You’re saddled with debt and don’t know which student loans to pay off first. When you’re dealing with multiple lenders, interest rates and balances, loan repayment can be difficult to manage.
That’s why your first step needs to be coming up with a plan for juggling your various loans. Read on to learn the best way to pay off multiple student loans and conquer your debt.
1. Not sure which student loans to pay off first? Start by taking inventory
Before getting into the nitty-gritty of which student loans to pay off first, you first need to clear up any confusion around your debt.
Start by writing down all your loans and lenders. Include your balance, interest rate, repayment plan and monthly payment. Make a note of whether each loan is federal or private.
Also make sure you have the login information for all your online accounts, so you can easily check your statements and, if you choose, make extra payments to pay down your balance faster.
Taking inventory of your student loans is an important first step if you’re dealing with multiple debts. It will help you see exactly what you’re working with, and from there you can devise a plan for managing your loans.
2. Make private student loans a priority
Getting back to our core question about which student loans to pay off first, the most obvious first step is to deal with any loans in danger of falling into default. Missing payments is a surefire way to mess up your credit for years to come.
But, assuming you’re keeping up with the minimum payments on all your loans, you can then go on to prioritize some loans over others. “Prioritizing” here means deciding which debt receives any extra payments you might be able to make on your loans.
When it comes to the best way to pay off multiple loans, it can be smart to focus on repaying private student loans before federal ones. While federal loans come with perks such as income-driven repayment and deferment, private lenders aren’t usually so flexible.
And if you miss three months of payments on your private loans, they can go into default and get reported to the credit bureaus, as opposed to about nine months for federal loans. You should make sure you’re keeping up with your private student loans to avoid this financial nightmare.
What’s more, private student loans typically have higher interest rates than federal ones, and you might be sharing your private loan with a cosigner. If you can swing extra payments on your private loans, you could get out of debt faster, save money on interest and make your cosigner happy, too.
3. Focus on federal student loans next
Prioritizing your private loans doesn’t mean you should neglect your federal loans — it simply means you need a strategy on which federal loans should receive any extra payments you can afford (after you’ve paid off your private loans, of course).
You might target unsubsidized federal student loans first, since these accrue interest right from the date of disbursement. If you have subsidized loans, which don’t accrue interest until repayment starts, these could be your next priority.
If you’re feeling overwhelmed by the number of loans in your name, you might consider combining them into a single Direct Consolidation Loan. While consolidating won’t save you money on interest, it could make repayment simpler.
Either way, make sure to carefully choose a repayment plan for your federal student loans. A standard 10-year repayment plan usually allows the fastest repayment of student loans. But if you’re struggling to pay off your debt, then you could consider opting for income-driven repayment or extended repayment.
It’s definitely worth taking advantage of the flexibility and options that come with federal loans when you need to. At the same time, avoid a plan with a longer timeframe or a lower repayment scheme if you can afford to pay off more, since it will cost you a lot more in interest over the years. Remember, the goal is to get rid of your debt — the sooner, the better.
4. Consider refinancing for better rates
If you have both federal and private student loans, then you may be dealing with high interest rates and multiple lenders, both of which can feel like major obstacles. However, there is a way to get better rates and simplify your debt: student loan refinancing.
Through refinancing, you could qualify for a more competitive interest rate on your federal and private student loans. Plus, you’ll get the chance to choose new repayment terms with adjusted monthly payments.
Refinancing multiple loans also lets you combine several loans into one — much like the Direct Consolidation loan mentioned above, except that private loans are also eligible. Instead of tracking several bills and due dates, you could be paying back a single monthly bill with a single rate — which can make the entire process a lot easier.
That said, you want to make sure you’re not accidentally raising the rate on any of your loans. If one of your loans already has a low interest rate, for example, you probably shouldn’t refinance it with the others.
It’s also important to note that refinancing federal loans turns them private, meaning you lose access to federal repayment plans and forgiveness programs. If you need those federal protections, avoid refinancing your federal debt with a private lender.
Finally, the perks of refinancing aren’t available for everyone. You’ll need decent credit and income to qualify, or you could apply with a creditworthy cosigner. Before changing your debt through refinancing, make sure you understand the pros and cons of the process.
If you ultimately decide it’s right for you, it could be a way to save on interest and make debt repayment a whole lot simpler.
5. Consider the debt avalanche or debt snowball method
While the advice above suggests which types of loans to try to pay off first, how do you prioritize among loans of the same type? For example, if you have several private loans, which student loan should you pay off first?
Here, there are two main approaches for picking:
- The debt avalanche method involves paying off your loan with the highest interest first, while paying the minimum amount on the others. I’ve subscribed to this method, and I just paid off my very last 7.9% interest loan! Now, I’m moving on to the rest, all at 6.8%. With the debt avalanche method, you can save money on interest.
- The debt snowball method involves paying off the loan with the smallest balance first and paying the minimum amount on the rest. If you have loans of $2,000, $8,000, and $13,000, then focus on the $2,000 loan first. This method is praised by personal finance guru Dave Ramsey for the psychological wins that you gain, in the sense that paying off the smallest balance first helps to build momentum, which can be highly motivating.
While the avalanche method comes down to math, the snowball method inspires motivation. Consider which one would be the better fit for you as you begin chipping away at your debt in earnest.
Whichever you choose, you might also consider the following plans for targeting your debt:
- Baby Steps: Ramsey, who has inspired many people to overcome debt, has created a signature 7-step plan toward debt freedom.
- Spending Diet: Created by personal finance author Anna Newell Jones, this plan caps non-necessary spending at $100 per month. At that level, you can still have some fun while putting most of your money toward your debt.
Finding the best way to pay off multiple student loans might not happen overnight
Although student loan debt can be a beast to manage, it’s always easier with a plan. Here’s what to pay off first:
- Focus on private loans first.
- Continue to make minimum payments toward your federal loans, and choose a repayment term that works for you.
- Consider refinancing for better rates and more streamlined debt repayment.
- Consider the debt snowball or debt avalanche methods to get out of debt faster.
- If you want some extra help, add on the Baby Steps or Spending Diet methods, or another of your choice, to stay on track.
Remember, a goal without a plan is just a wish, so create a plan that works for you and get started. Debt freedom, here you come!
Rebecca Safier contributed to this report.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.36% APR (with Auto Pay) to 7.82% APR (with Auto Pay). Variable rate loan rates range from 2.41% APR (with Auto Pay) to 6.99% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for SoFi.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.45% effective May 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.41% – 6.99%1||Undergrad & Graduate|
|2.41% – 7.89%2||Undergrad & Graduate|
|2.43% – 6.65%3||Undergrad & Graduate|
|2.38% – 6.81%4||Undergrad & Graduate|
|2.41% – 8.19%5||Undergrad & Graduate|
|2.60% – 9.60%6||Undergrad & Graduate|