Student loan debt in the U.S. has swelled to more than $1 trillion. For millennials facing a tight job market and stagnating wages, chipping away at the balance is an ongoing struggle, particularly for those with high interest rates. SmartAsset has some suggestions that might lower your rates, helping you to get rid of debt faster and save money in the process.
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1. Set Up Automatic Payments
Putting your monthly student loan payments on autopilot does three things. It ensures that your payments are never late and protects your credit at the same time. The other reason to set up automatic payments is that there is a chance your loan servicer might reduce your interest rate if you do so.
Depending on who holds your loan, the reduction may be 0.25% or more. That’s not a huge amount but it can add up over the life of the loan. If you owe $30,000 at a rate of 6%, getting a quarter of the interest knocked off could save you a little over $600, assuming you’re on a 10-year repayment plan. A 0.5% reduction would yield savings of nearly $1,200.
Related Article: 5 Ways to Pay Off Student Loan Debt Quicker
2. Break Up Your Payments
Making just one payment to your loans each month is simple and convenient, but you can get more mileage out of your payments by splitting them up. Student loan interest often accrues on a daily basis so the more you can knock off the principal, the less interest you’ll pay in the long run. Switching to biweekly or weekly payments reduces the amount of principal that’s subject to interest, so you get closer to a zero balance that much faster.
3. Consolidate Your Federal Loans
If you took out multiple loans from the Department of Education, rolling them all into a single loan could streamline your monthly payments and reduce your interest. What happens with many borrowers is that they take out a mix of subsidized and unsubsidized loans at different times and at different rates. When you consolidate, you end up with a single fixed rate for the entire debt. But if you choose a longer repayment period, your interest rate could be higher than it was originally.
Consolidating your federal loans may also give you access to certain income-based repayment plans, such as Pay As You Earn. On the other hand, you may have to forgo advantages associated with specific types of loans, like the public service forgiveness option that’s available to some Perkins Loan borrowers.
4. Look Into Refinancing If You Have Private Loans
Private loans tend to carry much higher interest rates than federal loans, but fortunately you have the option to refinance them at a lower rate. There are a number of lenders that specialize in refinancing private student loans so it’s important to compare rates and fees before making a final decision.
One thing you’ll need to give careful thought to is whether you want a fixed or variable rate loan. The fixed rate may be higher but you’ll always know what your payment will be throughout the loan term. You may save some money if you take a variable rate but if interest rates increase, so will your loan payment. Doing the math for both options can help you decide which one is the best option for you.
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