Advertising
Advertising

The Smartest Way to Pay Off Your Student Loans

The Smartest Way to Pay Off Your Student Loans

Graduation is just around the corner for millions of college seniors around the world. Concerns like college rankings, mid-terms and essay samples will be a thing of the past. Of course, these will be replaced by new worries: finding a job, deciding on grad school and for most, the dreaded student loan repayment.

In today’s economy, students have more debt than ever before; some estimate the total amount of student loan debt is well over 1 trillion dollars in the United States alone. While these numbers are daunting, the repayment process doesn’t have to be. By following some simple suggestions, you can reduce you burden and your overall interest payments without living like a broke college student for the rest of your life!

Student loan

    1. Pay a little extra.

    Once you get started with your loan repayments, you might be feeling a little strapped for cash each month. The thought of sending them MORE money might seem a bit of a stretch. However, if you can manage to send even just $5 extra per month, even if it’s not every month, it can save you thousands in interest over the life of the loan. Experts estimate that for every extra dollar you spend, you can cut up to $2 off at the end. That can add up quick!

    Advertising

    square mobile payment

      2. Biweekly payments.

      It may sound strange, but sending in half of your loan payment every two weeks will save you thousands of dollars. In addition to paying less interest, you also manage to make an extra full payment every year. Consider the approach, especially if you are paid biweekly.

      4 Money-saving Ways To Make a Vacation Cheaper

        3. Sign up for automated payments.

        Contact your lender and ask about this option. Most will allow you to have your payments automatically withdrawn from your checking or savings account on a regular interval you set up. The other good thing is that lenders will often lower your interest rate by as much as 0.25% if you make automatic payments. It may not sound like much, but it could knock a year, or more, off the life of your loan.

        Advertising

        You can also have the payment automatically deducted from your paycheck; it won’t hurt nearly as much as writing out a check will. Because you never get to see the money, you won’t miss it as much!

        save_money-banking

          4. Let the tax code work for you for a change.

          One of the good things about student loans is that the interest you pay on them is tax deductible, meaning you can subtract it right from your gross income. This means fewer taxes paid and usually a bigger refund for you.

          For example, if you pay $2,000 in interest on your loans in one year, and are taxed at a rate of 25%, that’s $500 less you owe in taxes, or $500 more in your refund check. If you turn that around and apply it as an extra payment towards your student loans, it means you will effectively be using the government’s money to lessen your debt.

          Advertising

          You Can Save a Ton of Money With Financial Compartmentalization

            5. Pay off variable rate loans first.

            If you have some loans that have a variable interest rate, consider paying them down faster first. While they may have a lower rate than your fixed rate loans, that can change quickly. As the economy improves (hopefully), interest rates can rise drastically, catching you off guard and raising your monthly payments significantly. You might even check into converting these to a fixed rate option. It never hurts to talk to your lender.

            31 Things To Do When You Have No Money

              6. Consolidate.

              This option may not help newer loans that have a fixed interest rate, but for older loans, you can often consolidate them into one monthly payment. This is often at a rate lower than what you are paying on the individual loans. Even if you don’t get a better rate, it may still be easier for you to make one payment per month instead of several.

              Advertising

              think about what you can do with the money

                7. Get someone else to pay it.

                While this sounds like a great idea, it’s not what you think—unless you have a rich uncle willing to write the check, that is! What you might seriously consider is that some companies that hire college grads may be willing to pay a lump sum payment towards your loans as part of your compensation package.

                You will probably have to accept a reduced salary, and agree to work for them for a specific number of years, but the reduced interest and length of time required to pay off your loans could make it worth it. Consider this option when you get to the salary negotiations stage or at your annual review if you are already working.

                No matter what you get your degree in, if you have student loans, repayment is soon going to be a reality for you. If you use some of these tips, you could easily save yourself thousands of dollars over the course of your loan. That’s no small change for simply applying some of these mostly painless suggestions.

