This website has already discussed methods that can be used to minimize expenses and save extra money. This website has also included strategies that anyone can use in order to make additional cash through side-hustles. If you follow this advice, hopefully you will be able to pay more than the minimum amounts due on your student debt, and you will then have to decide which student loans to pay off first.
Before paying off certain student loans first, it is important to give yourself some financial security. This website has already mentioned several times how it is important to save money in an emergency fund in case some issue arises in your life that requires you to rely on savings alone for a while. Although people may disagree on the amount of emergency savings one should have, it is usually suggested that everyone keep six months of living expenses stashed away for a “rainy day.” In order to have additional financial security, you should also pay more than the minimum amounts due on your student debt so that you do not need to make payments for a while if an emergency occurs in your life.
During my student debt repayment saga, I always made sure that the due dates for each of my student loans were at least six months in the future. Even though it might have made more financial sense to use any extra money I had to pay off my high-interest student loans as quickly as possible, I did not do this. Rather, I paid off all of my student loans six months in advance, including my low-interest debt. This meant that I had to keep high-interest debt that I could have paid off earlier, and I might have saved thousands of dollars in interest payments if I simply devoted all of my extra cash to high-interest debt. However, having financial security, and knowing that I did not need to make student loan payments immediately if a life emergency occurred were worth the sacrifice.
After paying all of your student loans six months in advance, you should devote your financial resources to paying off your high-interest student loans first. During my student debt repayment saga, I had around $90,000 of student loans that had an interest rate of 7.8 percent. This was more than twice as high as the interest rates on some of my other loans, so I dedicated myself to paying off these loans first. Through much saving and sacrifice, I was able to fully pay off this debt in around 18 months. Paying off these loans first saved me thousands of dollars in interest, and everyone should focus on their high-interest debt after paying off all loans six months in advance.
After paying off your debt with the highest interest rate, you should pay off your loans with the next-highest interest rate, and work your way down. However, it might sometimes be advantageous to completely pay off smaller student loans before paying off student loans that have slightly higher interest rates. If you apply for a mortgage, a car loan, or other kinds of debt, the amount of money you already devote each month to loans could influence how much debt you are allowed to borrow. If you completely pay off smaller loans, this will lower your total monthly payment amount, and increase the amount of debt you can borrow for other reasons. As a result, if you think you might want to buy a home, or borrow money for any other reason, it might make sense to pay off small loans completely, even if the interest rates on these loans are lower than other debt you might have.
You should continue the payment strategies discussed above until all of your remaining debt has interest rates around three to four percent. The rate of inflation is around this much, and as such, there is not much of a penalty for keeping this debt rather than paying it off. I personally know many people who refuse to pay off debt with interest rates this low, since they can use money that would be devoted to paying off this debt for a number of other purposes. Indeed, you could probably make more money investing any extra cash you have than the interest that would accrue on some low-interest student loans. As a result, it might not make sense to devote extra cash to paying off some low-interest debt.
Of course, if you are like me and student debt stresses you out, then you should go ahead and pay off all of your student loans even if the interest rates on your remaining student loans are low. However, if you think you can do better investing your money, or devoting your cash to any number of other purposes, it might make sense to just pay the minimum amounts due on low-interest debt.
Furthermore, as has been previously discussed on this website, it might be wise to keep a few student loans active to benefit your credit score. The debt you keep active should be low-interest loans, and the amount of debt you keep should not be so much that you need to pay a lot of money in interest. Of course, if you have other types of debt or credit cards, you might not need to keep student loans active for the benefit of your credit score. However, it might be wise to keep a few low-interest student loans active in order to build credit.
In the end, not every suggestion noted above will work for everyone, since all borrowers have vastly different situations. However, with a solid strategy in place, you can make the best decisions about which student loans you should pay off first.