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The best way to pay off student loans depends on the kind of loans you have.

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Question: I have $130,000 in private student loans with 6.65 percent interest. The minimum monthly payment (interest only) is $715. I am currently paying $750. I also have $35,000 in federal student loans with 4.63 percent interest. The minimum monthly payment is $103. I’m paying $105. This loan will be forgiven after 10 years if I don’t make additional payments. I currently make $2,320 monthly and have $2,500 in savings. How should I attack this debt? – Meisha in North Carolina

Steve Rhode, the Get Out of Debt Guy, responds…

Actually, Meisha, I think you are doing a great job already.

The 10-year repayment plan is the fastest way out of federal student loan debt, and you will wind up paying the least amount of total interest. While there are other options that may lower your payment, you will wind up paying substantially more overall.

Why? Because no one is going to give you something for nothing. If you want a lower payment now, then the holder of that loan will want their money back later. That means extending the length of the overall loan – which means you’ll pay much more in interest since you’re adding years to the loan.

It’s not clear what the length of your private student loan is. Paying more than the minimum each month will go directly toward lowering your balance.

If I had a magic wand, I would help you to find a higher-income job to ease the pressure you may be feeling. You could then stash a bit into your emergency savings account and participate in any employer matching retirement savings plan.

Overall, it seems like you are at the minimum income point to service your student loan debt. The three primary ways to deal with debt are to increase your income, reduce expenses, or a combination of both.

I would bet you’ve already trimmed your expenses. But here is the inside scoop that most “experts” won’t tell you about reducing monthly payments on student loans or any kind of debt…

If you don’t lower the interest rate, then the only way to lower the monthly payment is to extend out the length of the loan. And as I’ve already said, that only makes the loan more expensive in the long run.


Solutions for student loan debt

Before you do anything, I’d recommend you read the report, How to Pay Off Student Loan Debt Fast. It will give you some more in-depth advice on the topics I raised here. You can also compare student loan debt solutions – because if you must extend your loan to get a lower monthly payment, you should try to get the best possible deal you can.

You may also want to explore private student loan settlement, which can be hit or miss and comes with several reservations and caveats. Click the link to see if it’s something worth exploring.

Finally, his situation is Exhibit A for why federal student loans are easier to renegotiate. The federal government has several programs that offer relief. I urge students to be careful about rushing into private student loans.

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About the Author

Steve Rhode

Steve Rhode

Steve Rhode is known as the ‘Get Out of Debt Guy’ and he has been teaching people how to deal with money problems since the 1990’s. After his own personal bankruptcy, he formed a nonprofit organization to help people get out of debt. Since then, he’s had a syndicated advice column in 50 newspapers across the country and has written three books. He’s appeared on FOX, CNN, ABC, NBC, and MSNBC giving money advice and now he is now an investigative reporter specializing in covering consumer debt and the debt relief world.

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