                More by this author

                Google and Their Educational Programs The Smartest Way to Pay Off Your Student Loans young IT intern Make The Most Of Your Internship in 7 Easy Steps Student Guide to Effective Note Taking 10 Most Useful College Degrees In 2013

                Trending in Money

                1 The Definitive Guide to Get out of Debt Fast (and Forever) 2 25 Easy Tips on How to Save Money Fast 3 What Is a Good Credit Score (And How to Get One) 4 9 Millionaire Success Habits That Will Inspire Your Life 5 10 Reasons Why Following Your Passion Is More Important Than Money

                Read Next

                Advertising
                Advertising
                Advertising

                Last Updated on July 10, 2020

                The Definitive Guide to Get out of Debt Fast (and Forever)

                The Definitive Guide to Get out of Debt Fast (and Forever)

                Debt can feel crushing, like a weight that is always weighing you down. Looking at those numbers, it can feel as if you’ll never get out from under it. However, if you really want to learn how to get out of debt, it is possible with a great deal of focus and self-control.

                Getting out of debt isn’t impossible. Like any big goal, all that it takes is an action plan to identify where you are and creating a plan to zero out your debt.

                Identifying All of Your Debts

                The first part of paying off your debt is getting a complete picture of what you owe. When you have everything written out in front of you, it makes it much easier to create an action plan. Depending on how much you owe, it might also help you realize it’s not as bad you might have originally thought.

                Here’s how you can get started identifying your debts:

                1. Own Your Debt

                Before you start identifying all of your debts, take a moment to process that you have debt but want to get out of it.

                Forgive yourself for any past mistakes, missed payments, or overspending. It might be painful to accept how much debt you have at first, but you must own it.

                2. Make a Debt Tracker

                It’s astonishing how few people ever created a tracker to understand their total debts. Most likely, it comes from not wanting to accept the guilt of having debt, but, if avoided, it can make it nearly impossible to get out of debt.

                Open up a new Google or Microsoft Excel sheet and list out all of your debts. Start with the name of the creditor, interest rates, total balance, loan term length (if any), and the minimum amount due each payment. This will include student loans, credit cards, and any other type of debt owed.

                3. Get Your Debt Number

                Once you’ve made your debt tracker and taken the other steps, identify your total payoff number. This is crucial, as you will have a starting point and a clear goal that you are trying to achieve.

                Prioritizing Your Debts

                All debt is not created equal. It’s imperative to understand that there are different types of debt.

                Advertising

                1. Understand Bad and Good Debts

                Bad debts are usually paying for things you want instead of always need. While there might be some emergencies that max out your credit cards, often times it’s excessive spending[1].

                There are three main types of bad debt:

                • Credit Card Debt: The average American household owes over $16,000 in credit card debt!
                • Auto Loan Debt: According to CNBC , the average auto loan in the US is $30,032!
                • Consumer Loan Debt: Consumer loan debt isn’t as common as credit card and auto loan debt, but it’s still considered bad as interest rates are usually between 10-28%.

                Good debt is identified as investments in your future. Here are three common types of good debt:

                • Student Loan Debt
                • Mortgage Loan
                • Business Loans

                2. Decide Which Debt to Pay off First

                Once you know each type of debt and their interest rates, you can begin to pay off debt quickly.

                Focus on paying off bad debt first, regardless of if it is a credit card or auto loan. Start by paying off the loan with the highest interest rate first.

                If you have several credit cards with different interest rates, you want to focus on the one with a higher APR. You will actually save more money by eliminating the card with the highest interest rate.

                3. Don’t Pay the Minimum Amount

                Paying the minimum amount digs you into a hole as interest rates will offset your payment. Even a small amount more than the minimum can help you pay off debt much faster.

                Removing Obstacles to Pay off Debt Quickly

                Creating a debt tracker and prioritizing a plan is simple, but avoiding temptation can be difficult.

                1. Set a Reminder to Track Your Debt

                “If you can’t measure it you can’t manage it.” -Peter Drucker

                It’s so important to track your debt to ensure that you get it paid off quickly. Similar to working out and measuring your results, you need to track your debt constantly. Start with a weekly reminder, where you sign on and log your updated number. Did you increase, decrease, or stay the same?

                Advertising

                Regularly tracking your student loan balance can be incredibly motivating, as well. You will get a huge confidence boost each time you see your total debt amount decreases.

                Set weekly and monthly goals so you can have short term wins and keep the momentum going.

                2. Hide Your Credit Cards

                If your biggest debt is credit cards, you need to eliminate temptation and remove them from your wallet.

                Some people have gone to extreme measures by freezing their credit cards. Why? This would create an ice block around your card, which would require you to chip away at it slowly. This will give you time to think if it’s the best idea to buy that thing you’re about to buy.

                3. Automate Everything

                Willpower can be a huge downfall to paying off your debt. By automating your bills each month, you will ensure that willpower isn’t involved.

