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5 Worst Strategies for Paying Off Your Student Loans

3. Paying off undergraduate loans while borrowing more for graduate school

You may feel good about paying down your undergraduate student loans while you’re getting your master’s degree or doctorate, but grad school loans carry a higher interest rate. It’s actually better to get a deferment on your undergraduate loans and put money toward your graduate tuition instead, Gobel says.

“Be thoughtful with grad school,” she says. “Put your money toward your graduate degree or better yet, look into getting a graduate assistantship to get your tuition reduced.”

If you’re working full time while pursuing a graduate degree, Gobel recommends asking your HR department for any tuition reimbursement programs they may offer.

“You may be surprised what they offer. If your degree is going to improve your knowledge or job performance, they may offer a tuition stipend or reimbursement. Just check for any stipulations -- you may have to sign a contract that you will work there for several years once you get your degree.”

Also see: What If You Have College Tuition and Nursing Home Bills to Pay?

4. Cashing in your 401(k)

“You have a right to do it, but you’re going to suffer for it,” says Adam Levin, chairman and co-founder of “You pay taxes on the withdrawal, and you’re penalized if you withdraw before the appropriate age.”

Even if you say you’ll put the money back later, you’re missing out on the growth that would occur between the time you withdraw and the time you replace the funds, Levin says.

“Inevitably things happen that prevent you from replacing the money right away, and then you can’t afford to replace the money at the value it would be, so it’s a double hit.”

Cashing out your 401(k) is the last thing you want to do to pay off student loan debt, says Bill Demaree, owner and founder of Demaree Retirement Services.

“Individuals and couples should do everything they can to protect the assets that have taken them a lifetime to accumulate,” Demaree says. “By taking money from your 401(k) before retirement, you risk not being able to re-accumulate those assets in order to meet your retirement goals and live the lifestyle you want to in your golden years.”

5. Having a fire sale -- selling everything you own

Some people try to pay down their debt by selling off everything they own for extra cash. Unfortunately, this is a cycle that’s bound to repeat itself, Levin says.

“At first blush, if you own some things you can make money off of, it’s not a bad idea, but when you are walking into an empty apartment after you sold things you use every day, you’re going to be miserable and you’re just going to end up having to buy those things back.”

Even if you sold everything you owned, you still wouldn’t have enough to pay off your student loans completely, so you end up in a situation where you haven’t resolved the real issue and you’re not living in a sustainable way, Levin explains.

Also, when you do decide to replace the items you sold, there’s a chance you’ll use credit cards to make the purchases, which only puts you further into debt.

“You’re never going to come out ahead by selling and rebuying,” he says.

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