Step 1: Get Organized

It’s easier said than done, but the first step to overcoming a pile, hill, or mountain of student debt is to try to remain calm. Stressing and losing sleep are normal responses, but won’t help you diminish your debt any faster.

First things first—take stock of what loans you have. Make a list of your loans, classify them as private or federal, and note the dollar amounts and interest rates of each.

Federal loans have fixed interest rates that tend to be lower than private loans—in some cases, significantly lower. Payments aren’t due until after graduation, and there may be a grace period. For example, for federal subsidized and unsubsidized Stafford loans, there is a six-month grace period, while it’s nine months for federal Perkins loans.

While federal student loans are generally the most attractive because their interest rates are so low, plenty of debt-bearing graduates didn’t qualify for them when applying for college. In this case, you may have opted for private loans from banks, credit unions, state-affiliated organizations, or a combination of any of these. Or perhaps you have a mix of federal and private loans. The interest rates for private loans vary from one institution to the next, as do the terms. They also have varying grace periods, depending on the lender.

Regardless of which type of loans you have, you can’t fight your debt if you don’t know how much of it you have or how paying it back works, so take the time to create an organized, comprehensive list of loans, lenders, and interest rates.

Step 2: Prioritize Your Spending

Next, establish priorities. You need to pay down your debt, but not at the expense of everything else. It’s best to have some money socked away for a rainy day. An emergency fund of two-to-three months’ worth of living expenses can help provide a safety net and peace of mind, even if you still have significant student debt. Create a budget so that you can start building up some savings. Make sure you leave a little bit of (reasonable) room for some fun, too. You don’t want your debt to rule your life.

It is also prudent to contribute even a small amount to your retirement savings, if possible. And if your company has a 401(k) with a company match, consider putting away at least enough to take advantage of the matching policy. It’s essentially free money, and through the power of compound interest, investing early could have a very meaningful impact later.

Once you’ve ascertained how much debt you’ve amassed and prioritized your spending, there are further steps you can take to work toward a student-debt-free life.

Step 3: Accelerate Payments (If Possible)

The most straightforward way to pay off your loans faster is to pay more than is due. Even contributing a small amount of the principal additionally each month can add up to big savings in the long run. If you’re only paying the minimum, you may not feel like you’re making much progress despite consistent payments, which can be frustrating and disheartening.

However, if you’re struggling to maintain an emergency fund or make ends meet as it is, this may not be the most practical option for you. If you can’t afford to put a few extra dollars toward your payments each month on a regular basis, consider contributing a nice little chunk of cash if you come into any sort of windfall, such as a raise, bonus, a returned security deposit, inheritance, or even extra cash from a side job.

Side gigs aren’t the only way work can help you tackle your student debt, either. Some professions offer federal student loan forgiveness. Certain public service jobs or some teaching roles at public schools, for example, may help you pay off some federal student debt after some time of service. These types of arrangements typically come with specific stipulations, so if you’re taking a role that qualifies your for federal loan forgiveness, make sure you are comfortable with the commitment required to reap the benefits.

Private employers may now be able to help with student debt, too. The IRS recently issued a ruling that may allow plan sponsors of employee retirement funds to match employee contributions to 401(k) plans based on employees’ student debt. So, your company could contribute to your 401(k) the same amount you’re paying monthly toward your student loans (up to a certain limit). This is a novel concept that’s just beginning to take off, but it may be a benefit to look out for when you’re searching for your next job.

Step 4: Consider Consolidating Your Loans

If you’ve got student loans, the word “consolidate” is going to come up. So will “refinance.” But, what’s the difference? Consolidating loans typically refers to federal student loans. It’s the process of combining multiple federal student loans into one by extending the term. You’ll get one monthly bill, and while your monthly dollar amount due may decrease because you’ve extended the term, the interest rate will not decrease.

Consolidating federal student loans does not take into account your credit history, it’s free through the Department of Education, and it can be done online. Steer clear of any service providers that offer to consolidate your federal student loans for a fee.

When you consolidate your federal loans, you’ll get a new term for the loan, which will range from 10 to 30 years. You’ll still have a fixed interest rate, but your new interest rate will be a weighted average of your current interest rates on your federal loans.⁶

Consolidating federal student loans may be the right choice if you:

• Are required to consolidate your loans to be eligible for certain profession-based loan repayment programs
• Do not need a significantly lower interest rate, but would like to make lower monthly payments

• Have mostly or entirely private loans
• Need a significantly lower interest rate

Step 5: Consider Refinancing Your Loans

Refinancing loans (aka private student loan consolidation) generally refers to the process by which a private lender (e.g., a bank, credit union, or state-affiliated organization) combines multiple private loans into one loan. If you have a mix of federal and private loans, it is possible to have all of them, federal included, refinanced into one.

Refinancing loans does not impact loan repayment for public service work, teaching jobs, and the like, but can be very beneficial. Terms of refinancing vary from lender to lender, but, in general, lenders lower your interest rates to save you money in the long run. Take note though, that interest rates after refinancing may vary based on income, credit, and the lender.

Private lenders who offer refinancing will take into consideration your credit score, education, and job history to provide you with a new interest rate. Like consolidated loans, refinanced loans are paid in a single monthly bill.

Refinancing your loans might be right for you if:

• You have good credit
• You have a well-paying job
• You have a co-signer that has good credit and/or a well-paying job

Refinancing your loans might not be the right decision if you:

• Have poor credit
• Lack stable income
• Don’t have access to a co-signer who meets either of those criteria