Introduction: In the quest for the answer, which student loans to pay off first, there are several variables that you must consider. Before you even get into deliberation, please ensure you know the total balance of ALL your student loans and credit cards. This way, you can create a plan that will work for your budget.
Lowest Interest: This first and most important variable of all is determining your interest rate. You must figure out exactly what you’re paying in principle and interest for several reasons. First, by knowing which loan has the highest interest rate, you determine which loan is essentially most expensive to own. The loan with the highest interest rate will cost move over time, therefore, should be taken care of first in most cases. Secondly, the loan with the lowest rate should be placed at the end of the payment plan because it’s much cheaper in overall cost than the others.
Debt Snowball: While reading a book called the total money makeover, I learned a new method of paying down debt called the debt snowball. When I initially read this strategy, I was overjoyed by the strategy and ease of implementation. When using the debt snowball, you began by taking the smallest debt and focusing solely on paying that balance off. Once the smallest balance is paid off, start focusing on the next debt. Here’s where the strategy kicks in, you take money you were paying towards the small debt already paid off and add it to the next debt. Continue this strategy until all your loans are paid off. I recommend this method if you have several different account that need to be fulfilled. The author of this book, Dave Ramsey has been a great presence in the personal finance business. If you want to be more financially sound and understand debt management on all level, the total money makeover is a great book to add to your personal book collection.
The most important thing to remember regarding student loans is to pay them off. Some have no strategy or program regarding repayment. I’ve seen instances where people just buckle down, get second and third jobs to make the student loans disappear. In most instances, obtaining a second income is not necessary if you can just make create a solid financial plan. Also, consider if your employer can assist with helping your eliminate your loans. From time to time, employers will pay portions of your student debt if complete a certain amount of service with the company.