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Here are five methods to get out of paying back your student debt

Apr 11, 2023

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When you have outstanding student loan debt, it can be challenging to save money for future goals such as purchasing a house, retiring comfortably, or establishing an emergency fund. If you have a plan, you may be able to pay off your student loan interest payments while still working toward other long-term financial goals. Here are five methods to prioritize your financial obligations and start saving money while you work on paying off your debt.

  1. Figure out precisely what it is that you repay and how much of it there is.


Finding out how much money you owe is the first step you need to take before you can start making plans. If you're self-employed, you can easily use a quarterly tax calculator. Make a list of all of your overdue invoices, including the total amount that you still owe, the interest rate, and the date that the payment is due. This inventory ought to include not only student loans but also other types of debt, such as credit card or auto loan balances. Your financial obligations could assist you in setting priorities and developing a strategy for paying off your debts. A good rule of thumb is to pay off the debt with the greatest interest rate first, or to use the "snowball approach" to prioritize the debts with the smallest remaining balances. If you're not careful, there could be an IRS penalty for underpayment.

  1. If you are able to, increase your monthly installments.


If you pay more than the required minimum on a loan each month, you can potentially save money in the long run by lowering the total amount of interest that you will have to pay back on the loan. When determining your monthly costs, it is important to bear in mind that your spending plan may be subject to change over the course of a year. Setting up regular automated transactions, such as when you get paid, is a straightforward method that can be utilized for the purpose of making additional contributions, the same way you might for an IRA for self-employed people. If you have an additional source of income, like a side work or an inheritance, you might want to think about increasing the amount that you pay each month toward your student loans. When you get a pay raise at work, it's a good idea to make an additional payment on your loans so that you don't wind up owing more money than you did before the raise. And when you do your taxes, make sure to know whether the the standard deduction is the best option for you.

  1. If you want to save money, consolidate your bills.


Consolidating your student loans into a single, low-interest loan is an excellent choice to consider if you are having trouble keeping up with multiple monthly installments for your student loans. Consolidating high-interest debt, such as student loans, credit card debt, and other kinds of loans, can be a choice for debt repayment that can help you save money and get out of debt more quickly. Examine the annual percentage rates that are associated with the different kinds of debt that you have so that you can determine whether or not you should implement this approach. If you take out a new credit and it comes with different terms, it's possible that your repayment period will be extended. If you restructure these loans, you run the risk of losing access to certain government protections, such as debt cancellations and payment suspensions for student loans. Having a lower monthly payment on a loan may also help you lower your debt-to-income ratio and improve your credit score, both of which may contribute to an increase in the likelihood that you will be approved for a mortgage loan in the future.

  1. Give your plan for making payments another look.


When you matriculated from college, you may have been given the opportunity to select one method of financing from among a number of available options. Your standard plan, income-driven plan, or extended plan, as well as any combination of the three, can have a significant impact on the amount that you are required to pay each month. The standard plan, in which creditors are typically debt-free after a decade of payments, is the one that is utilized the most frequently. You can alter your payment schedule at any moment by getting in touch with the company that is servicing your debt. Use the tax deductions and allowances that are available to you in addition to taking advantage of any reciprocal contributions that your employer may provide. Check to see if the company you work for offers any kind of assistance with paying off student loans as more companies are beginning to offer a variety of programs as part of their employee benefits. Ask an accountant if you have any concerns about what to do.

  1. Make the most of available tax exemptions.


The amount of interest that is paid throughout the year on qualified student loans is eligible for a tax exemption from the federal government. You might be eligible to take a tax deduction of up to $2,500 if your adjusted gross income falls within certain parameters. The deduction can be applied to either government or private student debts, depending on the type of loan. You may be eligible to claim this deduction on your federal income tax return if you are lawfully compelled to pay interest on a qualifying student loan and your filing status is not married filing separately. This is a one-time exemption, and you do not need to itemize your expenditures in order to take advantage of it, but there are other tax write-offs you can also take. Those who are qualified to take advantage of the exemption can anticipate an average tax savings of a few hundred dollars, which can be applied toward the reduction of their outstanding student loan debt. If your tax burden is reduced, you will likely have more money available for the reimbursement of your loan.