Nobody wants to pay back student loans longer than necessary, but far too many people are stuck in lengthy repayment plans that seem like they will never end. During income-based repayment plans that are backed by the federal government, ask you to pay back loans 20 to 25 years Before the loan is granted, the “standard” repayment plan for federal loans even runs for a full ten years. No matter how you cut it, that’s a long time!
With this in mind, you should know that it is possible to repay student loans faster if you are willing to think outside the box and go your own way in the process. However, since not all early repayment plans will work for every borrower, it is important to consider how you can repay student loans faster so that you can reasonably achieve your goals.
One strategy that many borrowers use to repay student loans faster is to refinance loans with another lender. Some student loan refinancing companies not only offer lower interest rates and flexible repayment terms, but you can even earn a cash bonus just for signing up.
9 ways to pay off student debts faster
The sooner you can pay back all of your student loans, the sooner you can get on with your life. Here are some strategies to consider that can help you repay your student loan much faster than a traditional repayment plan will allow.
What you will learn
Make more than the minimum monthly payment
The minimum payment on your student loan is the absolute minimum you have to pay, but no one is stopping you from paying more. And if you make additional payments the right way, you can easily repay the principal amount on your student loan faster.
Unfortunately, many student loan companies do not automatically apply additional payments that you make on your loan capital. Instead, they use any overdrafts to prepay your loans and keep making payments for the next month, as well as prepaid interest for future months.
If you choose to make an additional payment on your student loan, you will need to specify that you want overpayments to go towards the principal of your balance. You can do this over the phone or in writing when sending your monthly student loan payment via email. Don’t forget about this though.
Try the Debt Snowball
The debt snowball method of getting out of debt is worth considering if you have several different student loan bills to juggle with each month. This strategy requires that you make a list of your student loans and each of their balances. From there, start the next month paying the minimum amount for all of your largest loan balances and as much as possible for the smallest balances you have. Over time, you will pay as much as you can for your smallest balances until they are gone. From this point on, you will “snowball” all of your additional payments for the next smaller debt.
With the debt snowball, you slowly pay off your smallest loan balances until you only have the few largest balances left. Eventually, all you have left is one student loan and you will make all of the cumulative payments of everyone else on that debt until they are gone too.
The advantage of this strategy is the momentum you gain when you turn off small balances one at a time. Not only will your balances go down, but you’ll also have to make fewer loan payments each month.
Refinancing with a private lender
You can also consider refinancing all of your student loans into a new one, potentially saving you more money than any other strategy on this list. Many private student loan companies currently offer fixed rates as low as 3.50%, which is lower than any federal student loan offer. Of course, you must have an income and good credit or a co-signer to qualify.
How Much Can You Save By Refinancing Your Student Loans? It really depends on how much debt you have, what your current interest rate is, and how quickly your repayment comes.
However, let’s say you have a $ 10,000 student loan with an annual interest rate of 7% and you have just started a 10 year repayment plan. In that case, you would be paying $ 121.33 per month and a total of $ 4,559 in interest for ten years before your loan was repaid.
However, if you could refinance your loans into a new personal loan with the same 3.50% repayment schedule, you could only pay $ 96.56 per month for ten years and only $ 1,587 in interest during that time. Better still, you could refinance into a new 7-year loan, paying $ 132.13 per month, with only $ 1,099 in interest, and three full years less to repay.
Sign up for Autopay to get a lower interest rate
Some student loan companies are offering discounts to customers who are ready to sign up for automatic payments. This discount is usually around 0.25%. However, you just need to allow your student loan payment to be automatically debited from your checking account every month.
These programs make it easy to keep up to date with your student loan payments, and they also ensure that you are never late. All you have to do is make sure you have the funds in your account before your payment is automatically withdrawn each month.
Make payments while you are in school
If you haven’t graduated from college, it’s not too early to prepare for the inevitability of that first student loan payment. Additionally, if some of your student loans are unsubsidized, it can be extremely wise to make payments while you are still in school.
What is the difference between Subsidized and Unsubsidized Student Loans? On the whole, the biggest difference is the fact that the federal government pays the interest on subsidized loans while you’re still in college, but doesn’t extend that benefit to unsubsidized student loans. By making payments on unsubsidized loans while you are still in school, you can keep student loan rates in check and keep your loan balances from rising until you get a job and attacking your student loan debt with all your might.
Live like a poor student
It’s tempting to puff up your lifestyle once you’ve graduated from college and raking in a paycheck. However, this is the opposite of what you should be doing if your goal is to get out of debt faster. The longer you can live at home with your parents or share an apartment with roommates, the more money you can continue to use on your student loans. And if you can hold back on buying a home or financing a new car, you’ll be in even better shape when it comes to wrecking your student loan debt at record-breaking pace.
Financial guru Dave Ramsey frequently gives the following pieces of advice, which I totally agree with:
“Live like no one else now, so you can live like no one else later.”
Living your students’ bad lifestyle for as long as possible can help you pay off your debt wisely when you first start out.
If you have roommates, keep them.
If you can get by on ramen, keep up the good work.
