Best Way to Pay off My Student Loan

If you are looking for the best way to pay off your student loan, there are several useful strategies that you can follow. The most effective method to pay down the loan quickly is to make a larger payment than the minimum amount that you owe every month. 

It works because the more money you pay on your loan upfront, the lower amount of interest you will end up owing – and the faster your balance will go down. 

Another way that you can make more payments without feeling the loss of the money is to do half of your payment amount every other week instead of waiting to make a full payment once per month. This will allow you to get in an additional full payment every year. 

By reducing your interest costs, it will also help you to reduce your schedule for repayment. 

If the interest rate on your student loan is higher, you can pay it down quicker by refinancing your student loans. This does not require you to put out more money in additional payments but it can significantly reduce the pay off time. Reducing your student loan interest rate from eight percent down to four percent would help you to pay off your balance around two years faster. 

If your credit score is in the high 600 level, then you have a strong chance of being able to refinance for a better interest rate. The lender will also be interested in your income level and history of timely payments on bills. 

The worst thing that you can do in paying off your student loans is to be consistently late with or even to miss payments. This will cause late payment penalties and missed payment fees to be added to your total balance. 

Close Credit Card

It may seem like common sense to close a credit card if you are not using it, but this is not usually the case. You should never be in a hurry to close out an existing credit account. The first reason is that closed accounts will be dropped from your credit report in time. This would lower the average age component of your credit accounts. 

Besides this, when you close one of your credit cards, you remove a portion of your total available credit. This action alone can create an immediate negative effect on your personal credit score. 

Remember that open accounts which are inactive do not hurt your credit score, but they can boost it by raising your total available credit. 

A reason that you might want to close a card that you are not using is if  it comes with a yearly fee. Closing such a card would save you money. Before you do this, it is a smart idea to call the issuer of this credit card and ask them to either waive the annual fee (for a year or more) or to convert the card to another type of account that does not come with a yearly fee. 

Doing so would enable you to keep the average account age higher for your credit report, which translates to higher credit scores in the end. 

Remember that there is no harm in having an open credit card that sits idly in your wallet. Even unused it is creating benefits for your credit history and score. 

Think carefully before closing any credit card account.

Credit Cards

You may want to know the perfect number of credit cards that you should have, but there is no ideal number. FICO has done a recent analysis of individuals with excellent credit scores over 800 (with 750 to 850 being considered the excellent category). 

They found that these people have three open credit cards on average.

You should not be quick to close an account as this will reduce the total amount of credit that you have and could increase your debt to limit ratio at the same time. Both of these factors negatively affect your credit score. Open, inactive accounts do not hurt your score, but they can help it to be higher as they increase the total available credit that you have. 

Opening a new credit card is a method for increasing your available credit. 

Doing so permits you to charge more while still keeping a safe ratio of credit utilization. The lower your balance ratio is to your total available credit limit, the better off your score will be. 

You should seek to maintain a utilization ratio that is under 30 percent. It is easy for you to figure out this ratio by totalling up your balances on all credit cards that you have and then dividing this by the total limits of all your cards.

As an example, if you have a balance of $250 on a credit limit that totals $1,000, then your utilization ratio would be 25 percent.