Student Loan Series: How To Pay Off Student Debt Faster
Student loans are a massive undertaking. With tens of thousands of dollars in debt, student loans can follow you for decades. You might be thinking, is there a way to pay off student loans faster?
We are here to tell you that there is. With the right planning and debt management before, during, and after school you can get rid of your student loans and start moving forward with your financial goals.
Plan early
The key to minimizing student debt is to create a strong plan. Before you can implement any repayment strategies, you’ll need to know exactly how much debt you have. Ask yourself the following questions.
How much do you owe? This includes both principal and interest.
What type of loans do you have and should you consider refinancing?
What is your income?
Do you qualify for income-based repayment plans?
Knowing where you are will give you a better sense of your options moving forward.
Two debt repayment strategies
While there are many ways to go about repaying your student debt, below are two methods you will likely encounter:
Debt avalanche
Debt snowball
Let’s take a closer look at what these strategies are and how they work. With a debt avalanche strategy, you’ll target the loan with the highest interest rate first. The idea is that by eliminating your highest-interest debt, you’ll be able to save more money in the long-term. But this strategy takes more time and means allocating more resources to one loan while maintaining minimum payments required on your other loans.
A debt snowball takes the opposite approach. This strategy encourages you to tackle your smallest debt first. Eliminating a loan, even a small one, can boost motivation and show tangible progress on your debt repayment plan.
Which strategy is right for you? It all depends on the type of loan you have, your interest rate, income, and other financial goals. A financial advisor will be able to help you look at your unique situation to figure out which method makes the most sense.
Craft a repayment plan
Once you have a strategy that will work for you, here are a few additional ways to pay off your debt faster.
Allocate extra income to debt repayment. Did you get a bonus check at work or earn extra commissions this quarter? Consider putting that money toward your student loans. Be sure that your added payments go toward the principal. That way it will lower the amount you have to pay over the life of the loan.
Use any remaining 529 funds. The SECURE Act made it possible to use up to $10,000 from a 529 plan for student loan repayment. This is penalty-free money which could make a significant dent in your debt.
Take advantage of tax planning. Did you know that you can write off student loan interest? You can currently deduct up to $2,550 of interest on qualifying loans. This deduction does come with income limits. To take advantage of the full deduction, the adjusted gross income (AGI) for single filers is $65,000 and $135,000 for couples filing jointly. If your AGI exceeds these limits, you could be eligible for a partial deduction or not be eligible at all. You can find more income information here.
Lower your taxable income. If you are in an income-based repayment plan, lowering your taxable income is directly correlated to your monthly student loan payments. There are a number of ways to do this like increasing your pre-tax retirement contributions (401k, traditional IRA), opening a health savings account, structuring your itemized deductions, planning your self-employment income and corresponding deductions, and making use of relevant tax credits.
Student loans are a complex topic, one that requires a professional who knows you, your goals, and your financial situation. Our team would love to help you make a plan for paying off your student debt. Book a call today to learn more or sign up for a one-on-one Student Loan Analysis.
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