• Kelsey Houghton

5 Mistakes to Avoid When Paying Down Your Student Loan Debt

If you’re struggling to pay off your student loan debt, you’re not alone. As crazy as this sounds, you’re one of 44.7 million borrowers in America, carrying over $1.5 trillion in student debt!


If this is an issue so many of us are facing, why is there so much confusion when it comes to paying off student loans? The scary truth is that student

debt collection is a multi-billion dollar industry, and predatory student loan providers are profiting off of deliberately mislead graduates.


We don’t want that to be you! That’s why we’re relentlessly committed to helping people put their financial futures in their own hands.


Stay informed, and make sure to avoid these 5 mistakes when paying down your student loans:


1.) Don’t settle for the minimum payment


Paying your minimum monthly payment can be tempting, especially for young graduates who aren’t exactly rolling in the dough. Everyone wants to put their hard earned money towards the things they love, and making minimum payments means more money in your own pockets - right?


Not quite! The consequences of making minimum payments can be dire for borrowers. Take into consideration the interest that is accruing while you cruise on minimums:

If you made a $200 minimum payment on a $36,000 loan with a 5% interest rate, not only would it take you over 27 years to pay it off, but you would be paying an additional $30,680 in interest!


We recommend as much extra income towards your monthly loan payments as you can possibly afford. Why? The benefits are staggering:


If you were to increase your payments to $500/month on that same loan, you would pay only $6,890 in interest and be debt free in 7 years! That’s more money in your own pockets.


2.) Don’t apply for a forbearance plan to delay making your payments

If you’re having trouble making your regularly scheduled payments, your student loan provider may allow you to apply for a forbearance.


Be careful before making this decision!


The problem with forbearance is that your interest will continue to accrue for the entire time you aren’t making payments, meaning you’ll leave forbearance with an ever larger debt than you started with - you might then be required to make larger minimum payments for a longer period of time than you had originally planned.


If you absolutely must apply for forbearance, we recommend at least making payments on the interest to keep your total debt under control.


In some unique cases, you may be eligible for a better option called deferment, which allows you to delay payments without being responsible for accruing interest.


3.) Don’t put all your eggs in the loan forgiveness basket


If you’re a teacher, or you’re employed by the government or a non-profit organization, you may be eligible for various loan forgiveness programs. The Public Service Loan Forgiveness Program, for example, claims to forgive the remaining balance on your debt if you make on-time payments for 10 years. Those payments can be based on your income, which means your minimum payment amount may be lowered.


But be cautious of making loan forgiveness your primary repayment strategy!


While you make your income-based minimum payments for 10 years, interest accrues at higher rates. This wouldn’t matter if all of your debt is wiped after completing 10 years of public service.


But in reality, the program isn’t working as promised - it has a 99% rejection rate! As of September 2018, over 41,000 borrowers have applied for loan forgiveness… and only 206 had been approved!


This means that people are ending up with more debt than they started, even after 10 years of on-time payments.


If you plan to apply for a forgiveness program, our first piece of advice is still crucial - do not rely on minimum payments, and pay down your debt as aggressively as possible.


4.) Don’t let yourself default on payments


Remember when we said loan providers are predatory? If you default on your federal loan payments, are likely to use this as an excuse to profit. Not only will your interest accrue during non-payment, but the Department of Education will put you on a “rehabilitation” plan during which you are expected to make on-time payments to get your loan out of default.

Once you complete the program, you will have to start over with more debt than you started with - the Department of Education and its financial partners will charge you a hefty collection fee, which usually ends up being thousands of dollars!


5.) Don’t forget to stay educated!


We know all of this can sound scary. When it comes to your student loans, the most important thing you can do is educate yourself and strategize a repayment plan that makes sense for you.


The first step is figuring out who your loan provider is, how much you owe, what your interest rates are, and how those interest rates will actually affect you. From there, you can figure out the smartest way to pay down your loans based on your unique financial situation.

At Destiny, we recommend using the Avalanche method - this will allow you to pay off your loans the fastest, which in turn saves you the most money!


Check out our blog post on 4 Steps to Pay Off Student Loan Debt FAST to find some tips on tackling your student loans - we promise to stick with you every step of the way!


Still think you might need a little help figuring all of this out, or even a little accountability? We created an app that solves this entire process for you and more → check us out on iOS or Android!

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