We’ve all been through it or currently going through the burden of paying off student loans after college. Student loan debt feels like a dark cloud looming over you constantly. The pain kicks in when a chunk of your income is allocated to student loan payments.
It’s especially hard to think about what your financial futures hold with students loans. When are you going to be able to save for a downpayment? Open a brokerage account and start trading stocks? Be able to invest in an IRA?
Paying off student loans seems like a long, daunting task, but it does not have to when you have a strategy. Your loans can disappear more quickly than you think once you upgrade your student loan repayment strategy.
Commit to a Standard Repayment Plan
If you haven’t started paying your student loans, the best way to start is to set up monthly payments. Don’t overthink the process or take on more than you can handle. Take one step at a time, assess your finances, budget each month, and know your payoff date to ensure these payments are met as scheduled.
A 10-year standard repayment plan is the fastest way to pay off federal loans. Most students fresh out of college can’t make the whole payment at once. If so, kudos to you.
Federal loans offer income-driven repayment plans that can extend to a payoff timeline to 20 or 25 years. You can also consolidate your loans to stretch repayment to a maximum of 30 years, depending on the balance. These options are available to loan payers to make the process easier, so if you can afford to stick with the standard plan, your payments will be paid a lot faster.
Find Your Payoff Date
Figuring out your payoff date is always a good place to start when it comes to managing debt because once you know this date, you can work on moving it closer.
It’s critical to know the exact date the student loan payments will be completed. Many people do not know this and assume the payment would take years to decades to complete, depending on the amount owed.
An excellent resource for figuring out student loan payment schedule is the National Student Loan Data System to view all of your federal loans and AnnualCreditReport.com to make a list of private loan lenders. Then, confirm payoff dates with your loan servicers.
Adding Extra to the Base Monthly Payment
One of the easiest ways to reduce debt is by adding extra money to the prearranged monthly installment. Assess your monthly payments and consider a base payment that fits within your budget.
Once the prearranged automatic payment is applied, add extra to each payment. Even if you have $20 to add, do it. Over time, consider increasing the base payment as your income increases. This takes any indecision out of the equation and makes it harder for you to change your mind.
Using ‘found’ money is useful for paying off debt. Found money could mean getting a raise, bonus, or another financial income. Allocate a portion of it to your monthly payment plan. Breaking down the extra income could be helpful: for instance, 50% of the extra income can go toward debt, 30% to your savings, and 20% for miscellaneous payments.
Selling items like clothing, antiques, unused gifts, photos, renting out a spare room in your house, parking spot or even your car; use hobbies and artistic talents to freelance or consult on the side.
Setting up any rules for yourself when managing multiple sources of income as a strategic way to pay off loans. Putting $10 or $20 bills, you receive toward your loans. There are several money-saving phone apps to help you save and reach your debt payment goals.
Making a payment every two weeks is a very popular strategy. It decreases the amount a monthly payment. For instance, you don’t need to pay double the amount of your monthly payment to make this work. Instead, here’s the common strategy:
It’s beneficial to slash monthly payments in half to prevent paying a huge chunk a month. A smaller amount to pay every two weeks is easier to manage. By doing this, you’ll make a full extra payment over the year.
Consolidate and refinance
Refinancing loans is an excellent strategy for paying off student loans faster. The goal of refinancing is to decrease interest rates. More of your payments will now go toward paying down your student loans.
You’ll get one consolidated loan with one monthly payment when you refinance multiple loans. On the other hand, you could refinance just one student loan for lower rates. You should only consider refinancing loans where you can decrease your interest rate.
For example, student loan refinancing rates below 3.00% are currently available. For current rates, see our post on student loan refinancing rates.
For example, refinancing $70,000 worth of student debt from 8.5% interest to 5.5% could get you out of student loan debt twice as faster.
Of course, be careful when deciding to refinance your loans. Many companies tout refinancing as an answer but are often scams. Do some research on the company, the math, and figure out if its the best financial decision for you.
Paying off student loans may seem like a daunting task but only when you do not have a plan. Implement the strategies above to relieve any pressures into making the payment. Ultimately, as you advance in your career or generally increase your income, loan payments will feel like a breeze.
Earmarked loans help manage expenditures when it separated from your main checking or savings accounts. Setting up a separate bank account to pay off loans is another great idea. Open a savings account for it, set up automatic transfers to it per month and make payments from it.
As you can see, there so many tips and strategies to help you pay off loans. Finding the time to create a plan will make the payments go by more quickly and allow money to spend in your budget.