No one ever wants to talk about the unglamorous work that goes on behind the scenes, but it’s the unspoken progress that makes or breaks every successful business owner, athlete, or creative person. It is helpful to have this mindset and to think about student loan repayment like any other big feat worth accomplishing.
It begins in knowing that paying down student loans in a way that is financially smart and effective takes time and effort, most of which lies in the preparation—the proper planning, budgeting, and education will make tackling your student loans during the next decade or more so much easier.
While there is no one single smartest way to pay off student loans, there are steps that you can take that will put you in the best position to pay off your student loans on a timeline and with terms that work best for you. In addition to understanding your student loans, your goal should be to build an overall financial plan that includes your loans.
9 Smart Ways to Pay Off Your Student Loans
If you want to understand how to repay student loans in the smartest and most financially responsible way possible, here are nine steps to implement in your loan repayment plan.
1. Organize All Of Your Sources Of Debt—Including Student Loans
Keeping track of all of your student loans and other sources of debt can be tricky, especially if you are a recent graduate. Your first step should be to organize them on a list. On your list should include the loan service provider (the bank, federal government, or private lender), amount of the loan, monthly payment, interest rate, and when the loan will be paid off in full.
If you aren’t sure what your monthly payments on your student loans will be, you can use our student loan calculator. This calculator estimates how much you could be paying each month on your student loans.
If you have credit card debt or other personal loans, include these on your list. With all of your sources of debt, mark on a calendar the date that the monthly payments are due.
While you always need to make the monthly minimum payments on all debts (unless your student loans are within their grace period or are in forbearance), listing them out allows you to identify which debts to pay off first. If you have high interest credit cards adding up each month, a credit card consolidation loan may be a great option to look at.
Once your credit cards are paid off, you’ll want to think about whether your goal is to pay your loans off quickly, or to simply make the monthly payments until the loans are done. The former is a good way to save on interest over time.
Some folks do prefer to pay only the minimum monthly amount on their student loans so that they can save and invest while they pay down their student loans.
If the interest rates on your student loans are low, this may be a good reason to start investing with your extra funds, in order to take advantage of compound returns. If the interest on your loans is higher than you could reasonably expect to make investing, it might make more sense to pay off your loans first. Which option is right for you is a completely personal decision.
2. Budget To Include Loan Payments
No matter who you are, learning how to budget your money should be on the top of your financial to-do list. It takes time and effort to develop a budgeting system that works for you, but it is doable, and totally worth it. To get started, track your monthly cash inflows and outflows for two months.
Total up how much money you spent in each category, including debt payments like student loans. Once you have a general idea of what you’re spending in each category, you can begin to build a budget framework. For example, if you spend $260 on groceries one month and $300 the next, you can now set yourself a realistic grocery budget. Leave room for annual, bi-annual, and quarterly expenses, as well as incidentals.
With a budget that is built to include student loan payments, you’ll be more equipped to make all of your payments on-time and know how much is available to spend on other needs and wants. Also, understanding exactly how you’re spending allows you to identify the areas where you’re overspending.
For example, a close look at your budget could reveal that you’re spending more than you realized on dining out, subscriptions, clothing, or even rent—and gives you the power to make a change. And by saving money in other categories, you’ll free up money to apply to your financial goals.
3. Set Up Automatic Payments
Hopefully, your student loans are already set up to be automatically deducted from your bank account. (This is a good strategy for all your monthly bills.) If they aren’t, contact your student loan service provider to set it up. This way, you’ll never miss a payment because you forgot or are somewhere where you can’t access the internet.
Remember, every time you miss or are late on a payment, it negatively impacts your credit score. Bad credit could preclude you from opportunities in the future, such as being able to refinance your loan to a lower interest rate. Take every extra precaution to make sure your loans get paid on time.
As an added bonus, some service providers offer a discount, usually .25%, if you arrange to pay by automatic payments. When you sign up, be sure to ask if such a discount is available.
