The American dream used to be simple: Go to college, graduate and earn a good income doing something you love. Now many people have to add “pay off student loans” to the mix, which complicates things a bit — especially since the average borrower graduates with about $30,000 of student loan debt.
It’s not impossible to get out of student debt, though, and we talked to three people who prove it. Here’s what they recommend to help you pay off your loans.
Take a holistic approach to your finances
Angelica Valentine, a 25-year-old graduate of Barnard College in New York, paid off $19,000 in student loans in 13 months. She credits her success to thinking about her student loans as part of a larger whole.
“Whatever I was making, that’s what I could spend and that was it,” says Oakland, Calif.-based Valentine, who studied sociology and ethnic studies and graduated in 2013.
“I didn’t get a credit card until I was going to study abroad …” she says, “but I tried not to use that credit card very often, so I always paid it off if I used it at all.”
Personal finance isn’t just about getting out of debt; saving money is just as important in reaching financial independence. To get there, you’ll need to hope for the best, like earning a raise, while planning for the worst, like losing your job.
So even though it might be tempting to limit your financial goals to going after your student loans, make sure you’re putting your cash toward other things that also matter. That means creating a budget that will let you get out of debt while contributing to an emergency fund and even saving for retirement.
When will your loans be paid off?
Use the avalanche method
For Lee Drake, a 33-year-old senior applications scientist with a doctorate in anthropology, the debt avalanche method was his secret weapon for attacking his student loan debt.
“Once I graduated and got a job in the tech industry, I put the majority of my monthly paycheck into student loans, using the ‘avalanche’ method,” says Drake, of New Mexico. He paid off $70,000 in student debt in less than four years.
Instead of tackling your smallest loans first, as you would under the debt snowball method, the avalanche method prioritizes your payments based on interest rate. Attacking higher-interest loans first will save you the most money because you end up paying less interest in the long term. Drake estimates that his efforts saved him $14,000 to $36,000 in interest costs.
Start by logging in to the Federal Student Aid website to find out your federal loan interest rates. If you have private loans, contact your student loan servicer for more information. Then rank your loans by interest rate and direct any extra money toward your highest-rate loans.
Track your credit score
For Antonella Pisani of Denver, who earned an MBA from the University of San Diego, paying off $70,000 in student loan debt over 12 years and building a healthy financial profile were directly tied to tracking her credit score.
“If you miss a payment, it’ll bite you years later when you are ready to buy that house or that car,” says the small-business owner, 40, who admits she’s “pretty much obsessive” about her score.
Use NerdWallet’s credit score tool to get a baseline for your score. You can raise your score by making on-time payments and keeping your credit card balances at or below 30% of your available line of credit.
Once your score is around 700, consider refinancing your student loans to save on interest payments. If you qualify, a private lender will replace your old loan with a new one — which is a chance to get better terms, like a lower interest rate. You’ll need a stable source of income and a low debt-to-income ratio to qualify. It’s usually best to include only private loans so that you don’t lose any federal loan protections, like income-driven repayment plans or forgiveness.