I have $30K in student loans from a master’s in education. I don’t own a home and now my credit score is only about 600. How do I pay off these loans and improve my credit score?

Question: I graduated in 2014 with a masters in education and special education. I have about $30,000 in federal student loans, which were originally through Navient and have now been taken over by a different lender. I work for a private company, I’m not a homeowner and my credit score is around 600 — what are my options for paying off my loans and improving my credit score?

Answer: To improve your credit score, you will need to pay your bills and student loans — once the payment pause is over on May 1, 2022 — on time every month. If paying student loans is a struggle because of the high cost, consider going on one of the income-driven repayment plans that are offered by the federal government, which cap your payments at 10%, 15% or 20% of your discretionary income and extend your repayment terms to 20 or 25 years. If you still have a balance at the end of the repayment period, it should be forgiven. “Note that this approach usually lowers your monthly payments but results in higher interest charges over the life of your loan,” says Rebecca Safier, certified student loan counselor and education finance expert at Student Loan Hero. (Beware that refinancing federal student loans will prevent you from being able to go on an income-driven repayment plan.)

For those with private student loans, refinancing is another option for restructuring student loan debt and potentially saving money on interest, but most lenders look for good or excellent credit. “If you can apply with a cosigner, you might have a better chance of qualifying for lower rates,” Safier says. Refinancing a student loan is a good idea for private student loan borrowers who want to get a lower interest rate and can qualify. When you refinance a federal student loan privately, you lose all federal protections, repayment options and opportunities for forgiveness.  “It’s not the best strategy for federal student loan borrowers right now since loan payments are paused interest free through May 1,” says Anna Helhoski, student loan expert at NerdWallet. “But private loan borrowers could save money by refinancing and they can refinance as many times as they want. The benefits of refinancing to a lower rate include a lower monthly payment which could free up your cash on hand for a faster payoff which saves you money in the long run,” she adds. 

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It’s also worth taking steps to improve your credit before you apply for a refi. “Some steps you can take to improve your credit score include paying down debt and making on-time payments. You also want to keep your credit utilization [the amount of revolving credit  you’re using divided by the amount of revolving credit you have available] low, ideally below 30%,” says Safier. Ordering a copy of your credit report from AnnualCreditReport.com can give you a bird’s-eye view of your accounts and a chance to spot any mistakes. “If you find any, you can try disputing them to get them removed,” says Safier. Once your credit score has increased, consider applying for refinancing. 

No matter which path you choose, you will need to get a good handle on your income and spending, so you can see where you might make cuts in spending to repay debt faster. Grace Yung, CFP at Midtown Financial Group, also advises setting up auto payments on loans and credit cards to help ensure that you don’t miss any payments. “Paying on time shows lenders you are a good borrower and that is one way you can help increase your score. Additionally, your debt ratio is another important thing to manage. Work towards paying down your overall debt with extra payments where possible — perhaps with the savings you discover with your CFP professional.”

Lastly, you can call lenders and ask them if they will consider lowering your interest rate. “That too can help you work towards lowering your debt as your outstanding balances will accrue at lower interest rates,” says Yung.