6 Tricks to Paying Back Your Student Loans Faster
Graduating from college and getting your first job is a huge accomplishment. But it also means it’s time to start paying student loan debt, often for years, or even decades, after finishing your degree.
Don’t let student loans stick around and continue to be a drain on your finances. You can free yourself from student debt more quickly by using these tactics to pay off your loans.
Pay More Than the Minimum
The simplest way to pay back your student loans faster is to make more than the minimum payment each month.
Some student loans allow you to pay just $50 per month with a 10-year or longer term, but this is a recipe for lingering loan debt for many years to come.
Instead, take a look at your budget and see how much you can afford to increase your payments. Think about how badly you want the loan payments to end, and get agressive with paying off your debt. For even more convincing, use a student loan interest calculator to figure out how increasing payment size will decrease the term of your loan.
For example, using the full 10-year term to pay off $30,000 in debt means monthly payments of $345.24 and over $11,000 in interest payments on top of your original $30,000 in loans.
But, if you can afford to increase this payment by 50% to $518, you’ll be done paying in just 5.9 years! Not only will you finish paying four years sooner, but you’ll save almost $5,000 in interest payments, too. This can be a huge deal for starting to save and invest for retirement or hitting other financial goals that are important to you.
Make Payments Automatic
If you set up automatic loan payments, you’ll be less likely to get off track and you may even save with a lower interest rate.
Making payments automatically ensures that you don’t have to remember to pay each month and risk missing a due date. Plus, if you’ve already decided to pay an additional payment amount above the minimum, setting up an automatic payment means that you’ll stay on target for shortening the period of your loan.
One of the most common discounts for setting up automatic electronic payments is a 0.25% decrease in your interest rate. If your servicer offers it, this can save you hundreds of dollars over your repayment term. Besides, it feels great knowing that you can have a discount while making a smart choice to pay off your loans responsibly.
Avoid Consolidation and Other Plans That Extend Loan Terms
Consolidation and payment plans that let you extend your loans can be great when you need them, but these options may be detrimental if you’re trying to pay off your loans faster. These plans often extend the term of your debt from 10 years to anywhere from 12 to 30 years. That’s moving in the wrong direction!
Consolidating loans that have different interest rates may also be problematic since you’ll lose the ability to target debt with the highest interest rates first. Instead, interest rates will be average together and balances combined.
Before consolidating, check out a consolidation calculator to learn about the tradeoffs of combining your loans. If you do decide to use any of these options, still work hard to pay more than the minimums they require.
Find a Job That Pays
This is often easier said than done, but if you have a large amount of student loans, it’s important to find a job that will cover the payments and hopefully more, too. Being serious about paying off your loans may mean going after the money rather than being choosey about your job.
It’s typically assumed that you’ll pay 10% of your monthly gross income towards your student loans. If your loan payment is $350 per month, this means you’ll need to earn about $3,500 a month before taxes, or a salary of about $42,000 per year.
Finding a job that pays well can be difficult. But don’t give up on your search too easily. Even if you’ve already found employment, it doesn’t hurt to be looking for promotions or other positions that pay more.
Take Advantage of Tax Benefits
Don’t forget to take advantage of the tax deductions you’re entitled to when paying off student loans. This should be easy to do as loan servicers typically provide a form that tells you exactly how much interest you paid for the tax year. You should always consult a tax professional in cases like this, but taking advantage of this benefit may be as easy as filling in one box on your tax return next year.
To accelerate loan repayment, you can the put any tax refund you receive for paying loan interest back towards your student loans.
Pay Off Private Loans First
If you have any private loans, concentrate on getting these off the books fast.
While government loans charge a moderate interest rate and have flexible terms, interest rates on private loans average 9.5% and they don’t have all the same benefits that the federal loans do.
In order to avoid dealing with any hassles private loans may cause, it’s best to concentrate on paying them off first. This can be done by paying the minimum on your federal loans while paying the maximum you can afford towards the private loans until the balance is wiped out.
There are some advantages to holding low-interest debt, so make sure to assess your entire financial picture before making sacrifices to pay off your student loans faster. There are other considerations you need to make, like investing for retirement, and putting that off until years later might not be the best choice. But if you do have the ability to pay off student loans faster, being debt free is a wonderful thing!
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