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Plain and simple student debt can be overwhelming. As soon as you can get out of debt, the better off financially you will be. Whatever your balance and monthly payment is, these simple strategies can help you get out of debt faster.
1. Pay off as much as you can in school or take out as little as possible
The lower your balance is, the faster you’ll be able to pay it off. When you head off to school they flash huge opportunities to take out money for any living expenses, computers, etc. I warn you – take out as LITTLE as possible. Also, you can start to pay off what you borrow while you’re in school, even if you pay off some of the interest you accrue while going to school, it will help tremendously.
2. Choose the standard repayment plan & stick to it
The standard repayment plan is a flat interest rate over 10 years. If you extend it out to 20 years, the interest you pay will be significantly higher. Yes, your monthly payment will be lower, but in the long run you will end up paying a significant amount more. On a $10,000 loan at 7% interest you’ll pay $3,932.93 in interest over 10 years, but with that same loan, you’ll end up paying $8,607.15 in interest if you choose a 20-year repayment plan.
Choose cautiously if you’re looking at deferring your payments. If you can still make them, but money will be tight, I highly recommend this option. If you need to defer your student loan during a time of hardship, you do relieve the immediate payments, but you will still accrue interest over this time. By the time you’re able to make payments again, your balance will be higher and therefore will take even longer to pay off.
3. Look into refinancing
Refinancing your student loans may be a great idea, but you’ll have to consider all the options. With government loans, you may qualify for the debt forgiveness program, and when you refinance, you will no longer qualify. Or with the Coronavirus, refinanced loans did not qualify for the government interest relief or the payment relief program.
My original loans were as high as 7.9% interest and I was able to get all of them down to 4.5%. There are many different refinancing options such as Sofi, Earnest, Credible, and Citizens Bank.
4. Set up automatic payments
Most loan companies will give you a small percent discount on your interest rate if you set up automatic payments. Take advantage of this and any other discount they offer. Even small drops in your interest rate can make a huge difference in the amount you pay in the long run.
5. Pay more than your minimum payment
This is the best way to help pay down your loans faster. If you can pay more than your minimum payment at any point, it will help bring down your balance. You can use this Dave Ramsey’s Mortgage Payoff Calculator to calculate out just how much quicker you can pay down your balance with even $10, $25, or $50 extra a month.
Say your student loans were $100,000 at a 7% interest rate for 10 years. By paying an extra $50 a month, you could shave off 7 months and $2,500 in interest.
6. Pay extra with windfall cash
Any time you get extra cash, whether it’s a raise, your tax return, or even birthday money, put it towards your loan. Any time you can make an extra payment of any amount, it will pay off. Less principle, less interest, and less time to pay.
Good luck on your repayment journey, I know it’s a long one, but there is a light at then end of the tunnel!