10 ways to reduce the cost of student loans and other debt

• Researching several different lenders and comparing terms can help you find the best rate.
• Make more than the minimum payment each month and try to make additional payments if possible.
• If you’re looking for a student loan, prioritize federal options before getting a private loan.

If you have to borrow money to pay for something like your car or your studies, you want to make sure that debt is as affordable as possible.

Whether you’re looking to lower the cost of a student loan, personal loan, car loan, or any other type of loan, we’ve got 10 essential tips to make sure you pay as little as possible.

1. Shop and compare offers

You can check the rates that many different lenders will offer you by filling out simple online applications which should only take a few minutes to complete and will not affect your account

Balance level

. You can also use the loan marketplace to compare several offers at once with one application.

Taking the time to scan a range of options pays off. A study from SuperMoney.com analyzed 160,000 loan offers from more than 15,000 borrowers and found that the average difference between the highest and lowest APR bids for the same borrower was 7.1 percentage points.

“Just accepting the first loan offer for which you qualify can be an expensive mistake,” says Andrew Latham, CFP® Professional and Managing Editor of SuperMoney.com. “The data shows that comparing several lenders can save you more money than increasing your credit score by 100 points when it comes to finding the best APR.”

2. Pay early and frequently

If you have the financial flexibility to make additional or early payments on your loan, you should do so. The more additional payments you make on your loan, the faster the balance will fall and the lower the total interest you will pay.

Most lenders charge no penalty for paying off your loan early, and you can cut months or even years off your term with additional fixed payments.

3. Make more than the minimum payment each month

Making a minimum monthly payment probably won’t reduce your total debt, because most of your money will go toward paying interest first, especially on high-interest loans. Making higher monthly payments will reduce your debt more aggressively and give less room for interest inflation.

However, if the choice is between making a minimum payment or not making any payment at all, pay the minimum. This way, you will keep your credit score in good shape.

4. Consider a Variable Rate Loan

Variable rates change periodically throughout the life of the loan and generally start lower than fixed rate loans. While you risk an increase in the price of your loan during its term, you may also benefit from a lower rate.

Paying off your loan fast enough may negate the fixing rate aspect of a fixed loan, because you’ll enjoy a lower starting rate.

5. Refinance your loan

If your credit score, income or overall financial situation has improved since you first took out the loan, you can consider refinancing to take advantage of more favorable terms. This can include a better price, easier customer service, and a different length of time.

However, be very careful before you refinance your federal student loans, as you will lose key protections in the process. For example, you will not be eligible for a student loan repayment pause related to COVID-19.

6. Put bonuses, tax refunds, or money gifts to pay off your debts

While putting extra money into your debt may not seem like the most exciting idea (and you should definitely save some of it to do something nice for yourself), windfall gains can increase your ability to pay off your debt quickly.

You can’t always plan how much money you’ll receive, but if you have an idea (let’s say your company gives out $1,000 annual vacation bonuses), you can set aside a certain portion of the money to channel your debts. It doesn’t matter what exact percentage you allocate, because a little of it helps.

7. Subscribe to automatic payments

Many lenders offer discounts to borrowers who sign up for automatic payments. While a .25% or .50% discount may not seem like much, the reduced rate does add up in the long run.

Plus, signing up for automatic payments ensures that you don’t miss out on payments, which can hurt your credit score and could disqualify you from taking out future loans.

8. Choose a shorter duration

When deciding on the terms of your loan, you will usually have a choice between a shorter term and a longer term. This varies based on the type of loan, and we have listed the general timeframes below:

• Student loans – from five to 20 years
• Car loans – from one to seven years
• Personal loans – from 1 to 12 years

If you choose a shorter term, your monthly payments will be higher, but you will pay less in total interest, saving you the total cost of the loan.

9. Prioritize Federal Student Loan Options

Federal student loan options often have lower rates and better protection than private loans, so they are a good option to reduce overall loan costs. Federal student loan forgiveness programs such as Public Service Loan Forgiveness can help you forgive all of your loan debt if you work in the public sector and make eligible monthly payments for 120 months.

To avoid student loans altogether, look at the federal aid you qualify for in the form of grants, scholarships, and work-study, all of which do not have to be repaid.

10. Do not allow interest to benefit from your loan

Capitalized interest is unpaid interest added to your loan balance after periods of non-payment, including patience, deferment, and after a grace period. This will increase the total loan balance, and you will later pay interest on that higher amount, which increases the total cost of your loan.

While taking on the loan can help you get back on your feet if you’re experiencing financial hardship, keep in mind that interest will usually continue to accrue. So the longer you wait to start paying off the loan, the more expensive it will eventually be.