IntroductionMake a budgetPay more than the minimum paymentRefinance your student loansConsolidate your loansConsider an income-driven repayment planLook for student loan forgiveness programsUse your employer's student loan repayment assistance programLook for opportunities to earn extra incomeMake bi-weekly paymentsAvoid defaulting on your loansConclusion
Introduction
As a recent graduate, the excitement of starting a new chapter in your life can quickly be overshadowed by the daunting task of paying off student loans. With the average student loan debt in the United States at $35,000, it's no wonder that paying off these loans is a major concern for many young adults.
Fortunately, there are several smart strategies you can use to pay off your student loans faster and save money in the process. In this blog, we'll cover some of the most effective strategies for tackling your student loan debt and achieving financial freedom.
Make a budget
The first step to paying off your student loans is to make a budget. This will help you understand exactly how much money you have coming in each month and how much you're spending. Once you know where your money is going, you can start making adjustments to your spending habits to free up more money to put towards your student loans.
To create a budget, start by making a list of all of your monthly income and expenses. This should include your salary or wages, any additional sources of income, and all of your monthly bills and expenses, such as rent, utilities, groceries, transportation, and entertainment.
Once you have a clear picture of your income and expenses, you can start looking for areas where you can cut back on spending. This could include things like eating out less, cancelling subscriptions or memberships you don't use, or finding more affordable options for things like transportation or housing.
It's also important to include a line item in your budget for your student loan payments. Make sure to pay more than the minimum payment each month if possible, as this will help you pay off your loans faster and save money on interest over time.
Tracking your spending and sticking to your budget can be challenging at first, but it's an important step in achieving financial freedom and paying off your student loans. Consider using budgeting tools or apps to help you stay on track, and don't be afraid to revisit your budget regularly to make adjustments as needed.
There are many budgeting tools and apps available that can help you get started. Try out our expense tracker on Android or iOS to track all your expenses for free and analyse them at the end of the week / month / year for a better perspective into how you spend your money.
We have also written an extensive blog on budget management here: How to budget: A quick start guide and How to Create a Budget to Pay Off Debt Faster
Pay more than the minimum payment
If you're only making the minimum payment on your student loans, it will take you much longer to pay them off and you'll end up paying more in interest over time. Instead, try to pay as much as you can afford each month.
Even if you can only afford to pay an extra $50 or $100 each month, it can make a big difference in the long run. By paying more than the minimum payment, you'll reduce the amount of interest you pay over time and pay off your loans faster.
When you make only the minimum payment on your student loans, you're mainly paying interest, which means your principal balance won't be decreasing as quickly as it could. By paying more than the minimum payment, you'll be able to reduce the principal balance of your loans faster and ultimately save money on interest over the life of your loans.
To see the benefits of paying more than the minimum payment, consider using a student loan repayment calculator to estimate how much you could save over the life of your loans by paying more than the minimum each month. Even small additional payments can make a big difference in the long run.
There are a few ways you can make extra payments on your student loans. One option is to make bi-weekly payments instead of monthly payments, as mentioned earlier. Another option is to make extra payments whenever you have extra money, such as from a bonus at work or a tax refund.
When making extra payments, make sure to indicate that the additional funds should be applied to your principal balance, not just your next month's payment. This will ensure that you're actually reducing your overall loan balance.
If you have multiple student loans, consider focusing on paying off the loan with the highest interest rate first, while still making the minimum payments on your other loans. This is called the debt avalanche method and can help you save money on interest over the life of your loans.
By paying more than the minimum payment on your student loans, you can reduce the overall cost of your loans and pay them off faster, helping you achieve financial freedom sooner.
Here are some action points to consider when paying more than the minimum payment on your student loans:
- Determine how much you can afford to pay: Start by assessing your budget and identifying how much extra money you can afford to put towards your student loans each month.
- Set a goal for paying off your loans: Set a goal for when you want to have your loans paid off and use that to determine how much extra you need to pay each month.
- Use a student loan repayment calculator: Use a student loan repayment calculator to estimate how much you could save by paying more than the minimum payment each month. This can help motivate you to stick to your goal.
- Make payments more frequently: Consider making payments bi-weekly or weekly instead of monthly. This can help you pay off your loans faster and reduce the amount of interest you pay over time.
- Prioritize high-interest loans: If you have multiple student loans, focus on paying off the loans with the highest interest rates first. This can save you money in the long run by reducing the amount of interest that accrues over time.
