Seven steps to paying off student loans faster

When the pomp and circumstance after all those years of hard study dies down, many college graduates find themselves with another mountain to climb: Paying off student loans.

Timely payments build your credit score

It can be daunting to face a major debt load when you’re first starting out. Plus, that debt could force you to put off other noteworthy milestones, such as buying a house, getting married, or having children. Worse yet, it could ruin your credit rating before you’ve even started building a solid one. Poor credit scores often take years to improve.

Putting a plan in place early is key to meeting those life targets and keeping you on a steady credit path. At 35% of your credit score, nothing carries more weight when building credit than your payment history. For many grads, paying off student loan debt represents their first example of financial responsibility.

“Establishing and maintaining a spotless record of on-time debt payments is the single most important habit you can adopt to promote a strong credit score,” according to credit rating agency Experian.

7 steps to pay off student loans faster

Here are some tricks Anna used to help pay off student loans faster:

• Look for loan forgiveness and repayment options. There are a handful of federal resources available for teachers, military, AmeriCorps, and public service workers.
  Note: The Department of Education warns of scams surrounding loan forgiveness and repayment options, reminding borrowers they will never have to pay for help with federal student aid.
• Start paying right away. Federal Student Aid, an office of the U.S. Department of Education, encourages students to begin paying at least the interest on loans while in school or during grace periods. “That way less interest will capitalize and get added to your principal balance when you enter repayment,” according to StudentAid.gov.
  The same is true about forbearance and deferment periods for unsubsidized loans. You don’t have to make monthly payments, but the interest can pile up quickly, creating a double whammy by upping the outstanding loan balance.
• Sign up for automatic debit. Put your recurring bills on autopilot to ensure on-time payments. Plus, autopay can reduce your interest rate by 0.25% if your loan is eligible. Contact your student loan servicer to find out.
• Pay more than the minimum amount. Earmark extra payments toward your principal balance to help shrink it quicker. The more the better, but even an extra $10 or $25 can make a difference over the typical 10-year payback period. Be sure to let your lender know the extra should go toward the principal, or it may be applied toward your next payment instead.
• Pay higher-interest-rate loans first. This is a gimme for all interest rate–related debt, particularly when credit cards are involved. When you’re making extra payments, direct them toward loans with the highest rates to pay them down quicker, and then move down the line as each one gets paid off.
• Use windfalls, bonuses, and tax refunds to reduce principal balances. It’s tempting to splurge when there’s extra money in your pocket for whatever reason, but remember those surplus dollars could go a long way toward diminishing principal.
• Consolidate and refinance. Depending on your rates and balances, it could be beneficial to refinance and/or combine loans into one consolidated (and hopefully lower-rate) balance. A good credit score might get you an even better interest rate. Remember, however, if you’re refinancing a federal loan, you might lose IDR or loan forgiveness plans.