8 Ways to Pay Off Student Loans Earlier
It's finally time to pay back your student loan debt. But how do you get started when it seems overwhelming?
You’ve graduated from 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 — maybe even a little panic. “How will I ever pay this back?” you wonder.
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 on to my loans. I felt paralyzed by debt, and I didn’t know how to move forward.
“Paying off your student loans early will not only save you money in the long run, but can also help you achieve your other financial goals,” says Betsy Mayotte, president of the Institute of Student Loan Advisors.
Student debt has impacted borrowers’ decisions in everything from saving for retirement or buying a home to getting married or even choosing a career.
Seventy-three percent of borrowers report that they have put off saving for retirement because of their student loan debt, and almost 30 percent have decided to postpone marriage, according to a report by Salt, run by American Student Assistance.
“Borrowers can determine the best overall strategy for their holistic financial goals by taking a few moments to run the numbers and understanding their options,” says Mayotte. “Sometimes borrowers are so focused on getting the lowest payment possible when they first enter repayment, they never rethink their financial strategy once their income starts to rise.”
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 it up and become debt free. Here are eight ways to pay off student loans more quickly.
1. Pay More Than the Minimum
If you really want to pay off your student loans quickly, 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 toward 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. You don’t even have to pay more. Just divide your monthly payment in half and pay every other week.
You’ll pay less in interest over time and effortlessly make an extra payment. How? When you make monthly payments, you’ll make 12 total payments. But by paying biweekly, you’ll make 26 half payments, which equates to 13 total full payments.
4. Throw All Extra Cash Toward Debt
If you really want to get out of debt as soon as possible, commit all extra funds to paying it off. Did you get a hefty tax refund? Throw it at debt. Birthday money? Debt. 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 companies out there that can refinance both federal and private loans for a better interest rate.
For example, current federal loan rates are currently 5.05 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. This way you can focus more on attacking 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.
Don’t have a great credit score, but in desperate need of additional help? There are other options worth considering. For example, BadCreditLoans offers professional help and advice to those who are struggling but don’t have a clean credit score.
It’s important to note that different refinancing companies will offer different interest rates based on a variety of factors. Companies like LendKey offer specific services just for student loan refinancing. LendKey will also guide you through the process.
But in exchange, you’ll give up federal protections such as forgiveness or income-based repayment. 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.
8. Start Today
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’s possible for borrowers to pursue other goals like owning a home or starting a family while still in debt, it can limit your dreams and your opportunities. Work to get rid of your student loans in 10 years or less.
Why Pay Off Student Loans Quickly?
Using these ways to pay off student loans, you can quickly get rid of your debt 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.
Additional reporting by Kelly Meehan Brown
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