Once your student loans are paid back and in your rearview mirror, you can use your income to pay for the lifestyle you really want.
Earn money on the side
If you want to pay off your debt even faster, making more money is always an approach. The key here is to make sure that you are using the extra money you make to pay back your student loan instead of paying for things you don’t need.
In the past, we’ve shared myriad sideline jobs here on Good Financial Cents, from 65 sideline jobs that you can do from your kitchen table to ideas for starting an online business. Some of the easiest ways to make money are driving for Uber or Lyft, starting a blog, or learning an online skill that you get paid to do. You can become a freelance writer online or sell your design or data entry skills with a website like Fiverr.com. You could walk dogs in your spare time or mow the yards of people in your neighborhood.
The basic principle is the same no matter which side job suits you. Pour as much time or effort into your sideline activity as possible and use all of the extra money you make to pay back your student loan.
Throw all “money found” into your student loan
If you get extra cash over the course of the year, be sure to use your “found” cash on your student loans. This can include your tax refund each year, any Christmas bonuses you get from employment, and money you get from work over time. You can even toss your birthday money on your student loan.
Any additional money you pay on your loans can be used to reduce the balance of your debt, which in turn lowers the amount of interest you pay over the life of your loan.
Keep in mind that even small amounts of money can add up significantly when paying off debts. By using whatever money you find you come across towards your loans each year, you can expedite your debt settlement process even further.
Ask your boss for help
While asking your boss for student loan help is a fairly new concept, it’s not uncommon.
In fact, almost everything is on the table when negotiating your salary or performance – and sometimes just asking for it is key to getting what you really want.
In addition, some industries and government agencies have already considered this option. For example, some government employees can get up to $ 10,000 a year to pay back student debt by accessing the federal government’s student loan repayment program.
Similar programs are also available to nurses and teachers through the Nursing Education Payback Program and Teach for America, which is part of AmeriCorps.
Students finding work in the public sector can also get help with student loan assistance by applying for the Public Loan Program.
With this option, the federal government will grant the remainder of your direct loans, provided you have made 120 qualified payments and are still employed by a qualified public sector employer.
Which strategy made the difference? 3 financial experts weigh in
Many people have used these and other tips to repay their student loans once and for all. We reached out to several people who have definitively repaid their loans to find out how they did it and what strategies they are proposing. This is what they said:
Paying off student loans with secondary employment
“In my early 20s, I was paying a very affordable $ 160 a month for my $ 25,000 student loan. It wasn’t much to pay and it seemed like my bank balance never went down. This is one of the reasons I I decided to blog when I was 28. After about six months, I was making extra income from my blog and started sending extra payments for my student loan.
As my blog income grew, I was able to send chunks of $ 1,000 to $ 2,000 pretty regularly in my 30s, and eventually I started improving my balance. I made my last student loan payment when I was 38 and it was lovely. Had I not been able to send in additional money, I would probably have paid student loans well into my 50s. ” – Chris Huntley, co-founder of Credit Knocks
Live the poor student lifestyle
“My wife graduated with a student loan of over $ 80,000, but we managed to pay it all off in just under three years. We had to make sacrifices to pay off so much debt quickly, but we also had other things ahead of us that made it easier. My wife is a nurse and I was an accountant at the time so we made a decent income.
We had no one to rely on, so our spending decisions only affected ourselves. We kept our expenses to a minimum and continued to live like students trying to put as much money into debt as possible. We bought a small town house that resulted in a monthly mortgage payment of only $ 500.
We had a very limited fun budget and didn’t take traditional vacations. We refused to buy new furniture (except for the much needed mattress) or to eat out several times a week. Instead, we cooked at home, relying on hand-me-downs or using furniture to get through until the debts were paid off. We also postponed decorating and renovating our home unless the cost was minimal and we were able to do the job ourselves. “ – Lance Cothern, founder of the money manifesto
Earn money on the side to pay off debts
“I paid back nearly $ 43,000 in student loans in three years. First, I worked full time while studying, which helped minimize costs. After graduating, I was promoted to the same company and made a starting salary of $ 45,000 per year.
However, during my work, I was also on the side and made extra money. My main appearance was buying things to resell on eBay. In my prime, I made about $ 2,000 a month in profit. I wouldn’t do any jobs either, so I started my blog, The College Investor.
Between my day job and extra income, I was able to turn off my student loans in a short amount of time. “ – Robert Farrington, co-founder of The College Investor
The bottom line
There is no reason to repay your student loan longer than necessary. Any of the tips on this list can help you get out of debt faster, and it is even possible to use more than one of these tips to crush your debt in a flash.
As total student debt in the country continues to rise, we must all take responsibility for ourselves. Drop the numbers where they like; It’s up to us to find ways to get our finances in order – and if that process involves paying back student loans the hard way, so be it.
Remember, you have a wealth of tools at your disposal.
With debt calculators and budgeting tools, you can come up with dozens of ways to get out of debt faster, and most importantly, smarter.
Since student loan debt is higher than ever before, you will need all of the help that you can get.