5 Tips for Millennials To Pay Down Their Student Loans and Other Debt

Millennials no longer carry the highest student loan balance out of any generation. Statistics from the Education Data Initiative show that Gen X’s student loan, averaging $44,290 per borrower, eclipsed millennials as of September 2023.

While millennials may not carry the highest student debt anymore, they’re not out of the woods yet. The typical millennial borrower carries an average balance of $32,800. Student loan debt has also actively increased across all generations by an average of 1.04% from 2022 to 2023.

For millennials that want to pay off this debt and start building wealth , what should they do to get ahead? Making these five strategic moves can help borrowers pay off student debt .

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First, Start To Understand Your Loans

You owe student debt, but how familiar are you with its fine print? How much of this debt is federal versus private loans? What is the interest rate for each loan? How much remains in every loan’s balance?

Before doing anything, even making a repayment, it’s important to know the ins and outs of this specific debt. Griffin Geisler, wealth strategist at RBC Wealth Management , recommends looking into each type of loan and its balances, rates and terms to better understand your student debt.

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Find Out If You Qualify For a Lower Interest Rate

In a May 2024 GOBankingRates survey on the topic of debt, 22% of overall respondents said that they struggled to pay off their debt because of increasing interest rates. When broken down by age range, 31% ages 25 to 34 (or younger millennials) said they experienced this issue. Similarly, 25% of elder millennials within ages 35 to 44 said they dealt with the same struggle.

Mark Henry, wealth management advisor at Alloy Wealth Management , recommends contacting your student loan provider to find out if you qualify for a lower interest rate.

“While student loans were paused for three years due to the COVID-19 pandemic, your financial status or credit score may have improved,” Henry said. “Even if your rate can be slightly lowered, remember every little bit helps when you’re facing debt.”

Explore Repayment Plan Options

If you’re struggling with your current repayment plan, it is possible to find a different repayment plan that works better for your financial circumstances.

Henry said borrowers can either call their loan provider or explore their provider’s website to see what other repayment plan options are available and find out if it’s possible to change plans accordingly.

Look Into 401(k) Matching For Student Loan Payments

There’s some good news for student loan borrowers: your employer may be able to help you pay off your debt.

Under the Secure Act 2.0, Henry said employers can now match your student loan payments with contributions to your employer-sponsored 401(k). How this works is your employer would make a matching contribution of the amount you pay towards your student loans — like the style of matching a certain percentage of your 401(k) contribution.

Keep in mind, however, that not all employers offer this benefit. Borrowers may consider inquiring with their HR department to see if their employer can offer it.

Start Paying Off Debt

Both Henry and Geisler agree that millennials with student loan debt, once they understand their loans, repayment plan options and see if they qualify for a lower interest rate or 401(k) matching, must make repayments. Ideally, these payments need to pay down as much of the balance as possible, not the minimum amount.

Henry recommends using the debt avalanche method to repay student loans. This method targets loans with the highest interest rate first. Borrowers should start overpaying on this loan and make minimum payments on all other loans. Once the loan with the highest interest rate is paid off, they can move on to the loan with the second-highest rate and overpay until it is paid off.

Even though the debt avalanche method lacks some of the psychological quick wins found in debt snowball (where borrowers pay off debts with the smallest interest rates first and “snowball” up to those with the largest), Henry still recommends implementing debt avalanche.

“This method is helpful with student loans, because it helps you get out from under interest rates that make it hard to make real progress on your loans,” he said. “As you pay off your loans one by one, celebrate the win, then let your sense of accomplishment motivate you to continue paying them off.”

This article originally appeared on GOBankingRates.com : 5 Tips for Millennials To Pay Down Their Student Loans and Other Debt