Investing
Zoe Team
4 min read
Analyze current interest rates and loan terms to determine the most effective repayment strategy.
Consider automated payment plans, which often qualify for interest rate discounts from lenders.
Direct any extra income or windfalls toward the loan with the highest interest rate first.
It depends on your interest rates and other financial goals, like emergency savings or retirement contributions, which may yield higher long-term returns.
It involves paying off the loan with the highest interest rate first while making minimum payments on others, saving you more money on interest over time.
Yes, many lenders offer a small interest rate reduction (typically 0.25%) if you sign up for automatic monthly deductions.
PAYING FOR COLLEGE BLOG SERIES
You never got assistance paying for college, and want to get out of your student loan debt as soon as possible.
Meet Greg and Elena
Greg graduated college 10 years ago and has been working as an engineer. Elena finished medical school 3 years ago and works as a pediatrician. Neither Greg nor Elena had assistance paying for college and took out student loans for the majority of their education. They are paying the minimum payments every month but feel like they are not making enough progress. With the right planning, they want to quickly pay off their student loan debt.
Greg and Elena want to get out of debt as quickly as feasible while maintaining a modest lifestyle. They’d like to buy a house and start a family in the next 5 years and don’t want to have competing financial obligations.
Greg and Elena pull together all their loan details (amounts, interest rate, minimum payment) and organize the information to better understand their situation. They considered loan consolidation and ran the numbers to see if it could be advantageous in meeting their goal. Then they looked at their budget and assessed the amount they can earmark for debt.
Armed with information, they create a debt snowball plan and start paying off the lowest balance first. This plan gives them little ‘wins’ as they go and encourages them to focus on progress. This also gives them an end date of when they can expect to be debt-free!
Elena works at a non for profit hospital and is eligible for the Public Service Loan Forgiveness program. She compared the opportunity cost of paying minimum payments and interest on her debt and being tied to a full-time schedule at a non-profit hospital, vs. the loan forgiveness potential down the road.
Federal loans have the option to be combined together into one big loan. This can simplify your payments into one monthly bill. Interest rates won’t decrease and the loan terms may increase. It’s not uncommon for students to graduate with 8-10 different loans which translates to 8-10 different monthly payments. This may be a good option to make the debt more manageable. If you’re considering loan consolidation for the goal of saving money, it isn’t a great option for federal loans.
Private loans also have the option to be combined together or refinanced. Private loans cannot be added to Federal loans. If you have a good credit score, and the new loan has a lower interest rate, you could save money.
There are several strategies for debt repayments: lowest balance first, highest interest rate first, extra payments on all loans, etc. The most popular is the snowball method which pays off the smallest balance first and then compounds the payments towards the next debt.
College planning affects everyone, regardless of your income, savings, or abilities… and there is no one size fits all solution. Education planning looks different depending on your life stage, goals, and financial situation.
Starting early produces the best results when it comes to savings.
Being resourceful produces the best opportunities when it comes to financial aid.
Being diligent produces the best potential when it comes to achieving your goals.
The key is defining what your goal is and then mapping a path to achieve it.
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