Paying Back Student Loans: A 4-Step Strategy

how to pay back student loans

If you’re one of the 44.2 million Americans with student loan debt, you may feel that one of your top financial goals is to pay off your debt.

But how are you supposed to do that on a small starter salary, on top of paying for your rent, the occasional trip to the grocery store and trying to actually save a little money?

Here’s a quick guide to getting started ...

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1. How Much Do I Owe in Student Loans? Find Out.

If you have Federal student loans, you can look up the details of your debt in the National Student Loan Data System.

To track down your private loan information, check your credit report.

Once you track them down, make a list of all your loans, writing down the following information for each: the balance, the interest rate, the minimum monthly payment and when you need to start making payments and to whom.

Once you know the details of your student loan debt and exactly how much you owe, you can establish a plan to pay it off.

2. Consider Your Student Loan Repayment Options

After reviewing the details of your student loans, you’ll have a better sense of whether or not you can actually afford to make your monthly minimum payments.

Missing payments or falling behind can hurt your credit, and over the long-term, can lead to default, which can come with some major repercussions like your wages being garnished or your tax refunds being withheld.

So instead of skipping payments when you can’t afford them, consider your alternatives. Federal student loans offer the most flexibility, with options ranging from deferment to income-based repayment to forgiveness.

Rather than trying to squeeze your student loan payments into your monthly spending plan, consider flipping your approach, such that you build your budget around what you owe.

Visit studentaid.ed.gov to learn more about these various programs and see if you can qualify for one that’s better suited to your means than the standard 10-year repayment timeline.

If you have Federal and private loans with high interest rates, you may be able to save money by refinancing.

When you refinance your student loans, a new lender gives you one big loan and pays off all of your other loans. To qualify for more favorable repayment terms when you refinance, you may need to prove you have a stable job and good credit. You should also weigh the pros and cons of refinancing to see if it’s the right option for you.

3. Build Student Loan Repayment Into Your Monthly Spending Plan

Once you’ve organized all of your debts and considered all of your options, it’s time to start the actual repayment process.

Rather than trying to squeeze your student loan payments into your monthly spending plan, consider flipping your approach, such that you build your budget around what you owe. Use whatever income you have leftover after you make your monthly loan payments to decide how much you can really afford to spend on your other expenses – like housing.

Remember to balance your student loan repayment plan against your other financial goals, like building savings and investing.

If you want to get really proactive with your student loan debt, you can consider making more than the minimum payment each month to get to zero balance sooner — saving money on interest over the life of your loan.

The drawback to early repayment is obvious: less money to spend on everything else now. And that doesn’t just mean happy hours and lattes, it also means less money to save in case of an emergency, or to spend on a major life event like a wedding, or to invest in your long-term future.

While being proactive about your debt is important, it’s also important to consider how aggressively paying down your student loans will impact your full financial picture.

Once you put money towards your loans, you can’t borrow it back. If you have a sudden medical emergency for example, you could be stuck having to charge your medical bills on a high-interest credit card, which could cost you more in the long run.

So remember to balance your student loan repayment plan against your other financial goals, like building savings and investing.

4. Stick With Your Student Loan Repayment Program

Keep yourself motivated throughout the debt repayment process by tracking your progress and celebrating every step in the right direction.

Treating yourself to small rewards, like the time to binge-watch your favorite TV show or take a hot bath and read your favorite book, can help you stay motivated by providing milestones to look forward to.

And at the end of the day, there’s always the ultimate milestone to keep in mind — debt freedom!