If you have student loan debt, you are far from alone. 45 million Americans owe over $1.5 trillion in student loan debt. That’s a lot of people figuring out how to make it work.
For many of us, student loan debt can feel overwhelming. But understanding how your loans work and making a plan to tackle repayment can help you manage and ultimately eliminate debt.
To help, we’ve asked the experts—financial advisors—to share their best advice for repaying student debt. Here are their top three tips:
1. Get in the Right Headspace
First, familiarize yourself with your loans by learning how they work.
Take some time to write down all of your loan information, including the interest rates, minimum monthly payments, and total remaining balances on each loan. You can get this information from your loan servicer. If you’re not sure who your servicer is, check the National Student Loan Data System to get this information for any federal loans.
Next, approach the challenge of conquering debt with a patient, resolved frame of mind. According to Shannon McLay, founder and CEO of The Financial Gym, “We tell our clients that paying down student loan debt is like running a marathon.”
Break the marathon down into more manageable pieces by setting small annual goals. Focus on these smaller numbers instead of the larger, potentially more overwhelming number of the total loan amount.
Andrew Wang, a financial advisor at Runnymede Capital helps his clients tackle their loans using this method: “Many people find success by gamifying the process of paying down student loans. Setting goals and celebrating small victories can make saving and automating loan payments more fun.”
To gamify your loans, try creating a debt visualization tracker. For example, every time you pay off $500, color in a part of a picture you’ve drawn, or move a chocolate coin from one jar to another. More ideas? If you make all payments on time for a year, buy yourself or a loved one a fun prize. Or treat yourself to a fancy drink on days you make student loan payments.
Pairing a special treat you have legitimately earned with milestones toward student loan repayment can help ease frustration.
2. Put Extra Towards Your Loans
If you come across extra sources of cash such as bonuses, holiday money, or inheritances, consider putting some of that toward student loans.
Wang suggests taking this strategy a step further by applying raises toward student loan repayment.
“Once working, many people encounter lifestyle inflation—the tendency to spend more as income goes up. It is easy to buy a bigger television, eat out more frequently, and travel on better vacations. To counter this temptation, take one-half of your raise or more and put it straight toward loan payments.”
McLay uses a slightly different strategy for her clients that want to pay extra toward debt: “We have our clients make extra payments on dates other than their payment due dates.”
When making extra payments, always be certain they are applied directly to the loan’s principal. “Reducing your principal also reduces your interest charge,” says Dan Kellermeyer of New Heights Financial Planning. But he warns that extra payments don’t always go toward the loan’s principal.
“While some lenders allow you to select between applying extra payments to principal or future monthly payments, I suggest calling your lender to ensure those payments go toward principal reduction only.”
3. Know Your Refinancing Options
Refinancing with a company like CommonBond replaces your current student loans with one new loan. Many borrowers also qualify for a lower interest rate when they refinance.
“One of the most effective strategies for paying off student loans faster is to refinance when possible. The goal is to reduce your interest rate so more of your payment goes toward principal,” says Wang.
For refinancing to be a great strategy, speedier payback doesn’t have to be the goal. For example, you could keep the same loan term, but arranging a better interest rate allows for a lower monthly payment. A lower monthly payment can help borrowers make more room in their budget to work towards other goals like paying down credit card debt or saving for retirement.
Refinancing can also allow borrowers to alter other terms of their loans, such as the duration of the loan, removing a co-signer, or switching between a fixed and variable rate. Borrowers should at least look into refinancing to see whether it could help; getting a quote is easy and costs nothing.
Whether or not borrowers decide to refinance, experts agree that with education, planning, and the support of friends and family, student debt can absolutely be managed.
It only takes moments to see your new rate. No commitment, no documents, no impact on your credit score.⁶