8 Tips to Decide Which Student Loans to Pay Off First | Finder Canada

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How to decide which student loans to pay off first

Save or get out of debt faster with strategic repayments using these 8 repayment tips.

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Paying off your student loans early can potentially save you thousands on interest — especially if you have long loan terms. It’s important to be strategic while making those extra repayments so you can save even more and get out of debt faster.

Which student loans should I pay off first?

It depends on your situation. Generally, you can save the most by paying off your high-interest loans first. This usually means beginning with private loans, which tend to have higher rates than federal or provincial funding.

You also might want to consider the size of your loans. A small loan with a high interest rate might not be worth paying off first before a larger low-interest loan.

How to decide which student loans to pay off first

Follow some — or all — of these 8 tips to figure out which loans to repay first.

1. Figure out which loans are the most expensive

Before you get started, take a look at all of your student loans. Make a list of which have the highest rates, highest balances, highest monthly repayments and highest total cost.

Also, consider benefits like deferment and forgiveness — you might want to hold off on making extra repayments on loans with these options if you’re planning on going back to school.

Where do I get information about my loans?

You can find most of this information on your student loan servicer’s website — that’s the company you repay your loans through.

Or you can use our monthly loan payment calculator to find out how much interest you’ll pay in the long run and your monthly cost for each loan.

2. Start with private loans

Chances are your private student loans have higher interest rates than any of your federal loans. Beyond this, private student loans typically have fewer options for deferment and forgiveness.

Do you have multiple private loans? If they’re roughly the same size, start with the loan with the highest rate first. If one is smaller than the other, crunch some numbers to figure out how much you could save by shortening your loan term.

3. Pay off unsubsidized loans before subsidized loans

As a full-time student, your government loans are subsidized – which basically means that the government pays the interest on your loans while you’re in school or in deferment. If you’re a part-time student, you may be responsible for paying the interest yourself. So it makes sense to pay off any unsubsidized loans before starting on any subsidized loans.

4. Make sure repayments go toward the principal first

It won’t matter which loans you repay first if your repayments only cover unpaid interest. That’s because interest is a percentage of your loan balance — the lower the balance, the less interest you’ll pay.

In most cases, simply making an extra repayment to your servicer is not enough. Often, this will put you in “paid ahead” status, meaning you’ll simply owe a reduced amount the next month. Other times, your repayment will automatically go toward any unpaid interest before the principal.

Reach out to your servicer to arrange how you’d like your repayments to be applied. Most have a specific procedure for this.

5. Look into refinancing

Trading your student loan for a better deal can save you money. It can also buy you some time to focus on higher-interest loans. You might want to consider it if you have strong credit, a high-paying job and multiple high-interest loans.

But the right choice is different for everyone. You can learn more about how you can benefit by reading our guide to student loan refinancing.

Compare personal loans for refinancing

Before applying for a personal loan, contact the lender to see if they allow you to refinance the specific type of student loan that you have (federal, provincial and/or private).

Name Product Interest Rate Max. Loan Amount Loan Term Fees Min. Credit Score Link
Loans Canada Personal Loan
Secured from 2.00%, Unsecured from 8.00% to 46.96%
$50,000
3-60 months
No application or origination fees
300
Go to site
More Info
Loans Canada connects borrowers to lenders offering both secured and unsecured personal loans in amounts from $300 to $50,000. Submit one application to get rates from multiple lenders across Canada.
Fairstone Personal Loan (Unsecured)
26.99% - 39.99%
$20,000
6 months - 5 years
None
560
Go to site
More Info
Fairstone offers unsecured personal loans up to $20,000
Mogo Personal Loan
9.90% - 47.42%
$35,000
9 months - 5 years
NSF fee - $20 - $50
540
Go to site
More Info
Mogo offers loans up to $35,000 on flexible terms.
LoanConnect Personal Loan
Secured from 1.90%, Unsecured from 10.00%-46.96%
$50,000
3-60 months
No application or origination fees
300
Go to site
More Info
LoanConnect is an online broker that matches borrowers to lenders offering loans in amounts from $500 to $50,000. Get approved for multiple loan offers from different lenders in as little as 60 seconds with any credit score.
Cash Money Installment Loan
46.93%
$10,000
6 months - 5 years
Vary across provinces/territories
560
Go to site
More Info
Cash Money offers installment loans up to $10,000 for AB, MB and NB residents.
LendDirect Personal Loan
19.99% - 46.93%
$15,000
No end dates
None
560
Go to site
More Info
Borrow up to $15,000, based on your income and credit history, with a personal line of credit from LendDirect.
LendingMate Personal Loan
43% (British Columbia and Ontario) and 34.90% (Quebec)
$10,000
1-5 years
None
300
Go to site
More Info
LendingMate offers loans to Canadians with poor credit with no credit checks. Co-signer required for application.
Fairstone Personal Loan (Secured)
19.99% - 23.99%
$35,000
3-10 years
Varies by province
560
Go to site
More Info
Fairstone offers secured personal loans up to $35,000.
Magical Credit Personal Loan
19.99% - 46.80%
$20,000
6 months - 5 years
A single administration fee of $194 for $1,500 loans and up
300
Go to site
More Info
Magical Credit offers unsecured personal loans in amounts up to $20,000.
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Compare up to 4 providers

6. Pay attention to variable rates

When the economy is doing well, variable interest rates often increase — making both your monthly repayments and total loan cost more expensive.

If you have both fixed- and variable-rate private student loans, consider whether the Bank of Canada has plans to increase rates. If so, you might want to pay off your variable-rate loans first.

7. Find a debt repayment strategy

Short on time to sit down and really crunch the numbers? You might want to use a debt repayment strategy instead, such as one of these popular methods:

  • Debt avalanche. This method involves paying off your high-interest loans first. It might save you the most and get you out of debt faster if your loans are around the same size.
  • Debt snowball. This method involves paying off your smallest loans first. It gives you quick wins and can make your debt more manageable, though you might save less.

Not sure which option to choose? Read our article on debt avalanche vs debt snowball methods to help you decide — or opt for a combination of the two.

8. Consider your cosigner

While paying off loans with a cosigner first might not save you the most money, you still might want to give them extra attention. If your cosigner is thinking about taking on debt of their own — whether applying for a mortgage, car loan or new credit card — lessening their debt load can help them qualify for more competitive rates. You can also look into applying for cosigner release if it’s an option.

Is paying off my student loans early the right choice for me?

Getting out of debt ahead of schedule might seem like a no-brainer. But there are situations where it might not be the best decision:

  • You’re planning on applying for forgiveness. Paying off your student loans ahead of schedule when you’re set to apply for forgiveness might actually mean you’ll pay more.
  • You’re struggling with credit card debt. Credit cards generally have much higher interest rates than student loans. If you have a choice between the two, consider focusing on your credit cards first.
  • You don’t have an emergency fund. Financial experts recommend having three to six months saved up to cover personal expenses in the event that you lose your job, get into an accident or have another emergency. You might want to save for an emergency fund first, then focus on making extra repayments on your student loans.
  • You don’t have a retirement plan. As a millennial carrying student debt, it might feel like you’ll never save enough for retirement by the time you finish paying off your loans. So it’s worth considering starting to save for retirement now instead of making extra payments on your student loans.

Bottom line

Repaying your student loans ahead of time can help you save big on interest and shorten the path to debt freedom. But you can save even more if you have a well thought-out plan. Even if you’re struggling with repayments, paying it off strategically can save you in the long run.

Want to learn more about how repayments work? Read our guide to student loans.

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