7 Steps To Pay Back Student Loans Earlier
You’ve graduated college and your grace period is up. It’s time to pay back those pesky student loans.
After seeing your total balance, you may be overcome with shock and maybe even a little panic. “How will I ever pay this back?” you think.
I’ve totally been there. Just a few years ago, that was me. I could hardly believe how much debt I was in and how much interest was tacked onto my loans. I felt paralyzed by debt and I didn’t know how to move forward.
At the time, I had $68,000 in student loans, with no full-time job in sight. While my situation was less than ideal, I knew that I wanted my loans gone yesterday.
I knew getting out of debt was really important to me because I wanted the freedom to travel and experience everything life has to offer. Currently, high student debt levels are leading to delayed marriages, home ownerships, even retirement, according to an article in CNN Money. I didn’t want that to be me.
Now, after several years of hustling, I’ve repaid my debt.
It’s not an easy process, nor is there a magic pill that can help it all go away.
But there are ways you can speed up the process and become debt free. Here are seven steps you can take to pay off debt quickly.
1. Pay More Than The Minimum
If you really want to get out of debt fast, it’s imperative that you pay more than the minimum. Minimum payments are just that — the minimum. Look at your income and expenses and see how much you can afford to put towards debt each month. Even an extra $50 can help. The key is to pay more than the minimum. If you can afford to, consider doubling your payments.
2. Sign Up For Auto Pay
Most student loan servicers offer a 0.25 percent reduction in interest for borrowers who sign up for Auto Pay. Accruing interest on your loans can quickly tack on more money to your balance, making it hard to pay off. Any reduction in interest can save you money in the long run, so your funds can go to the principal balance and not just interest.
3. Make Biweekly Payments
Instead of making monthly payments on your debt, make biweekly payments instead. You don’t even have to pay more, just divide your monthly payment in half and pay every other week.
You will pay less in interest over time and effortlessly make an extra payment. How? When you make monthly payments, you’ll make 12 total payments. By making biweekly payments, you’ll make 26 half payments, which equates to 13 total payments.
4. Throw All Extra Cash To Debt
If you really want to get out of debt as soon as possible, commit all extra funds to debt. Did you get a hefty tax refund? Throw it at debt. Birthday money? You get the gist.
After all, the “extra” money won’t affect your budget, so before you have too much time thinking of how you’ll spend it pay down what you owe.
5. Consider Refinancing
Depending on the type of student loans you have (as well as your interest rate), refinancing your loans could save you thousands of dollars. There are many refinancing companies out there that can refinance both federal and private loans, offering you a better interest rate.
For example, current PLUS loan rates are 6.84 percent. If you have a high debt load, refinancing your loans and lowering your interest can save you a lot of money. Through refinancing, you pay less in interest, so you can attack the rest of the principal.
Borrowers looking to refinance will need to have a good credit score, which helps lenders assess credit worthiness. To improve your credit score, it’s important to make on-time payments for all your bills. In addition, keep your credit use to a minimum, as the closer you get to your credit limit, the more you will be considered a risk to lenders.
It’s important to note that all refinancing companies are different, and will offer different interest rates based on a variety of factors. In addition, you will be giving up federal protections such as forgiveness or income-based repayment through refinancing. Refinancing can save you a lot of money, but it’s important to do your research to see if it’s right for you.
6. Go On A Spending Diet
When you are committed to paying off debt, all of your expenses need to be re-evaluated. Ask yourself:
- Do I need this?
- Can I find it cheaper?
- Does this offer value in my life?
I’m a firm believer that you have to have some fun even while paying off debt, so consider going on a Spending Diet, which allows $100 per month for non-needs spending. This free program, created by Anna Newell Jones has helped people keep their spending in check while focusing on paying off debt.
By capping your non-needs spending at $100, you become more aware of your purchases and free up more money to pay off debt.
7. Make More Money
Cutting back is a key component to paying off debt. But what happens when you can’t cut back any further? The only option left is to make more money. This option can often be more fun and empowering. To make more money, look on sites like Craigslist, TaskRabbit, Uber, and more to put your skills to use. Seek out other opportunities where you can make extra income that can go straight into your repayment plan.
I knew that student loan debt was holding me back from my goals, so I knew I had to take action. Personally, I hate debt, so I’m singularly focused on getting rid of it.
While I think it is possible for borrowers to pursue other goals like home ownership or starting a family while still in debt, it can limit your dreams and your opportunities.
So work to get rid of your student loans in 10 years or less. Using these tips, you can quickly pay off student loans and start saving for your other financial goals.
It’s all about getting in the right mindset and making little changes every day that have a big impact on your debt — so you can live the life of your dreams, without all the debt.