4 Tips for Paying Off Your Student Loans Faster
If you’re one of the many college graduates stuck with an average student loan balance of $35,000, you are probably dreaming of the day when your very last payment can wipe your slate clean. Whether this debt is crowding out other necessary spending or it’s simply a financial obligation you’d like to abolish sooner rather than later, it might be time to up your repayment game.
By making a few adjustments to how you’re managing and tackling your debt, you can reach your end goal – freedom from student loans – that much quicker. Here are a few tips you can consider in repaying your student loans. Be aware that each person’s student debt situation is unique and not all of these tips may benefit everyone.
1. Pay more than the minimum payment.
This might seem like the most obvious answer – make larger payments and you’ll be chipping away at the balance faster than if you were to just make the minimum payment each month. But it’s a little bit more complicated than that.
By making a larger payment each month, you actually have the opportunity to chip away at the principle faster – meaning you incur less interest over the life of the loan. So not only are you inching to the finish line faster, but you’ll pay less in the long run.
However, it’s important to note that just because you send in more than the minimum doesn’t automatically mean the extra will be applied to principal. You must notify your student loan servicer how you want the payment to be applied. The Consumer Financial Protection Bureau has a sample letter with instructions that can be personalized and sent to your provider. SLS is not affiliated with or endorsed by the Consumer Financial Protection Bureau.
2. Pay biweekly instead of monthly.
Splitting your monthly student loan payment in half and paying biweekly instead can help tremendously if you have trouble keeping your cash flow stable throughout the month, or if you are on a biweekly pay schedule. But the benefits also extend to being able to pay off your student loan debt faster.
With a biweekly payments, you will make 26 half payments or 13 full payments each year. On the flipside, if you only make one payment a month, that equals 12 full payments each year. That additional payment will decrease the interest paid as well as the time it will take to reach a zero balance.
You can calculate the benefits of adopting a biweekly payment schedule here.
3. Make a concrete plan and set a debt payoff date.
Many people stick to making minimum payments on their student loan debt as if this were the only plan they need to reach debt freedom. In reality, minimum payments made on a monthly basis are simply a way to ensure you will be in debt for the longest amount of time under your repayment plan with your loan servicer.
Instead, be proactive about tackling your debt and establish your own repayment plan. Determine exactly how much you currently owe and what the interest rates are on each of your loans. Look at your total amount in minimum payments due each month and decide how much your current budget will allow you to tack on. Can you cut back in one area and apply just $50 extra dollars a month to your debt?
From there, calculate how long it will take to reach debt freedom and display that date as motivation to keep moving forward. Know that every extra payment you apply will bring that date just a little closer.
4. Apply raises, tax refunds, and other cash windfalls to your debt.
If you’re not quite sure where that extra money can come from, consider the cash windfalls you receive throughout the year. Do you receive even just a 1% raise each year? Apply that 1% to your debt. Did you receive a tax refund? Take that amount – no matter the size – and throw it at your debt. Did you receive extra cash as a birthday present? Give yourself the gift of debt freedom and make an extra payment.
When you have your debt payoff date firmly rooted in your mind and you know there’s a light at the end of the tunnel, applying extra money to your debt doesn’t feel like you’re just throwing it down a black hole. Instead, it’s like placing an extra brick on the path to the finish line. And that peace of mind is worth far more than any physical object you’d buy with that extra money.
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