Which strategy is best?

Which strategy is best?
The Debt Avalanche will always save the absolute most amount of money, but the difference may not be very large between that method and the Debt Snowball method, depending on your situation. If you are simply going by the numbers, the Debt Avalanche method has the slight edge.

Although the Debt Avalanche saves you the most money, there is a psychological effect that should not be discounted. Unless your highest interest rate also happens to be on your smallest debt, it will take a lot longer to pay off the first debt using the Debt Avalanche method. Seeing your first debt being repaid more quickly gives you a psychological boost that can keep you focused and intent on repaying your debt.vBig Boss vote

The first thing you need to do is to figure out how much extra cash

The first thing you need to do is to figure out how much extra cash ou can afford to put towards your student loans every month. Even just paying a few extra dollars a month can really add up over time.

To illustrate this concept, let’s suppose there are three loans:

• Loan A: A $10,000 loan at a 3.8% interest rate with a 10-year term
• Loan B: A $15,000 loan at a 4.5% interest rate with a 15-year term
• Loan C: A $20,000 loan at a 5.0% interest rate with a 20-year term

Choose a Strategy

Choose a Strategy

There are two main strategies to choose from. Which you choose will depend on what is more important to you: seeing immediate results, or saving the most money possible over the long term.

In order to use either of these strategies, you must have:

• Multiple loans: Most college students have multiple loans from various sources, both federal and private. If that’s your situation, you can take advantage of one of the following strategies.
• Not consolidated: If you consolidated your loans, the following strategies won’t help you out. However, you can still pay extra and see good savings as we illustrated earlier.

Before you put an aggressive strategy into play, make sure it makes financial sense.

Before you put an aggressive strategy into play, make sure it makes financial sense.
While paying off your student loans early is a great way to save some money, you want to be sure that you don’t jeopardize your financial stability to do so. Paying your other bills, setting up an emergency fund, and starting to save for retirement might take precedence over paying off your student loans early.

Also keep in mind that it doesn’t make a whole lot of sense to pay a bunch extra on your student loans that have interest rates in the 3% – 5% range, while making minimum payments on a credit card with $5,000 of debt and a 18% interest rate. Remember, student loans (especially federal student loans) are likely to have a more favorable interest rate than other forms of credit (a mortgage or car payment can be an exception).

All that being said, there are some great ways to minimize the amount of interest you pay, thereby minimizing the total overall cost of your student loans.

How it could hurt you

How it could hurt you
Consolidating doesn’t always make sense. In fact, there are certain situations in which you might lose a whole lot more than you gain by consolidating your student loans.

Eliminating possible repayment strategies: You could lose the ability to utilize several great repayment strategies if you choose to consolidate your student loans. For instance, the Debt Avalanche (paying off the loan with the highest interest rate first) and the Debt Snowball (paying off the loan with the smallest amount first) strategies both rely on your ability to pay extra on certain loans, while making the minimum payment on others. This obviously would not be possible if you consolidate all your student loans.

Losing benefits: You could lose out on some great borrower benefits you may not have considered if you choose to consolidate your student loans. This is especially true if you consolidate your federal student loans with a private loan; there are very few scenarios where that approach pays off in the long run. We’ll cover many of the benefits of federal student loans below, but here’s a few you could lose