                4. Plan Ahead

                Getting out of debt will require some sacrifices, but with enough planning, you can make it work.

                For example, if you know that you have a friend’s birthday or family dinner coming up, plan ahead for the costs. Whether you need to cut back on spending the week before, pick up a side job, or meet them after dinner, do what is needed.

                5. Live Cheaply

                The only way to get out of debt is to make some sacrifices on your spending habits. Find ways to save money each month so you can apply that amount to your outstanding debts. Here are some ways to save money each month:

                • Live with roommates
                • Cook dinners and prepare lunches for work instead of eating out
                • Cut cable and choose Netflix or Amazon Prime
                • Take public transit or bike to work

                Finding the Lowest Interest Rates

                The higher your interest rates, the harder (and longer) it will take you to pay off any debt.

                If possible, you want to find ways to lower your interest rates to help get out of debt quickly. Here’s how you can get started:

                Advertising

                1. Maintain a High Credit Score

                Your credit score will have a large impact on your ability to refinance your loans and receive a lower interest rate. If you have a low credit score, it’s unlikely you will be able to refinance your loans. Use these credit tips to increase and maintain an excellent score:

                • Never miss a payment
                • Don’t exceed 30% of your credit limit
                • Don’t sign up for more than one card at once
                • Limit hard inquires, like auto-loans and new credit cards
                • Monitor frequently with free credit-tracking software

                2. Find Balance Transfer Offers

                Start by opening a free account on credit.com. Credit.com offers you the chance to open a free account and see what type of balance transfer offers you can receive. Some of your existing credit cards might already have 0% or lower APR balance transfer offers available.

                Contact each of your credit card providers to ask about lowering your rate for a one-time balance transfer offer[2].

                If you do take advantage of this option, make sure that you use a balance transfer and not a cash advance. Cash advances have a ton of high interest fees (15-25%, depending on your credit card) and will only compound your debt problem.

                How to Get Rid of Debt Forever

                Setting up a plan, removing temptations, and getting the lowest interest rates is the first step to get out of debt.

                1. Keep Monitoring and Adjusting

                Once you have a plan, don’t get comfortable. Track your debt payoff plan and make the necessary adjustments when needed.

                Monitor your credit scores with a free site like CreditKarma. The higher your credit score climbs, the more likely you will be to secure a new, lower-interest loan.

                2. Earn More Money

                There are only so many ways to save money. Instead of clipping another coupon or making sacrifices for your morning coffee, find ways to earn more money!

                Think about it…it is much easier to find ways to earn an extra $1,000 per month than find $1,000 to cut from your budget.

                Here are some examples of ways to earn more money:

                Advertising

                Talk to Your Boss

                Have a conversation with your boss about current salary and/or commission rates. If you’re not satisfied or want a change, don’t be afraid to look around at other positions. Some of them might even have a student loan debt reimbursement plan!

                Start a Side Hustle

                This could be coaching students on the weekends, driving for Uber, or taking paid online surveys. There are tons of ways to make money outside your 9-5. Now that you have a clear plan to pay off your debts, you’ll be more motivated than ever to figure out creative new ways to earn money.

                Build an Online Business

                There are so many websites and blogs that earn money from ads, affiliates, and other online products. Find your niche and get started.

                3. Celebrate Your Wins

                As you progress in your debt payoff journey, don’t forget to celebrate your wins. You need to always reward yourself for the hard work and discipline that is required to get out of debt.

                While you shouldn’t celebrate so big that it increases debt, make sure to factor in little rewards to keep you motivated.

                4. Set New Financial Goals

                Eventually, with a plan and these steps, you can rid yourself of your debt. Once you do, make sure to celebrate your monumental achievement, but don’t stop there.

                Now, you can focus on acquiring wealth and increasing your net worth. Set new financial goals so you have a new target to aim toward. Here’s how to set financial goals and actually meet them.

                These could be anything now that you are debt free! Think about where you want to travel, buying your first home, or saving for your future retirement. Just like before, make sure that your goals are specific, measurable, and achievable.

                Conclusion

                Congrats, you can now set a plan in motion to finally pay off your debt quickly (and hopefully forever)!

                Remember, if you want to get out of debt quickly, it’s not always easy. Just like any big goal, there will be sacrifices, challenges, and problems to overcome.

                More Tips on Getting out of Debt

                Featured photo credit: Pepi Stojanovski via unsplash.com

                Reference

                Read Next