11 ways to pay off student loans fast
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Almost seven in ten university graduates have federal student loan debt, and they borrow an average of $ 30,800, according to the National Center for Education Statistics. Paying off this kind of debt can be hard work, especially when you are just starting your career.
If you don’t know how to pay off your student loans fast, you’re not alone. It is not uncommon for borrowers to take 20 years or more to repay their student loans.
Fortunately, there are ways to pay off your student loans faster and save money.
Understand all your debts, then make a plan
Make a list of all of your student loans, including the current balance, interest rate, expected repayment date, and repayment amount for each. Having this information will help you make more informed financial decisions about the best actions to take.
You can find the information you need on Federal Student Loans by logging into your account at StudentAid.gov. You will need to check your most recent statement or log into your online account for private student loans.
Consider consolidation or refinancing
Decide to consolidate or refinance your student loans can be complicated, especially because these terms are sometimes used interchangeably. But they don’t mean the same thing. Consolidation means combining several federal student loans into one direct federal consolidation loan.
Benefits of student loan consolidation
- Spreading payments over a longer period may reduce your monthly payment amount
- You can switch from variable rate loans to fixed rate loans
Cons of student loan consolidation
- Ala longer payment period can mean more interest paid over the life of the loan
- You may lose the borrower’s benefits associated with outstanding loans, such as interest rate reductions, principal discounts, or certain cancellation benefits.
Refinance your student loans involves obtaining a new private student loan with new terms and using that loan to pay off one or more existing federal or private student loan balances.
Benefits of refinancing student loans
- Simplify multiple loans in a single monthly payment
- May qualify for a lower interest rate with the new loan
Disadvantages of refinancing student loans
- If you refinance federal loans from a private lender, you lose access to federal repayment plans, deferral, or forbearance.
- To lose federal loan forgiveness option for borrowers working in certain government, military, educational, healthcare and non-profit jobs
With Credible you can compare student loan refinancing rates without affecting your credit score.
Respect a budget
If you’re struggling to cover living expenses, student loan payments, and a few occasional entertainment, you could benefit from budgeting with the 50/30/20 rule. Here is how it works:
- 50% of your budget is devoted to the needs: Required expenses such as housing, utilities, insurance, groceries, transportation, and minimum student loan payments
- 30% of your budget is devoted to the needs: Fun stuff such as hobbies, dining out, and other entertainment
- 20% of your budget is spent on savings: Long-term goals like an emergency fund, retirement savings, additional principal repayments on student loans, and investments
If this is your first time budgeting, take a look at your last few months of bank or credit card statements and categorize your transactions into these three compartments. The process might open your eyes to some changes you could make to pay off your student loans faster.
Pay more than the minimum each month
Paying a little more on your loan principal each month can reduce the interest you pay and help you get out of debt faster. The key is to make sure these payments are applied to principal rather than applying your additional payment to accrued interest. Otherwise, you won’t see much progress on your debt.
Unfortunately, student loan managers don’t always make it easy to prepay your loans. To make sure your additional payments are going to your principal balance, check your loan officer’s website to see if they offer you the option of making additional principal payments only. If you don’t see this option on the website, call your lender and ask how to make principal only payments.
The Consumer Financial Protection Bureau (CFPB) recommends submitting your request for additional payment in writing and even has a letter model you can send to your repairer.
Decide between snowball and debt avalanche methods
If you have several student loans, paying a little extra for each will help pay them off faster. But snowball or debt avalanche methods are more strategic ways of no longer have debts.
How the debt avalanche method works
- Focus on paying off your debt with the highest interest rate, making any additional payments you can afford on that loan while paying the minimum on your other debt.
- Then move on to the next highest rate loan, adding 100% of the payment you made on the first loan to the second loan.
How The Debt Snowball Method Works
- Target the loan with the smallest balance first, making any additional principal payments on that loan until it is fully paid off.
- Go to the next lowest balance.
While you can pay less interest with the Debt Avalanche Method, the Debt Snowball Method is popular because paying off a loan in full quickly can help keep you motivated.
Set up automatic payments for lower interest rates
Federal student loan lenders and some private lenders offer a small interest rate reduction if you sign up for automatic payments. With automatic payment, your lender automatically drafts payments from your account rather than requiring you to manually make payments each month.
It’s a good way to make sure you’re never late to make a payment, and reducing the interest rate – typically 0.25 percentage points – can save hundreds of dollars. over the life of your loan.
You can easily compare prequalified student loan refinancing rates via Credible.
Get temporary lateral restlessness
When you are just starting out in your career, it can be difficult to find the extra money to spend on your student loans. Fortunately, the gig economy offers plenty of opportunities to earn a little extra cash, including:
- Drive for a rideshare service like Uber or Lyft
- Walk the dogs or sit for the busy neighbors with Rover or Wag
- Find babysitting jobs on Care.com
- Deliver groceries or take out orders during your downtime via Instacart, DoorDash or GrubHub
- Rent your car when you’re not using it through Turo or Getaround
You may also want to consider selling unused items or returning items found at thrift stores and yard sales on eBay, Facebook Marketplace, or Poshmark.
Use any increase in income to pay off debt
What did you do with the extra money the last time you got a raise or bonus? If you are like most people, you have used it to improve your lifestyle. Spending more when you earn more is called a fluctuating lifestyle, and it can keep you from paying off your student loans quickly.
The next time you get an unexpected raise, bonus, tax refund, or other windfall, don’t spend every penny. Take half (or more) and make an additional principal payment on your student loan debt.
Stay on the standard repayment plan
Most federal student loans qualify for the Standard Repayment Plan, which provides fixed payments that guarantee you will pay off your loans within 10 years (or within 30 years for consolidation loans).
Of course, the standard repayment plan is not the only option for paying off your student loans. But alternative repayment plans like a phased repayment plan (which increases payments every two years), an extended payment plan (which gives you 25 years to pay off), and an income-based repayment plan can all extend the time it will take to fully repay your student loans. And the longer you pay on student loans, the more likely you are to pay higher interest charges.
Take advantage of tax breaks
Remember to deduct the interest paid on your student loan on your federal income tax return. the student loan interest tax deduction allows eligible taxpayers to deduct up to $ 2,500 in student loan interest as a top deduction, meaning you don’t have to itemize the deductions to take advantage of it.
This deduction gradually disappears if your income is between $ 70,000 and $ 85,000 ($ 140,000 and $ 170,000 if you are married and file a joint return).
Learn about employer student loan repayment programs
Some employers offer assistance to employees with student loan debt, and the number of employers offering such assistance may increase thanks to recent legislation. The CARES (Coronavirus Aid, Relief, and Economic Security) law allows employers to pay up to $ 5,250 per employee for student loans. As non-taxable employee benefits, these payments are deductible business expenses for the employer, but do not constitute taxable income for the employees.
This benefit is available until December 31, 2025.
Ask your employer’s human resources or benefits department if they currently offer this benefit. This can dramatically reduce your student loan repayment efforts without increasing your taxable income.
Paying off student debt can seem like an impossible goal when you’re just starting out. But there are many steps you can take to see rapid progress. And those advancements will keep you motivated to keep going. Even small steps can lead to big progress over several years, so try some of the tips above to pay off your student loans faster.
Comparison of purchases for student loan refinance rate is easy when using Credible.