment on your student loan, make sure you have enough in your account to cover it. Your bank may cover the shortfall but they’ll charge a hefty fee for it. That money is better off in your pocket.

💡 Automatic payments can also help you protect your credit score. On-time payments have a significant impact on your credit score, and forgetting a payment can do real damage. Automatic payments can prevent that.

5. Make Bi-Weekly Payments

Another strategy for your student loans is to make payments every two weeks instead of paying monthly. If you make half of a monthly payment every two weeks you’ll make 26 half payments or 13 full payments every year instead of the 12 full payments you’ll make if you pay monthly. That extra payment will retire your loan faster, which will save you money on interest and get you out of debt faster.

This strategy works particularly well if you receive your salary on a bi-weekly basis. Even if you don’t, it’s worth considering.

➗ You can see the difference this payment method makes by inputting your loan information into our Bi-weekly Loan Payment Calculator.

6. Apply Additional Payments Towards Principal, Not Interest

If you have extra money to put toward your loans, make sure you apply anything beyond the minimum to the principal of your loan and not the interest. If you have federal student loans you can generally indicate this preference on your loan servicer’s website. Contact the servicer and ask if this option is available if you don’t see it on their website.

Your interest payment goes straight to the lender. If you apply additional towards your principal, you’re reducing the balance and cutting the amount you’re getting charged interest on. This is particularly important if you’re using a strategy such as snowball or avalanche and are putting all available income towards your student loan(s). 

7. Take On a Side Gig

Not all student loan payoff strategies involve looking for ways to reduce your payments. You can also try to bring in more income to put even more towards your loans.

Taking on a side gig has taken on a whole new meaning in the American economy. With over 45% of Americans claiming some sort of side hustle, it’s become the new norm[2].

Taking on a side hustle and putting your earnings towards your student loans can get you out of debt earlier. You’ll also pay less in interest if you’re able to pay off your loans early.

🔑 The key to a successful side gig is to choose something you enjoy. If you dread doing the extra work, then you’re likely to find a reason to quit. A side gig can offer you a creative outlet or chance to interact with new people, in addition to bringing in extra income.

Side gigs take on many forms. For example you could:

  • Drive for a rideshare service (Uber or Lyft)
  • Sell items online
  • Create an Etsy account and sell creative items
  • Start a blog
  • Teach an online course
  • Become a virtual assistant
  • Social media manager for a small business

This list of side hustles barely scratches the surface. You are only limited by your imagination. And while it may seem hard to balance your full-time job and a side gig, remember, this is only a temporary situation until you meet your debt payoff goals.

8. Use a Budget

A budget is one of the most important tools in your debt payment kit. If you know where your money is going and you have a plan for every dollar you earn it will be much easier to set aside the money you need to implement a debt payment strategy.

There are numerous budgeting methods. Choosing a budgeting strategy is a personal choice. Whatever method you use, the goal is the same: understand how much money you’re bringing in and control where it’s going.

When you use a budget, you’re creating a framework for your spending. Once you understand where your money is going, then you can see in black and white how much you can put towards your student loan payoff.

For instance, if you discover that you’re spending $200 per month on entertainment subscriptions between cable, Netflix, DisneyPlus and all the other apps, then you can make a decision about your future spending. You might decide to cut out your cable bill and add that money to your loan payment.

It’s your choice, but you won’t know how to make this decision without the help of a budget

➗ See just how easy it is to start budgeting. Use our online Budget Calculator to quickly get an overview of your finances.

9. Don’t Obsess Over Student Loans

One of the key elements of budgeting is prioritizing your payments effectively. Some people get so focused on paying student loans that they put every available dollar toward that goal. That sounds like a great idea, but sometimes it isn’t. If you’re carrying a credit card balance at 22% annual interest and your student loans average 6%, there’s no logic in making the minimum payment on your credit card and putting extra money into your student loan payment. You’ll just end up paying money in interest on your credit card balance that could have gone to your student loan.

☝️ You need to place your student loans in your overall financial picture. If there are other goals that make financial sense – like paying off higher-interest loans or setting up an emergency fund – don’t hesitate to prioritize them.

10. Reward Yourself

Paying off student loans is hard work. It takes sacrifice. There are times you have to say “no” to friends , family, and even (or especially) yourself.

That doesn’t mean you shouldn’t reward your progress. Set up payoff goals along the way, such as paying off $5,000 or $7,500. When you hit this goal, give yourself a reward. Maybe it’s a dinner out at a restaurant you’ve been dreaming about or it’s a trip to a local winery. Whatever it is, make it something you enjoy and wouldn’t normally do for yourself.

👉 Build this into your budget and you won’t have any excuses not to achieve your goals.

11. Some Months are Harder Than Others

No matter how much you plan and how much detail you put behind your strategies, there are some months it may be more difficult to stick to your student loan payoff goals. Unexpected expenses will arise, and there may be months when you fall short of the goals you set for yourself.

When this happens, accept it and move on to the next month. If it happens once in a while it’s not a big deal: life’s like that. If it’s happening on a regular basis you may need to review your budget and your payment strategy to see if you need to make changes. You’re in it for the long haul, and that means sticking to a plan. Refine your plan if you have to, but don’t give up!

12. An Emergency Fund Helps You Stay on Track

One strategy to help you stay on track with your monthly payments is to have an emergency fund in place as you begin to pay down your student loans. If you have an emergency fund your progress towards your student loans won’t be derailed when your car breaks down or your washing machine floods your apartment. Having savings on hand to cover these instances lessens the chance of you stop payments towards your loans.

☝️ It may seem counterintuitive to set aside $1,000 in savings instead of using it to pay your debts, but an emergency fund can help you avoid reaching for a credit card and going further into the hole. That helps your debt payment strategy in the long run.

13. Find the Strategy That Works for You

Anyone can say “my goal is to pay off my student loans”. Putting a plan behind that goal is what makes it achievable.

Paying off student loans early is absolutely possible. The key to success is to find a strategy that works for you. That means understanding your loans, your budget and your finances. You’ll need to use that information to develop a strategy and you’ll need to have the discipline to put that strategy into effect and stick to it. It won’t be easy, but if you’re willing to put in the effort you can be out of debt sooner than you ever thought possible.

What would be your #14? Let us know in the comments below!