- Make extra payments whenever possible: If you receive a windfall such as a bonus or tax refund, consider putting all or a portion of it towards your student loans. This can help you pay off your loans faster and reduce the amount of interest you pay over time.
- Consider automatic payments: Setting up automatic payments can help ensure you make your payments on time and can sometimes result in a small interest rate reduction.
Remember, paying more than the minimum payment on your student loans can help you save money in the long run and pay off your loans faster. However, make sure you're also budgeting for other important expenses such as rent, utilities, and groceries.
Refinance your student loans
If you have high-interest student loans, refinancing may be a good option for you. When you refinance your loans, you take out a new loan with a lower interest rate and use that money to pay off your existing loans.
This can save you a significant amount of money in interest over the life of your loan, and it can also lower your monthly payments. However, keep in mind that refinancing may not be the best option for everyone. You'll need to have good credit and a stable income to qualify for the best rates.
Refinancing your student loans can be a smart strategy for saving money and paying off your loans faster. When you refinance your loans, you take out a new loan with a private lender to pay off your existing student loans. The new loan typically has a lower interest rate and may come with other benefits, such as a shorter repayment term or more flexible repayment options.
To qualify for a lower interest rate when refinancing, you'll typically need a strong credit score and a steady income. If you don't meet the requirements on your own, you may be able to qualify by applying with a co-signer.
When considering whether to refinance your student loans, it's important to weigh the potential benefits against the potential drawbacks. While refinancing can save you money in the long run, it may also mean giving up certain federal loan protections, such as income-driven repayment plans or loan forgiveness options. Make sure to carefully read the terms and conditions of any refinancing offer and consider how they will impact your overall financial situation.
Before refinancing, it's also a good idea to shop around and compare offers from multiple lenders to make sure you're getting the best possible rate and terms. Many online platforms allow you to compare multiple refinancing offers from different lenders in one place.
If you do decide to refinance your student loans, make sure to continue making at least the minimum payment on your loans until the refinancing process is complete. Once you've refinanced, consider using the extra money you're saving each month to pay off your loans faster, as we discussed earlier.
Overall, refinancing your student loans can be a smart strategy for saving money and getting out of debt faster. Just make sure to do your research and consider all of your options before making a decision.
Here are some action points to consider when refinancing your student loans:
- Check your credit score: To qualify for refinancing, you'll typically need a good credit score. Check your credit score and take steps to improve it if necessary, such as paying down credit card debt and making payments on time.
- Research multiple lenders: Shop around and compare offers from multiple lenders to make sure you're getting the best possible rate and terms. Look for lenders that specialize in student loan refinancing and have a track record of providing good customer service.
- Consider the terms and conditions: Carefully read the terms and conditions of any refinancing offer and consider how they will impact your overall financial situation. Look for any hidden fees or charges, such as origination fees or prepayment penalties.
- Evaluate the impact on federal loan protections: Refinancing your federal student loans with a private lender may mean giving up certain federal loan protections, such as income-driven repayment plans or loan forgiveness options. Consider whether these protections are important to you and whether you're willing to give them up.
- Apply with a co-signer if necessary: If you don't meet the credit or income requirements on your own, consider applying with a co-signer who has a strong credit history and income. Keep in mind that your co-signer will be responsible for the loan if you can't make payments.
- Continue making payments until the refinancing process is complete: Until your new loan is disbursed and your old loans are paid off, continue making at least the minimum payment on your existing loans to avoid default or late fees.
- Use the extra money you're saving to pay off your loans faster: Once you've refinanced, consider using the extra money you're saving each month to make extra payments towards your loans and pay them off faster.
Consolidate your loans
Consolidating your loans is another option to consider if you have multiple student loans with different interest rates. When you consolidate your loans, you combine them into one loan with a fixed interest rate.
This can make it easier to manage your payments, as you'll only have one payment to make each month. However, keep in mind that consolidating your loans may not always save you money in the long run. Make sure to compare the interest rates and terms of your existing loans to the consolidated loan to see if it's the right choice for you.
Here are some action points to consider when consolidating your student loans:
- Determine if consolidation is right for you: Consolidating your loans can simplify your payments and potentially lower your interest rate, but it's not the right choice for everyone. Consider your current interest rates, the types of loans you have, and any benefits or protections you'll lose by consolidating.
- Check eligibility: To be eligible for consolidation, you'll typically need to have at least one federal student loan that is not in default. Private student loans cannot be consolidated with federal loans, but you can consolidate multiple federal loans into one Direct Consolidation Loan.
- Research consolidation options: The U.S. Department of Education offers Direct Consolidation Loans, but there are also private lenders that offer consolidation loans. Research different options and compare interest rates, terms, and fees.
