3 Tips to Lower Your Student Loan Debt This Year

This article is part of the January 2022 digital cover of Money, which features 22 ways to make 2022 the best money year of your life. Browse all 22 items here.

Do you have a death wish for your student debt in 2022?

The repayment of debts – student loans or other – is a long-runner on the New Year’s resolution lists. But as with many resolutions, it’s easy to lose motivation over the course of the year, especially if you don’t have a clear plan of attack.

These steps, boosted by the current federal loan freeze through May 1st, will help you create that plan.

How To Pay Off Student Loan Debts Faster This Year.

Take advantage of the last few days of your 0% interest rate

Federal student loan payments were set to resume in February after a nearly two-year freeze. But before the holidays, the borrowers got some welcome news: The payment break and the interest waiver will take three months longer. This means that any amount you pay before May will reduce your debt further than later in the year when it is eaten up by interest.

“A 0% chance of interest is rare,” says Dan Rooker, a financial planner and certified student loan specialist.

How much you can reduce your aggregate debt, of course, depends on how much you owe and what your interest rate will be after the pandemic-era relief ends in May. (All loans reset to the same interest rate that you had before the pandemic.)

But let’s say, as an example, you owe $ 40,000 at 6% interest and you are well on your way to paying that off in 5 years. If you make a one-time payment of $ 4,000 and then make the same monthly payments of $ 773 after the grace period expires, you will settle your debt 6 months faster. Maybe more motivating? You save $ 1,300 in interest.

“From May on, you’ll be swimming against the tide again,” says Rooker.

Make multiple payments a month

Do you know the saying that one is happier? Channel it when it comes to the frequency of student loan payments – the more you do, the easier it is to dump your balance (and, you know, the happier you’ll be when you finally hit that long-awaited payout date). .

If you even pay an additional $ 50 per month on our hypothetical $ 40,000 debt, you can pay it off four months early. The easiest way to do this is to schedule your payments to coincide with the days you will be paid so that you can draw money on your debt before you are tempted to spend elsewhere. Rooker recommends automating this through your checking account or your payroll provider.

“You only have to decide once and then let the technology do the work for you,” he says.

Quick tip: be sure to let your loan service provider know that you want your additional payments to go towards the main balance rather than an upfront payment for the next month.