Crush Your Student Loan Debt With These Tips

Struggling with student loan debt? If so, you’re not alone. Collectively, borrowers in the U.S. hold over $1.4 trillion in student loan balances. No matter how much student loan debt you carry, it likely feels like too much. This burden can prevent you from using your money toward important financial goals or life milestones, like getting married, buying a home or starting a business.

It’s time to do something about it. If you’re ready to crush your student loan debt, this is a good way to make it happen.

Knock Out High Interest Rates First

Financially speaking, the best way to repay your student loans is to get rid of the highest interest rate balance first. This is the balance that costs you the most money. The sooner you pay it off, the more you’ll save on interest payments.

Make a list of all your debts and write down the balance, the minimum monthly payment and the interest rate for each one.

Let’s say you have the following student loans:

  • Loan 1: $15,000 balance, $167 monthly payment, 6% interest rate
  • Loan 2: $2,000 balance, $20 monthly payment, 3% interest rate
  • Loan 3: $5,000 balance, $52 monthly payment, 4.5% interest rate

You may be tempted to knock out Loan 2 right away because it’s the smallest and would be the easiest to repay. But the much bigger Loan 1 is costing you more money thanks to that higher interest rate.

Consider the following order to pay off these loans if your goal is financial efficiency (aka spending as little as possible on your debt):

  • Loan 1: $15,000 balance, $167 monthly payment, 6 percent interest rate
  • Loan 3: $5,000 balance, $52 monthly payment, 4.5 percent interest rate
  • Loan 2: $2,000 balance, $20 monthly payment, 3 percent interest rate

To really crush your student loan debt in this case, here are the steps you would take:

  1. Analyze how much extra each month you could put toward Loan 1’s monthly payment. You only need to pay $167. but is there enough room in your cash flow to pay $300 per month toward the loan? If so, do it.
  2. Make payments on Loan 1 until the balance is gone. If you can pay $300 every month, you will pay it off in five years as opposed to 10 years making only the minimum payment.
  3. Make sure you continue paying the minimum payments on Loans 3 and 2 during this time.
  4. Take whatever payment you made toward Loan 1 and add it to the minimum payment on Loan 3. You’ll now start paying whatever you paid on Loan 1 plus $52 per month.
  5. Continue making that payment on Loan 3 until the balance is gone.
  6. Take the total payment you made on Loan 3 and add it to the payment you made on Loan 2. That means the total payment you put toward Loan 3 ($352) plus $20, for a total of $372 per month.
  7. Continue making this payment until Loan 2 is repaid and you’re done with your school debt.

This method is known as the debt avalanche and will help you crush your loans in a financially productive manner. In this scenario, if you are able to pay $372 per month toward your student loans in the way described, you will have your loans completely paid off within six years and will pay less overall.

Pay Off Student Loan Debt Faster

This method gives you a financially effective way to pay off your loans. But you can kick your repayment efforts up a notch if you use the debt avalanche and make more than the minimum payments on all your loans. You’ll pay off your debt faster this way and save money by paying less in interest over time.

It’s not always easy, however, and you may be a little limited by your cash flow. There’s only so much money available in your budget, after all, and you still need to pay for necessities like rent, utilities, groceries and more. But if you’re highly motivated, you can make some temporary lifestyle changes to free up more money in your budget and apply more cash toward student debt repayment. (For more from this author, see: 4 Ways to Make Extra Money to Fund Financial Goals.)

Here are a few changes you could make to reduce your expenses so you can put more toward your loans:

  • Change up your living situation. Rent is the biggest monthly expense for most people. Consider moving somewhere with a lower rent. You might even think about moving back in with your parents or another family member until your debt is gone. 
  • Embrace frugality. This doesn’t mean you need to be cheap, but it does require you to look at ways to live well on less. What luxuries can you cut? What spending can you go without for a period of time while paying off your loans?
  • Pretend like you’re still in college. In other words, don’t fall victim to lifestyle inflation. Try to live off the budget you kept in college, which will hopefully create a big gap between what you spend and what you earn. Use that extra money to rapidly repay debt.

None of these things may appeal to you, but remember, they’re temporary. Depending on how determined you are to crush your student loan debt, you may want to explore some of these options. 

No Matter How You Choose to Crush Your Student Loan Debt, Progress Is Progress

With so many options, how do you know which is the right one for you? It’s a bit of a trick question. There is no one right answer for everyone. But talking to a financial planner can help you figure out your answer. And know that whatever method of student loan debt repayment you choose, taking some kind of action is better than doing nothing at all.

(For more from this author, see: What Millennials Should Know About Good and Bad Debt.)


Securities and Investment Advisory Services are offered through Signator Investors, Inc., Member FINRA/SIPC, a Registered Investment Advisor. AspenCross Wealth Management is independent of Signator Investors, Inc.  1400 Computer Drive, Westborough, MA  01581.