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Put More Money in Your Pocket by Lowering Student Loan Payments

Friday, March 9, 2018

Student loans continue to plague the country. The average student loan balance rose from $18,259 in 2005 up to $35,051 in 2015. This equated to an estimate of $1.2 trillion in student loan debt. With this increasing debt in mind, it’s important to remember it’s never too early to start considering ways to save for a future college education. For those already tackling student loans, It’s not too late to implement better strategies to pay off your loans more quickly.

Saving for college in advance is the best way to lower your student loans and avoid having to borrow so much. Although most people expect they will attend college, only 57% of people have started saving for that goal. Every dollar you save counts. Even small monthly contributions will add up to potentially save you from needing to take on another student loan.

Social savings platforms like Gift of College make it even easier for families to save and pay for the cost of a college. GiftofCollege is a gift registry that enables friends, family and employers to contribute online or with gift cards to accounts of those who are saving for college or paying down student loan debt.

Come Up With A Plan
As with any large expenditure, you should come up with a plan around your college education. Keep in mind that for most people, this is a four year cost. You should compare how much you have saved to how much you will have to borrow. Having a plan in place will allow you to come up with a strategy on how much you need to borrow for your education and the best option for borrowing.
Maximizing federal student loans is often a better option than private loans. Federal loans tend to have lower interest rates and interest won’t usually accrue until after a six-month grace period after you graduate. They have provisions in place for certain situations around forgiveness, deferment and forbearance as well.

There are occasions where private loans are an alternative towards federal loans. They are:

  • You’re a graduate or professional school student.
  • You have a specific repayment plan for the loan within a few years of graduation.
  • You have borrowed as much as possible in federal loans.
  • You have a great credit scores.
By fitting these characteristics, you’ll be able to shop around for the best loan with a lower interest rate. You’ll also be able to start building credit by educating yourself and using credit responsibly as a student.

Repayment Options
If you do have student loans, there are two methods you can follow that can help you pay down your debt.

Avalanche Method
With the debt avalanche method, focus on the loans with the highest interest rates first. You’ll make the minimum payment on all your loans as required, but pay as much as you can each month toward the account with the highest interest rate. The more you pay above the minimum each month, the less interest you will accrue. Once you pay that account off, move on to the next highest interest rate.

Snowball Method
The debt snowball method is like the avalanche method, yet you’ll pay your debts off in order from the smallest balance to the largest. Pay as much as you can each month toward the account with the smallest balance while paying the minimum payment on all the other accounts. Once you pay off the account with the smallest balance, you’ll move on to the one with the next smallest balance.

Consolidate Loans
If you have multiple loans from different lenders, there is the option to consolidate all the loans into one single loan. You have to consider what your monthly payment will look like, as well as how long it will take you to repay. Consolidation is a good idea when it reduces the interest rates on your loans. It may also be a good option if your credit has improved enough to receive better interest rates. But keep in mind that your total repayment time might increase.

As student loans continue to rise, start planning for how to pay for a future education as soon as possible. By creating a plan, you’ll be able to see how much to borrow. No matter how long until the start of college, saving now will help you avoid taking out large loans that will accrue interest.

Bio:  Jacob Lunduski is the Community Outreach Director at Credit Card Insider. Credit Card Insider's mission is to provide is to provide information so people learn how to use credit cards to their advantage, with confidence. Jacob and the rest of Credit Card Insider only encourages responsible credit card use. Follow Credit Card Insider on Twitter, Facebook and YouTube.


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