Everything I Know About: Debt Repayment — Student Loans
Sometimes slow and steady wins the race.
Other times, momentum is key and when it’s time to run with something, you run.
Debt repayment exists on a scale between these two factors and depending on the type, will be closer to one end or the other. For the purposes of our discussion series, we’re going to focus on three: credit card debt, mortgages, and, of course, the notorious student loans.
For the purposes of this post, we’ll be zooming in on student loans.
Some people are afraid of the dark. Others, deep water. But mention student loans, and the entire country quakes in its boots.
As someone who loves the opportunity that education is able to provide, I am a huge proponent for people furthering their studies. However, funding them can get very difficult and, for some, can be preventative.
Knowing your financial plan as it relates to student loans is essential for being able to pay them off as efficiently as possible.
But how to start? There are 2 types of student loans: subsidized and unsubsidized. Both of these types are included in the federal direct loan program. However, if you qualify for them, subsidized loans are generally cheaper over time than unsubsidized.
Why? Though the interest levels may be comparable, interest on subsidized loans will not accrue while you’re still in school.
Even still, borrow federal loans, subsidized and unsubsidized, before private ones. Private loans are of ten associated with high interest rates and federal loans generally offer the borrower more repayment plans and forgiveness options.a Use private loans to fill any remaining gap you may have, only.
Once you have your three types of loans sorted out, it’s time to start paying them off. Personally, I am an advocate for the debt avalanche method of paying the highest interest rate first as, mathematically, it will save you the most money. If you have a $10000 loan at 7%, and a $3000 loan at 4%, pay the $10000 loan first, until it’s gone.
From there, pay off loans in this order:
- Private, high interest loans
- Loans with variable interest rates
- Unsubsidized, high interest loans
- Subsidized, high interest loans
- Unsubsidized, low interest loans
- Subsidized, low interest loans
If you can, any extra payments you can pay right away or early will save you a significant amount of money by decreasing the principal amount upon which interest is accruing.
Enrolling in auto pay is another way to potentially lover your interest loan rate.
You’ve got this!
In summary: Subsidized loans > Unsubsidized loans > Private loans
