Making extra loan payments is one of the best ways to get out of student loan debt. This can help reduce the total amount of interest you’ll have to pay since there will be less debt to charge interest on. Many people decide to make the minimum payment on their student loans. If borrowers can afford it, it’s usually best to pay more than the minimum payment. There are a few things to remember when making additional payments. Here’s an overview of some of the best practices.

START MAKING PAYMENTS IN COLLEGE

The majority of people usually wait six months after graduation before making their first payment. This isn’t a terrible strategy, but money is still being left on the table. The reason being is that while borrowers are in school, their interest is always accruing. For most people that means they’ll pay hundreds or even thousands of dollars more in interest. One of the best ways to avoid this is by making payments during college. You don’t necessarily have to make the total payment every month while you’re in school. Even just paying the interest can help a lot.

Many people have multiple student loans. It’s usually best to start by finding out how much interest each loan will accrue every year. Once you have that number, divide it by twelve, and that should tell you how much interest is accruing each month on average. If you have multiple loans, repeat this formula for each loan. Then add all of the answers together. This will tell you how much interest is accruing each month on average. If you can afford it, it’s usually best to at least pay the interest on your loans during college.

PAYMENT STRATEGIES

If you have multiple loans but want to pay one loan off at a time, the avalanche method may be a good fit. This strategy involves finding out which loan has the highest interest and paying off that loan first. This can help people save money since they’ll be paying off their loans with the highest interest rates first.

The other strategy that works great with the avalanche method is the snowball strategy. This method is relatively simple. Once a borrower has paid off their first loan with the highest interest or highest monthly payment, they’ll make the same monthly payment on their remaining loans (even if the monthly payment doesn’t have to be as high). This strategy can help people reduce debt quicker. It can also save people money since less interest will be accruing.

TELL LOAN SERVICERS HOW YOU WANT YOUR ADDITIONAL PAYMENTS TO BE APPLIED

Making extra payments can help borrowers get out of student loan debt. However, loan servicers don’t always apply additional payments correctly. The best way to avoid any confusion is by contacting your loan servicer and letting them know how you would like extra payments to be applied. It’s usually best to communicate with your loan servicer over email. That way everything will be documented if there are any discrepancies in the future. The best way to get rid of student loan debt is by making a solid financial plan. If you have any questions about student loans, feel free to contact us anytime by clicking here.

Sources:
Nagle, Courtney. (2018, October 24). 6 Tips to Make Extra Student Loan Payments Correctly. Retrieved from https://www.usnews.com/education/blogs/student-loan-ranger/articles/2018-10-24/6-tips-to-make-extra-student-loan-payments-correctly