Student Loans are an epidemic and it doesn’t look like they are going away anytime soon. Many borrowers may believe that they will never repay their student loans and, instead, are forced to make the minimum payments on increasing interest for eternity. The truth is that many people may be able to pay off their student loans a little easier if they use an effective strategy.
There are two common successful strategies for paying off student loans:
This strategy is designed to remove the debt with the highest amount of interest every month until the loan is repaid. In order to do this, it is often necessary to pay only the minimum amount on loans with the lowest interest and pay the maximum amount possible on your loan with the highest interest rate. Paying off interest first will reduce the amount that gets added in interest every month and will allow you to make progress in paying off the loan’s principal faster (if there is no interest then you are only paying off the principal).
This strategy costs the least over time, but is often treated as a lifestyle change. Many find this method to be too extreme, though it is the most effective at paying down interest quickly.
This strategy is to dedicate your resources to remove smaller debts first. Paying off smaller debts first typically allows someone to gain momentum keep the debt payoff ball rolling. You pay only the minimum payments for everything except the loans with the smallest balance. This method may feel emotionally satisfying, as you feel like you are getting rid of debts one at a time and there is a tangible sense of progress. Unfortunately, this method makes less financial sense since more interest will be accrued over time on the larger debts.
By following this principle borrowers will often pay more interest than people who adhere to the Debt Avalanche method. While borrowers will have fewer bills to deal with each debt being paid in full, the debts that remain may grow larger through their interest than the smaller bills ever were.
While the standard student loan repayment plan payments can be too high for borrowers, an IDR is often better at enabling a more comfortable and standard lifestyle. By switching to an IDR, a borrower becomes able to pay off student loans with a fraction of their discretionary income, which can be $0. However, getting an IDR may extend the amount of time it takes to pay off a student loan.
Enrolling in the right IDR plan can result in forgiveness of debt balances that remain after 20 to 25 years of an IDR. The debt forgiveness combined with the lower repayment cost per month often creates a more attractive option than the other strategies. Special occupations, such as public service workers, may be able to look into special funds, like Public Service Loan Forgiveness to have their debt forgiven in 10 years. However, many people have problems with the paperwork required to stay on track with these plans.
Options are available to help
Most people do not realize that there are programs designed to help those who may be struggling with their student loan payments. Thousands of borrowers have trusted Ameritech Financial to be their advocate. Click here to find out what options are available. Our services could help you get back on track.Get Started Learn More