If you have a lot of debt to pay off, you’re far from alone. According to a report from late 2014, 40 million Americans have student-loan debt. Even though you’re still in school, there is no time like the present to start tackling your student loan debt — along with any other debt you might have. But how should you go about paying off your debts?
Know Your Debt
If you just make minimum payments on all your debts, you’ll end up paying far more than you have to on interest and it will take you decades to be debt-free. Take an honest look at all your bills. How much do you owe on each account? What are the interest rates? Are there penalties for prepayment? Having this information in hand can equip you to put together a smart plan for getting out of the red.
Choose Which Debt to Pay Off First
You should focus on paying off one debt at a time. This will ultimately save you money on interest and keep you focused on your financial goals.
You can choose to pay off your smallest debt first. Pour as much money as you can into the debt each month while you make minimum payments on all your other debts. After your smallest debt is paid off, roll the money you were using on it into the next debt. This will give you a sense of accomplishment as you quickly see some of your monthly payments disappear.
Alternatively, you can pay off your most expensive debt first. By focusing on the debt with the highest APR, you could save hundreds or thousands of dollars on interest.
As you slog your way through your debts one at a time, you might also put a little extra into the debts that aren’t your main focus. For example, if you use a credit card for a small purchase, you could promise yourself to pay off that small purchase immediately — and add a few extra dollars onto the bill. This will keep you accountable for your spending and make an impact on your overall debt.
Student loans generally have low interest rates, so debt consolidation should only be an option for you if you have other, high-interest, unsecured debts. The consolidation will allow you to combine all of your monthly credit card payments into one. Your budget will be simpler, and you’ll save money on interest.
Choose a Career Path With Student Loan Forgiveness
If you’re still early in your college career, it might not be too late to choose a major that will lead to a career that offers student loan forgiveness. If you go into public service after you graduate — for example, if you work for the government or a nonprofit organization — you may eventually qualify to have your student loans forgiven.
Debt is a worrisome thing for most college students, but the sooner you put together a plan to pay it off, the less stress you’ll have later on. Choose a debt payment method that works with your situation and your budget.