How to Pay Off Your Student Loans Faster
Coming out of college with a mountain of debt is becoming more and more normal these days as college tuition is constantly increasing. It’s almost unheard of for someone to finance their undergraduate education themselves or through scholarships — so for the majority of you reading this article, you’re facing years of paying off what you borrowed to get the education you have!
It can seem completely overwhelming at first. You might feel like it’s going to be impossible to see a balance of “$0.” But don’t worry — there is hope. There are many people out there who have paid off their loans. They’re still successful individuals with beautiful, fulfilling lives ahead of them. Don’t get bogged down in calculating how old you’re going to be by the time you pay them off. Instead, plan for paying them off faster and more efficiently. Here are some ways you can alleviate the stress of having student loans and pay them off faster than anticipated.
1. Make extra payments.
Typically, people make 12 payments on student loans every year. Each of these payments is typically for the “minimum amount.” However, if you pay either extra “minimum payments” or you make larger payments than the minimum, you can pay them off much faster. Forbes contributor Zack Friedman says you should consider making 4 additional payments per year – one extra every three months. With a total of 16 payments per year, pretty soon you’ll have that balance much smaller than anticipated.
2. Have a plan.
Instead of making payments willy-nilly, have a plan. Divide out how long it will take you to pay off your loans if you keep making minimum payments. Then decide if you’re okay with only paying the minimum every month. Depending on your income, you might be able to make payments twice the size of the minimum. Is that financially a good decision for you? You’ll have to decide.
3. Make a large payment on your loans.
A lump-sum payment on your student loans will save you quite a bit in the long run. I found this awesome calculator by Make Lemonade, that will show you how a lump sum payment can save you tons on interest and how much earlier you’ll pay off your loan if you choose to make a large payment. It’s a pretty useful tool that you can use to calculate your budget at any time.
4. Look for jobs with loan forgiveness.
It’s becoming more and more common for government jobs to help you pay off your student loans once you start working for them. If you have enough debt to make you want to bury your face in your pillows for the next ten years, you might want to start looking into some career options with the government.
5. Refinance your loans.
I wasn’t really sure what this meant until I did a little research, but basically, you can refinance a loan with a private loaner instead of having a federal loan and save tons on interest. People do this with their houses a lot, so you might recognize the phrase “refinancing my home.” It just means that you pay off one loan with another, and that second loan has a smaller interest rate, saving you more money in the long-term.
6. Think about your options.
Maybe, as much as it might hurt, you need to live with your folks for a year. Even the most independent people have to swallow their pride and admit they need help. If you feel buried in student loans, secure a good job and live with your parents for a year. You can budget well enough to pay down that principal amount you owe on your loans. You’ll feel much better about the situation once you’ve sacrificed a bit of your freedom and independence for a year.
7. Hold off on luxuries.
It’s hard to pay off student loans. We all know that. But it’s even harder to pay off student debt when you’re treating yourself to Friday night (and maybe Saturday night, too!) drinks with all your girlfriends. If you can hold off on the luxuries we all enjoy so much and live a minimalist live for a few years, you’ll be happy and back in the black. I can’t tell you how small luxuries (like a cocktail at dinner) really adds up over the course of consecutive months. Watch where you spend your dollars. Motivate yourself to live a lesser life so you can be debt-free!
Remember that the faster you pay off your loans, the more you’re saving yourself in the long run.
If you drag your student loan payments out for years on end because you only wanted to pay $100/month, you’re not really doing yourself any favors. It’s best to make large payments, save on interest, and pay off your balance faster. This will allow you to enjoy that nice salary you’re making much earlier than if you chipped away at those loans $100 at a time.