Top 3 Strategies to Cut Down Your Student Loan Debt

It’s astonishing how much some people owe in student loan debt. Check out these numbers: total student loan debt has reached $1.5 trillion with 44 million borrowers overall. That’s crushing. Even worse, an estimated 8 million Americans could qualify to lower the interest rates on their student loans, but many do nothing about it. Who wants to pay more than they have to? Not you, so let’s find out how to cut down your student loan debt.

Strategy 1: Maximize Overall Savings

If you can manage to increase your monthly student loan payment, consider refinancing your loan with a shorter repayment term. Refinancing allows you to exchange your current loan for one with a lower interest rate.

If the interest rate is lower, and you make larger monthly payments, you’ll pay off your loan much faster. You also pay the least amount of interest possible. Plus, this strategy may make the lowest possible interest rates available to you that you won’t see with other options.

Strategy 2: Lower Monthly Payment

If you are strapped for cash, you might prefer a lower monthly student loan payment. Refinancing works here as well. With a lower interest rate, you can lower your monthly payment, but keep the overall number of payments about the same. In the end, you still save on overall payment costs. It’s not as impactful as Strategy 1, but it does help shave off some costs. Plus, you’ll have a bit of extra cash on hand each month.

Strategy 3: Rock Bottom Monthly Payment

Let’s say you’re income is really tight, and you need to drive your monthly payment as low as possible. If you refinance your student loan with a lower interest rate and longer repayment term, you’re likely to end up with the lowest monthly payment possible. Be careful here, since your total repayment costs could even end up increasing.

Also, choosing this strategy will probably put the best interest rates out of reach. Still, if times are ultra-tight, this might be your only refinancing option. It’s better than defaulting on your loan and damaging your credit score.

Keep in mind that federal student loan borrowers can often lower their monthly payments just by enrolling in an extended or income-driven repayment plan. If you refinance federal loans with a private lender, you lose access to government programs like income-driven repayment and the potential to qualify for loan forgiveness. But extending your loan term without an interest rate reduction can lead to an even more drastic increase in repayment costs — particularly for borrowers who don’t end up qualifying for loan forgiveness.

Tie It All Together

From a pure financial perspective, Strategy 1 is superior since you pay off your debt faster and pay way less in interest. Still, if times are tough, the other strategies offer viable options that keep you economically intact.

For those paying attention, the common thread for all three strategies is refinancing. That is, getting a new loan with better terms to replace your current loan. The fastest and most effective way to refinance is by using an online multi-lender marketplace. These platforms give you real access to lenders who compete for your business. The end results are prequalified rates (not teaser rates) presented in a way that makes it easy for you to make a decision.

Don’t get fooled by rate comparison sites that only show you rate estimates. A true lender marketplace will state that the rates are prequalified. This means they have actual connections to lenders that offer rates based on your personal financial situation. One final tip is to make sure you’re living an overall minimalist life, this can drastically reduce your overall expenses and free up some money to put towards your debt.