5 Ways to Optimize Your Student Loans in 2015

If you’re the type to make New Year’s resolutions, chances are one of them had something to do with money – save more, spend less, etc. And if you’re one of the 40 million Americans dealing with student loans, chances are your money resolution had something to do with paying down that debt, or getting it off your plate once and for all.

So how can you best achieve your student loan goals this year? Here are five simple but powerful ways to cut costs and be done with loans sooner, so you can look forward to a less indebted 2016.

1. Sign Up for ACH (Automatic) Payments

If you haven’t already set up automatic payments with your lender or servicer, now’s the time to get this done. Most lenders offer a 0.25% interest rate discount for auto-paying, plus it minimizes the chances of missing a payment (which can hurt your credit score).

2. Prepay When Possible

Prepaying, or making extra payments, is one of the most effective ways to accelerate loan repayment – especially if your loan servicer puts that surplus cash toward loan principal instead of earmarking it for future payments (you’ll need to confirm that they’re doing so). Since interest is charged as a percent of principal, the faster you can reduce that figure, the less you’ll spend on interest over the life of your loan.

You can also borrow a trick from the mortgage industry and make bi-weekly payments. Paying every other week instead of monthly adds up to an extra month’s worth of payments each year, and you can line up the payments with your paycheck so that you don’t have a chance to miss the money. Note that most servicers can’t accept automatic bi-weekly payments, but if you decide to go this route you can always use ACH for the first monthly payment and send a check for the second.

3. Look Into Refinancing

Besides prepaying, another great way to save money on student loans is to refinance them at a lower interest rate. The better your credit score and other financial specs, the lower your new rate could be – saving you a significant amount of interest and potentially lowering your monthly payments or shortening your loan term in the process. And many people don’t realize that refinancing is available for both private and federal student loans – you’ll just want to check first to see if you qualify for federal loan forgiveness benefits, because they don’t transfer to private lenders when they’re refinanced.

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And if you’re concerned that refinancing sounds like a time-consuming, paperwork-heavy process with a negligible payoff, think again. These days the refi process can be short, sweet and online.

4. Use Forbearance Sparingly

If you absolutely need to put your loans on hold, forbearance is often the only option available. Just be aware that in most cases, interest continues to accrue during the forbearance period — which ends up costing you more in the long run. Use it when you need it, but end it as soon as possible to minimize excess costs.

5. Keep Your Credit in Good Shape

Since credit score is a big factor in determining refinance rate (and crucial to achieving other financial objectives), take care of it and it will take care of you. In order to do that, it’s helpful to understand how your student loans play a part – for example, knowing how refinancing, consolidating and or/prepaying your loans could affect your credit.

Furthermore, it’s important to always pay your student loans on time, since your payment history is the most important factor in a credit score. You can see how your student loan payments are affecting your credit by checking your credit reports and credit scores. Credit.com offers a free credit report summary, updated every 14 days, which explains how your credit history is influencing your credit-worthiness.