How to Pay Off Student Loans Fast: Do These 9 Things
Most graduates today leave school with an average of $35,000 in student loans. Collectively, Americans owe more than $1.5 trillion in student loan debt. For most, that means suffering through at least 10 years of stress and slogging through minimum payments.
Wouldn’t it be nice to get rid of that debt faster and spend your money on things that are actually important to you? Try these nine things to pay down your student loan debt faster and get on with your life.
Pay More Than the Minimum Payment
You’ve definitely heard this advice before, but it’s extremely effective and worth restating: pay more than the minimum payment on your student loans when you can!
While only making the minimum payments will ensure you pay off your loan within its term, paying just a little bit more every month can help you cut years from the pay-off date.
For example, say you have $30,000 in student loan debt with a 7% interest rate and a 10-year term. Your minimum monthly payment would come to about $348. If you stick to that minimum payment, you’ll pay a total of $41,799 over the lifetime of the loan, which is nearly $12,000 in interest alone!
Now, let’s say you pay an additional $75 per month toward the loan balance. You’ll pay off your student loan in 8 years instead of 10 and lower the lifetime cost of the loan to $38,956, saving you a total of $2,843 in interest.
When it comes to paying more than the minimum payment, every little bit helps!
Make Sure Those Extra Payments Are Applied Correctly
If you’re paying more than the minimum payment amount, pay attention: your student loan servicers might be putting that extra money toward next month’s payment instead of applying it to your actual balance. While that might push back next month’s due date, doing this won’t help you pay off your loans any faster.
So, make sure to tell your loan servicer to keep the due date for next month’s payment the same and to apply your extra payments to your current balance.
Enroll in Autopay
Autopay won’t help that much, but enrolling in it does come with a few potential benefits. For one, you’ll never have to worry about making a payment on time or missing a payment altogether. Some lenders might also give you a discount (usually 0.25%) just for enrolling. It might seem like a drop in the bucket, but it can make a big splash over time.
Make Biweekly Payments Instead of Monthly Payments
Adopting this strategy might seem strange, but it’s worth it. Instead of making one monthly payment toward your loans, pay half the payment every two weeks.
Believe it or not, making this simple change results in the equivalent of one extra payment per year. Check out the math: If you make one payment per month, that’s 12 total payments. If you make half a payment every two weeks (52 weeks in a year, divided by two is 26 weeks), that results in 13 total payments.
If your loan is on a 10-year repayment schedule, this trick could potentially knock off an entire year of payments and interest.
Put Extra Money and Windfalls Toward Your Loans
Coming into a little extra money is always nice, but make sure you’re getting the most out of it by allocating at least a percentage of it toward your student loans.
That could include:
- Windfall, inheritance or gift money
- Tax refunds
- Pay raises
- Side hustle money
Like we said above, any bit of extra money that you can put toward your student loans is going to help you pay them off faster.
Use the Snowball Method
This method tells you to focus on your smallest loan balance first. Continue to make the minimum payments on your other loans, but put as much money as you can toward the smallest balance. Once that balance is paid off, move on to the loan with the next smallest balance and apply both that minimum payment and the amount you were paying toward the previous loan. Once that loan is paid off, continue using the strategy on any remaining balances.
Or Use the Avalanche Method
This method focuses on interest rates instead of balances. If you choose this method, you’ll want to apply the largest payment you can to the loan with the highest interest rate while paying the minimum balances on your other loans. Once that high-interest loan is paid off, add that payment to the next loan’s minimum payment and go from there.
Going this route and reaping all the benefits requires that you have a steady income and good credit, which isn’t always easy to come by for recent grads. However, if you can swing some good loan terms, refinancing might be worth the trouble. If you can get a lower interest rate and consolidate your loans, as well, you could cut years off your original repayment plan.
Work for an Employer Who Offers Student Loan Assistance
Finally, consider applying for a job with an employer who offers student loan repayment assistance. More and more people are leaving school with student loan debt, which means more and more employers are starting to step up to help their employees get out of debt.
Some of those employers include:
Assistance amounts can vary, so make sure to pay attention to this benefit when you’re job searching.
Always Keep your financial goals in mind
Now, as annoying as student loan debt can be, it’s important to keep your other financial goals in mind. Make sure you’re paying down any other high-interest debt first, such as personal loans or credit card debt. It’s also never too early to start thinking about retirement. All in all, be smart about paying off your debts, and feel free to apply these strategies to any other loans or financial matters you might need help with!