Which Student Loans Should You Pay Off First?


You’re saddled with debt and don’t know which student loans to pay off first. When you’re dealing with multiple lenders, interest rates and balances, loan repayment can be difficult to manage.

That’s why your first step needs to be coming up with a plan for juggling your various loans. Read on to learn the best way to pay off multiple student loans and conquer your debt.

1. Not sure which student loans to pay off first? Start by taking inventory

Before getting into the nitty-gritty of which student loans to pay off first, you first need to clear up any confusion around your debt.

Start by writing down all your loans and lenders. Include your balance, interest rate, repayment plan and monthly payment. Make a note of whether each loan is federal or private.

Also make sure you have the login information for all your online accounts, so you can easily check your statements and, if you choose, make extra payments to pay down your balance faster.

Taking inventory of your student loans is an important first step if you’re dealing with multiple debts. It will help you see exactly what you’re working with, and from there you can devise a plan for managing your loans.

2. Make private student loans a priority

Getting back to our core question about which student loans to pay off first, the most obvious first step is to deal with any loans in danger of falling into default. Missing payments is a surefire way to mess up your credit for years to come.

But, assuming you’re keeping up with the minimum payments on all your loans, you can then go on to prioritize some loans over others. “Prioritizing” here means deciding which debt receives any extra payments you might be able to make on your loans.

When it comes to the best way to pay off multiple loans, it can be smart to focus on repaying private student loans before federal ones. While federal loans come with perks such as income-driven repayment and deferment, private lenders aren’t usually so flexible.

And if you miss three months of payments on your private loans, they can go into default and get reported to the credit bureaus, as opposed to about nine months for federal loans. You should make sure you’re keeping up with your private student loans to avoid this financial nightmare.

What’s more, private student loans typically have higher interest rates than federal ones, and you might be sharing your private loan with a cosigner. If you can swing extra payments on your private loans, you could get out of debt faster, save money on interest and make your cosigner happy, too.

3. Focus on federal student loans next

Prioritizing your private loans doesn’t mean you should neglect your federal loans — it simply means you need a strategy on which federal loans should receive any extra payments you can afford (after you’ve paid off your private loans, of course).

You might target unsubsidized federal student loans first, since these accrue interest right from the date of disbursement. If you have subsidized loans, which don’t accrue interest until repayment starts, these could be your next priority.

If you’re feeling overwhelmed by the number of loans in your name, you might consider combining them into a single Direct Consolidation Loan. While consolidating won’t save you money on interest, it could make repayment simpler.

Either way, make sure to carefully choose a repayment plan for your federal student loans. A standard 10-year repayment plan usually allows the fastest repayment of student loans. But if you’re struggling to pay off your debt, then you could consider opting for income-driven repayment or extended repayment.

It’s definitely worth taking advantage of the flexibility and options that come with federal loans when you need to. At the same time, avoid a plan with a longer timeframe or a lower repayment scheme if you can afford to pay off more, since it will cost you a lot more in interest over the years. Remember, the goal is to get rid of your debt — the sooner, the better.

4. Consider refinancing for better rates

If you have both federal and private student loans, then you may be dealing with high interest rates and multiple lenders, both of which can feel like major obstacles. However, there is a way to get better rates and simplify your debt: student loan refinancing.

Through refinancing, you could qualify for a more competitive interest rate on your federal and private student loans. Plus, you’ll get the chance to choose new repayment terms with adjusted monthly payments.

Refinancing multiple loans also lets you combine several loans into one — much like the Direct Consolidation loan mentioned above, except that private loans are also eligible. Instead of tracking several bills and due dates, you could be paying back a single monthly bill with a single rate — which can make the entire process a lot easier.

That said, you want to make sure you’re not accidentally raising the rate on any of your loans. If one of your loans already has a low interest rate, for example, you probably shouldn’t refinance it with the others.

It’s also important to note that refinancing federal loans turns them private, meaning you lose access to federal repayment plans and forgiveness programs. If you need those federal protections, avoid refinancing your federal debt with a private lender.

Finally, the perks of refinancing aren’t available for everyone. You’ll need decent credit and income to qualify, or you could apply with a creditworthy cosigner. Before changing your debt through refinancing, make sure you understand the pros and cons of the process.

If you ultimately decide it’s right for you, it could be a way to save on interest and make debt repayment a whole lot simpler.

5. Consider the debt avalanche or debt snowball method

While the advice above suggests which types of loans to try to pay off first, how do you prioritize among loans of the same type? For example, if you have several private loans, which student loan should you pay off first?

Here, there are two main approaches for picking:

  • The debt avalanche method involves paying off your loan with the highest interest first, while paying the minimum amount on the others. I’ve subscribed to this method, and I just paid off my very last 7.9% interest loan! Now, I’m moving on to the rest, all at 6.8%. With the debt avalanche method, you can save money on interest.
  • The debt snowball method involves paying off the loan with the smallest balance first and paying the minimum amount on the rest. If you have loans of $2,000, $8,000, and $13,000, then focus on the $2,000 loan first. This method is praised by personal finance guru Dave Ramsey for the psychological wins that you gain, in the sense that paying off the smallest balance first helps to build momentum, which can be highly motivating.

While the avalanche method comes down to math, the snowball method inspires motivation. Consider which one would be the better fit for you as you begin chipping away at your debt in earnest.

Whichever you choose, you might also consider the following plans for targeting your debt:

  • Baby Steps: Ramsey, who has inspired many people to overcome debt, has created a signature 7-step plan toward debt freedom.
  • Spending Diet: Created by personal finance author Anna Newell Jones, this plan caps non-necessary spending at $100 per month. At that level, you can still have some fun while putting most of your money toward your debt.

Finding the best way to pay off multiple student loans might not happen overnight

Although student loan debt can be a beast to manage, it’s always easier with a plan. Here’s what to pay off first:

  • Focus on private loans first.
  • Continue to make minimum payments toward your federal loans, and choose a repayment term that works for you.
  • Consider refinancing for better rates and more streamlined debt repayment.
  • Consider the debt snowball or debt avalanche methods to get out of debt faster.
  • If you want some extra help, add on the Baby Steps or Spending Diet methods, or another of your choice, to stay on track.

Remember, a goal without a plan is just a wish, so create a plan that works for you and get started. Debt freedom, here you come!

Rebecca Safier contributed to this report.

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