The BEST Strategy for Paying off Federal Student Loans FAST (It’s not what you think!)

if you have federal student loans and you want to pay them off as quickly and

efficiently as possible boy do I have a treat for you today in

today's video I'm showing you a four-step strategy for optimizing your

student loan repayment and sharing what no one has told you about how to pay off

your student loans fast spoiler alert the path I'm showing you today has

nothing to do with consolidation or refinancing and this is definitely not

your cookie cutter video so make sure you stay tuned

hey wealth builders and welcome back to another episode if you're new around

here my name is Akeiva and on this channel we talk about all things money

for young adults just like me so if you're into that kind of thing I hope

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new videos so those of you who've been a part of the squad for a while know that

I have currently over eighty thousand dollars worth of federal student loans

right now I am in rapid debt pay down mode and my current focus is paying down

my car note which I plan to have paid off by the end of the year and after

that it'll be go time for my student loans so I asked myself what is really

the best way to maximize my student loan payments and this is the four-step

method that I've devised step one is to set up auto debit with your student loan

servicer setting up auto debit from your bank account not only ensures that you

never miss a payment and that prevents your account from becoming delinquent

and screwing with your credit it also reduces the interest rate on your

student loans by 25 basis points or a quarter of a percent so if one of your

student loans carries an interest rate of 6% for example by setting up

auto-debit you reduce your interest rate to five point seven five percent which

can save you hundreds of dollars over the life of your repayment step two is

to determine the best repayment method now I'm sure that most of you by now

have heard of the debt avalanche method as being the best way to pay off debt if

you're unfamiliar with what the debt avalanche is it's the method

of paying off your debt in order of highest interest rate to lowest interest

rate regardless of the size of the debt in the vast majority of cases it is the

fastest way to pay down debt and results in the least amount of interest paid

over the life of your loans I actually went into the math to prove that theory

using this awesome spreadsheet that I found online and I'll make sure I link

to it in the description box below so that you can check it out as well this

spreadsheet compares the debt avalanche method the debt snowball method which is

paying in the order of lowest balance to highest balance and also compares

against pain from the highest bounce to the lowest balanced debt and this is all

using your specific debt so like I said I will link to that spreadsheet in the

description box below because I found it to be a really helpful really powerful

tool in short when I compare to the bottom line amount of interest that I

would pay under each of those plans the debt avalanche, the debt snowball and

paying in order from highest to lowest balance the debt avalanche method came out on

top the difference in the amount of interest paid under each of those plans

that that Avalanche debt snowball and paying from highest balanced set to lows

balanced debt the spread wasn't that big for me actually because coincidentally

the interest rates on all of my debt pretty much are directly inversely

correlated to the size of my debt so chances are the gap is much bigger for

those of you who have more varied loan balances and interest rates step three

is to choose the right federal repayment plan and this is key so listen up with

federal student loans many of us tend to forget that just because you have one

monthly payment does not mean that you only have one loan in fact most of us

will have eight separate student loans carrying four different interest rates

just from undergrad alone the key to remember is that your one monthly

student loan payment is really just the individual payments for each of the

individual loans added together so when you make your payment your student loan

servicer splits that amount between all of your loans so in an ideal world if

you're using the debt avalanche methods to pay off your debt you would only want

to make payments toward the loan that has the highest interest rate which is

the loan that you actually want to pay off first but since you can't do that

the key is to get your student loan payments as low as possible that way the

minimum amount you have to pay on each individual loan is minimized and you can

use any additional funds that you've budgeted to put towards paying off debt

only toward the principal of that specific loan but you actually want to

pay off first and it's really important when making that additional payment

above and beyond the minimum that you specify that you want that additional

payment to go toward the principal balance of that particular loan so how

do you get your payment to be as low as possible a good place to start would be

the good old federal student loan repayment calculator and I've mentioned

that several times on the channel before and it'll be linked once again in the

description box below so that's what I did I went on I linked my federal

student loans and then looked for the repayment plan that resulted in the

lowest initial monthly payment now I personally didn't choose any of the

repayment plans that are income based because I didn't want to be in a

situation where my repayment was fluctuating wildly from year to year you

know based on income changes and being an upwardly mobile college grad I knew

that most likely my income would just keep increasing from your year and so I

didn't want my minimum payments to be increasing along with it here's the

thing many people recommend the standard ten year repayment plan as the best plan

for paying off your debt quickly however the issue is that this plan also results

in the highest minimum monthly payments and that defeats the purpose of what

we're trying to do here so for me I chose the extended graduated repayment

plan and if you guys want another video going more in depth as to the different

payment plans it exists and just explaining the differences between them

let us know in the comments below on the extended graduated plan my loans are

amortized over 25 years payments on this plan start off really low and are

designed to only cover interest in the first few years of the plan and then it

gradually very slowly increases over time so that you're able to hit some of

the principal as time goes on so under this plan

I'm making the smallest amount of monthly payments possible while keeping

my loans from growing and being able to focus on paying off the debt that I want

to which is my card oh do I intend on having my student loans around for 25

years absolutely not however this plan gives me the most

flexibility and control around paying off my debt another perk of choosing

this plan is that because my payments are so low it gives me a little bit of a

buffer in case I fall on hard times for example so they don't have to turn to

things like forbearance and deferment or potentially missed payments which could

have a catastrophic effect on my credit score now in the same spreadsheet that I

showed you guys a little earlier I took things a step further and calculated the

interest that I would pay over the life of my repayments under both the standard

repayment plan and the graduated extended repayment plan and I did this

by messing with the required monthly payment over here in this column and

again the ideal scenario came out to be exactly what I expected

I paid the least amount of interest by combining these an avalanche method with

the extended graduated repayment plan now step four is an easy one make

payments as soon as you have the cash student loan interest compounds on a

daily basis so the sooner you're able to make payments the more you'll save in

interest so if your payment isn't due until the 8th of the month but you have

the money on the first go ahead and make that payment and save yourself some

money now a quick note on consolidation and refinancing and why neither of those

strategies were right for me so when you consolidate your federal loans all

you're really doing is combining all of your loans into one massive loan and the

interest rate on that loan is just the weighted average of all of your existing

interest rates to begin with so you're not really saving anything and you're

removing the possibility of picking and choosing which loans you want to pay

additional money to now let's talk about refinancing at one point I consider

refinancing my parent PLUS loans into my own name and I've made a video on that

experience that I'll link in the cards above I ultimately did not go with that

option and I explain why in that video so let's summarize to truly optimize

your student loan payments you should first set up auto-debit with your loan

surfacer choose the right repayment method which in my case was the debt

avalanche method combine that with choosing the right student loan payment

plan that will result in the lowest minimum monthly payments and then using

additional capital to focus just on the loan that you want to pay off first and

then lastly make sure that you make the payments as soon as you have the cash

available if you got value from today's video go ahead and write the word value

in the comment section below if you have any questions on debt or student loans

specifically or if you have any other suggestions for future videos also let

us know in the comments below before you go don't forget to come join

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young adults make sure you hit one of those videos that's coming up on your

screen right now to keep watching thanks so much for spending this time with me

and I will see you in the next video