When it comes to going to college, just about everyone will end up with student loan debt. The difficult part is realizing just how bad it can be and how expensive. When you’re trying to make payments you start to realize that it’s really hurting your ability to do the things you want to do. And it keeps you from doing other things with your money. Plus, because you have to make that payment you find yourself trapped in a job you might not like.
Most people who borrow money for their student loans want to have a way that they can pay them off as quickly as possible. That way they can start saving money or start paying off other kinds of debt. It can be difficult. But there are ways to make sure this happens as quickly as possible.
So, let’s take a look at how you’re going to do it and how you’re going to figure out your debt payment strategy.
1. Make a Plan
The first thing that you need to do is create a plan for your debt, not just the student loans. Look at credit cards, car loans and more. Then, take a look at your interest rates and any tax benefits that you could be getting. Federal student loans give you a deduction, while private loans don’t. Not to mention your other debts aren’t going to give you any kind of benefits at all. Once you know the order of where your debts do you the most and least good you can start to focus where you need to be.
If you have student loans of $60,000 and you make $50,000 a year you can actually start making some changes in your life to pay off your loan in the amount of time that you want. You’ll need to adjust the kind of spending that you do, but you’ll be happy when you get down to it.
2. Start From the Top
The most expensive loan is likely your private student loan. That’s because they can have interest rates as high as 20% APR.
That means they’re much worse than the federal loans you may have been thinking about paying. You may think that paying off the smallest balance first is the best way, but it’s not always. It can give you a sense of accomplishment to pay off that one debt. But if you pay off your high interest debts first you’re going to pay less over the long haul.
The debt avalanche is something you’ve seen before, but it bears repeating
- Create a list with all of your debt listed from highest to smallest interest rate.
- Take all the extra money you have and pay it towards the debt with the highest interest while still keeping minimum payments on the others.
- When you pay off the first debt you allocate the money you were paying onto the next debt (along with that minimum) and so on.
3. Refinance a Higher Interest Loan
When you refinance you may be able to lower your interest rates. Now, some people don’t get the benefits out of this and you may want to reconsider in some instances. For others, however, this is the way to save money and even shorten the amount of time it’s going to take to pay off your loan. What’s even better is that you can keep your payments the same in some instances. In other cases you may have to increase them, but lowering your interest lowers the amount you pay over the long run. Plus, you’re paying more toward the principal instead of the interest.
If you do refinance it’s important to know the drawbacks however, like the fact that you lose federal protections.
You won’t have income-driven repayment plan options, for example. But you may be able to find a loan that you can afford and you may be able to lower your interest enough to make it worth it. Just be sure you do the math before you start.
4. Consider 0% Credit Cards
While this might not be the optimum idea, if you’re not able to refinance a private loan you can transfer it to a zero interest credit card. You can check out some college student specific credit cards or others but watch for those 0% offers. Many credit cards use these to entice new people and you may be able to cut your interest by doing this.
Now, make sure you’re not going to carry the balance over past the promo period because the interest rate after that 0% is likely to be much more than the interest on your regular loan.
5. Increase Your Payment
Paying only the minimum every month is not going to get you anywhere fast. Instead, you want to pay a bit more than what you owe. Just make sure that you’re letting your loan servicer know that you want to put the amount you pay toward the principal and that you’re not trying to make pre-payments. If you use it as a pre-payment bonus you’re not going to lower your amount due over time, you’re just going to lower the amount due the next month.
Another important thing to keep in mind is that paying even a small amount over and above what you owe can be a great way to go.
It’s going to help you make a pretty good impact on your student loans and it’s absolutely worth it whether you can make a $100 extra payment or a $30 extra payment.
6. Lower Expenses
If you really want to knock down your payment as fast as possible you can start looking for ways to cut out or cut down the other expenses in your life. That might mean looking for bargains on the things you need or getting a cheaper place to live or just not going out to eat as much. Every little bit that you can afford will actually help you a whole lot more than you might think in the long run.
Of course, you don’t have to go all out. You could just cut a few little extravagances or smaller expenses and put those amounts toward your loan. Every bit helps. Creating a budget that accounts for what you really need (and want) in a month can definitely help you out.
7. Utilize Tax Deductions
When it comes to federal loans you actually get to deduct your interest from your taxes.
Now, that’s going to depend on the amount of your loans and the amount you make, but it generally works out well for students. If you’re making over $80,000 a year you won’t qualify, and if you make between $65,000 and $80,000 a year you get a prorated amount. If you make less than $65,000, however, you can deduct up to $2,500 each year.
For those who are just newly graduated or working on a training program for their job or still in school they can also deduct $2,500 as educational expenses. But keep in mind that you can’t get both of these tax breaks. You have to choose the one that’s going to give you the most money, which is usually the refund.
8. Get a Second Job
Getting a job that can help you put money toward your debt is always going to be a good idea. But it may not fit in with what you’re already doing or what you need in your life. Those who already have a job might not be able to add a second job because they’re trying to make it to classes and have time for their work. Also, today there are many ways to make money online.
If you can’t keep your grades up then you’re going to end up in more debt by taking on that job then you’ll be helping. You might find yourself having to take a class a second time and that is going to make it harder for you, not better. If you have a full-time job then you may not need to worry about finding another one, but you might be able to make a little extra if you do.
9. Check Out Loan Forgiveness Programs
Some types of jobs actually help you to pay off your loan more quickly because they eliminate your debt more quickly.
If you’re working in specific service jobs, such as a public servant, doctor, lawyer, nurse, federal agency, automotive worker or volunteer organization you could be eligible for assistance with your loan or even complete forgiveness. You’ll want to look into each of these options to get all the help you can.
When you’re looking for a job you might find some organizations that are offering student loan assistance. If you can get it or if you can talk your employer into it you may be able to reduce your loans by a decent amount. Include the idea in your negotiations and see how it goes.
The total student debt in our country is huge, and that’s something we all need to pay attention to.
Just make sure that you know what your student loans look like and that you have a plan for how you’re going to pay them off. You want to make sure you can get that debt out of the way as soon as possible.
Luckily, you’re not alone. You can absolutely use different tools and calculators to help you figure out how to pay off that loan quickly and avoid as much cost as possible.