The new year is here — what better way to kick it off than with a plan to pay off your student loans? It might seem an impossible task, but just imagine how incredible it would feel this time next year to know you’re in the homestretch of debt freedom.
Let’s face it, just about everyone has too much stress in their lives, and student loan debt only adds to it. In fact, this debt has become the number one source of financial stress for millennials. If you decide to make 2018 the year to eliminate your student loans, then you can kiss that stress goodbye, too.
But how? It’s all about strategy. Here are the five best strategies for paying off your student loans in 2018. (And don’t forget you can mix and match some of these to customize your plan.)
First: The debt snowball approach
1. Build momentum with the debt snowball
If you love small wins, the debt snowball could be your ideal strategy. Here’s what to do:
Line up all your debt, from lowest balance to highest. If your student loans are grouped together on your bill, you can review your accounts online to see how your servicer separates them.
Then add the minimum payments on each loan to see if you can afford to pay more. If you can, the extra should go to the lowest balance loan, while all the others get just their minimum payments.
Once your lowest balance loan is paid off, add the amount you were paying on it to the minimum payment of your next-lowest balance loan. Rinse and repeat until all the loans are paid off.
Next: Not a fan of the debt snowball? Find out if the debt avalanche strategy might be a better way to pay off your debt.
2. Win at math with the debt avalanche
Want to pay your debt off even faster? Consider the debt avalanche method.
This works the same way as the snowball, except your loans are ordered from highest interest rate to lowest. By targeting your highest-interest loans first, you can more quickly eliminate the most expensive debt.
The only problem is if the loan with the highest interest rate also has a high balance. In that case, it can take a bit longer to get that first win. For someone who wants quick wins, this can become frustrating. But for those who just want the fastest payoff with the least amount lost to interest — and don’t care how many loans they carry — this is the plan to follow.
Next: Mixing and matching payoff strategies
3. Add a little debt snowflake to the mix
Here’s a plan you can use with the snowball or avalanche: The debt snowflake.
With the snowflake, you make a payment on your debt every time you have extra money. Say a friend paid you back, your utility bill was lower than expected, or you earned some extra cash on the side. As soon as you get the money, pay the loan you’re targeting.
Some experts recommend combining this method with the snowball, thus targeting the smallest balance first, but there’s no reason you couldn’t use the avalanche instead if that’s your preference.
As with all these strategies, the extra payments should always be made in addition to your minimum payments.
Next: The next approach requires discipline, but the rewards are great.
4. Go for complete austerity to turbocharge your payoff
If you’re determined to make 2018 the year you pay your loans off for good, austerity might be the way for you.
With this method, you should decrease or eliminate every expense you can. You might cancel subscriptions, get rid of cable, trade in your car for a used one that you can pay in full, take on a roommate, or even downsize your home or move back in with family.
This might sound crazy, but it’s a fairly popular method among personal finance aficionados — so much so that it’s been dubbed the “gazelle intensity” approach by personal finance author Dave Ramsey, who explains that to do this, you need to “run like you are a gazelle with a cheetah chasing you.”
But you can’t run this fast forever — it’s not a sprint, it’s a marathon. So you might try gazelle intensity for 2018 alone and then decide to go back to normal life in 2019. Or you might make so much progress on your loans that you want to do it again the next year. Either way, if you start small in the timeline, you can always extend it later if you want.
And when you apply the money you save to your student loans, do so strategically with the debt snowball or avalanche method to bolster your progress even more.
Next: Consider refinancing
5. Lower your interest with student loan refinancing
Want to decrease your student loan repayment time drastically? Refinance your student loans for a lower interest rate.
Lowering your interest rate means instantly increasing the amount of money you put toward your loan balance and not toward interest payments that only slow your progress.
That said, this option doesn’t come without risk. If you refinance federal student loans, they’ll become private student loans. That means forfeiting access to benefits such as income-driven repayment plans and federal student loan forgiveness.
And your refinance offer will let you choose between fixed and variable rates, typically with a lower — and thus more enticing — rate for those who choose variable. This is no big deal if you’re going to pay your loans off in 2018, but a much bigger risk if you’re looking at another few years.
In the end, student loan refinancing is a great option for someone who can rely on their income, and who, if they choose a variable rate, can pay the loan off quickly.
Next: Thinking long-term
Stay in it to win it for the new year
Sometimes it’s easy to get used to having student loan debt. So easy, in fact, that you might forget that you can really do something about it — something more exciting than staying stuck in repayment mode for a decade or longer.
With these strategies, you can reach debt freedom sooner than you might ever have expected. And when you do, you’ll free up more of your income the minute you don’t have those bills anymore.
The average graduate from the Class of 2016 started their professional lives more than $37,000 of student loan debt. In much of the U.S., that’s practically a down payment on a house. Why not use the money that’s going to your student loan bills for something you want? There’s no better time to start than now.
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