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4. Pay More Than The Minimum Monthly Amount
Most student loans allow you to pay more than the minimum monthly payment, and doing so can be a great strategy if your goal is to pay back your loan faster than the stated term. In addition to a faster payoff, you can save on interest over the life of the loan. Even small amounts make a difference. One drawback is that some providers have prepayment penalties. When you contact you student loan service provider, be sure to ask if they charge such fees.
To do this, call your loan service provider to adjust your automated monthly payment to a higher amount, and clarify that you want that money dedicated to the principal of the loan. Make sure, after the next month’s payment, that the money was indeed put towards the loan’s principal. Looking for more advice on paying down your student loans? SoFi’s student loan help center offers tips, guides, and resources on all things student loans.
5. Put Additional Income Towards Student Loans
Increasing your monthly payment isn’t the only way to put a dent in your loans; at any point, you are allowed to make a lump sum payment towards the principal of your loan. This is a great way to speed up the student loan repayment process without having to commit to paying more each and every month.
You may have more opportunities to do this than you think: Utilize your tax refund, holiday or birthday money, work bonuses or inheritance money. Additionally, putting income from a side hustle or other passive income towards student loans could be a financially rewarding move over the long-term.
6. Adjust Your Repayment Plan If Needed
Most federal student loans come with a standard, ten-year repayment plan. With federal loans, there are other options for repayment plans with lower monthly payments, calculated using your income. These plans lower your monthly payments by extending the length of your loan, usually from ten years to twenty or more years.
When you choose one of these options, it is important to know that even though your monthly payments are lower, you can end up paying more in interest over time. Therefore, it’s not a great choice if you want to pay off your loans quickly or pay as little in interest as possible, but it is available to those who are having trouble making their monthly payments.
If you are planning to utilize the Public Student Loan Forgiveness program for your federal loans, you will need to select one of the income-dependent repayment programs.
7. Consider Refinancing Your Loans
When you refinance a loan or multiple loans, a lender pays off your current loan(s) and provides you with a new loan, ideally at a lower rate. A lower interest rate could mean savings over the life of your loan.
Though refinancing might not be the right option for everyone, it’s a strategy that every student loan holder should, in the very least, research and consider. Also, understand that while refinancing can consolidate multiple loans, federal loan consolidation is a different process. With federal loan consolidation, the government bundles your loans together into one, using a weighted average of the interest rates.
If you are able to refinance to a lower rate, you will want to ask yourself whether the purpose is to lower your monthly payment but keep the same term, freeing up some money in your monthly budget, or to keep your monthly payment the same (or higher), and shortening your term so that you can pay off your student debt faster.
Exploring refinancing with a private lender usually doesn’t take a lot of time and it doesn’t cost you anything. You can get rate quotes from SoFi in just a few minutes, and even talk to a representative who will walk you through the process.
8. Know Your Worth And Ask For A Raise
With all raises, you can use the extra income towards your financial goals. This could mean increasing the monthly amount you pay towards your loans, making the occasional lump sum payment towards the loan with the extra windfall, and/or saving and investing money for your other long-term financial goals.
How much money you earn is an important factor contributing to your financial stability and ability to pay down your student debt. While budgeting is important, so is knowing your worth and asking for more when you deserve it. If you haven’t already, start keeping track of your successes now so that at your next compensation conversation, you’re loaded with concrete data on why you deserve a bump.
9. Understand Your Employment Benefits Packages (Hint: some employers offer programs to help with student loan payments)
Although not yet as widespread as retirement or healthcare benefits, more employers are offering student loan repayment help as a benefit to attract and retain employees.
Depending on your personal situation, student loan repayment help could be as important than a raise or other benefits. Whenever you’re comparing job offers, it’s critical to understand and compare benefits packages, because although they’re not flashy like a big salary or company equity, benefits can be just as valuable.
If you’re looking for a new job, include student loan repayment help in your search. While it shouldn’t be your only consideration, it’s great to have an idea of what you’re looking for in an employer.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.