- Apply for consolidation: If you decide to move forward with consolidation, apply through the U.S. Department of Education or your chosen private lender. Be prepared to provide information about your current loans, income, and employment.
- Consider the impact on loan repayment: Consolidating your loans may change your loan repayment terms, such as extending the repayment period. Consider how this will impact your overall financial situation and whether it's worth it for you.
- Continue making payments until consolidation is complete: Until your new loan is disbursed and your old loans are paid off, continue making at least the minimum payment on your existing loans to avoid default or late fees.
- Consider other repayment options: Consolidation is not the only option for simplifying your student loan payments. You may also want to consider income-driven repayment plans, which can help lower your monthly payments based on your income.
Remember, consolidation is not a one-size-fits-all solution for everyone. Make sure you understand the pros and cons of consolidation and how it will impact your overall financial situation before making a decision.
Consider an income-driven repayment plan
If you're struggling to make your student loan payments, an income-driven repayment plan may be an option to consider. With an income-driven repayment plan, your monthly payments are based on your income and family size.
This can make your payments more manageable, especially if you have a low income or are experiencing financial hardship. However, keep in mind that extending your repayment term through an income-driven repayment plan can also result in paying more in interest over time.
Here are some action points to consider when considering an income-driven repayment plan:
- Determine if you're eligible: To be eligible for an income-driven repayment plan, you must have federal student loans. Private loans are not eligible. You also need to demonstrate a partial financial hardship, which is determined by comparing your income to your debt.
- Research the different plans: There are four different income-driven repayment plans: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), and Income-Contingent Repayment (ICR). Research each plan to determine which one is best for your situation.
- Apply for the plan: Apply for the income-driven repayment plan through the U.S. Department of Education. You'll need to provide information about your income, family size, and loan information.
- Consider the impact on your loan repayment: Income-driven repayment plans can lower your monthly payments, but they may also extend the length of your repayment period, resulting in more interest paid over time. Consider how this will impact your overall financial situation and whether it's worth it for you.
- Recertify your income each year: To remain on an income-driven repayment plan, you'll need to recertify your income and family size each year. This ensures that your monthly payment remains affordable based on your current income.
- Understand loan forgiveness options: Depending on the income-driven repayment plan you choose, you may be eligible for loan forgiveness after a certain period of time. This can be a significant benefit, but make sure you understand the requirements and how it will impact your taxes.
- Consider other repayment options: Income-driven repayment plans may not be the best option for everyone. If you have a steady income and can afford higher payments, you may want to consider other repayment options to pay off your loans faster.
Remember, income-driven repayment plans can be a helpful option for borrowers struggling to make their monthly payments. Make sure you understand the requirements and the impact on your overall financial situation before making a decision.
Look for student loan forgiveness programs
If you work in certain fields, such as public service or non-profit organizations, you may be eligible for student loan forgiveness programs. These programs forgive some or all of your student loan debt after a certain period of time.
For example, the Public Service Loan Forgiveness program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments while working full-time for a qualifying employer. Make sure to research the requirements and application process for any student loan forgiveness programs you may be eligible for, as they can vary depending on the program.
Here are some action points to consider when looking for student loan forgiveness programs:
- Determine your eligibility: Loan forgiveness programs often have specific eligibility requirements, such as working in a certain profession or serving in the military. Research different programs to determine which ones you may be eligible for.
- Research available programs: There are many loan forgiveness programs available, including Public Service Loan Forgiveness (PSLF), Teacher Loan Forgiveness, and Perkins Loan Cancellation. Research each program to determine which one is best for your situation.
- Understand program requirements: Each loan forgiveness program has different requirements, such as working in a certain job for a certain period of time. Make sure you understand the requirements and are willing and able to meet them.
- Apply for the program: Apply for the loan forgiveness program through the appropriate agency or organization. Be prepared to provide documentation to prove your eligibility.
- Continue making payments until forgiveness is approved: Loan forgiveness can take several years to be approved, so continue making your monthly payments until you receive confirmation that your loans have been forgiven.
- Understand the impact on your taxes: Loan forgiveness may be considered taxable income, which can result in a higher tax bill. Make sure you understand the tax implications of loan forgiveness and plan accordingly.
- Consider other repayment options: Loan forgiveness programs may not be the best option for everyone. If you don't qualify for loan forgiveness or are unable to meet the requirements, consider other repayment options to pay off your loans faster.
Remember, loan forgiveness programs can be a great option for borrowers who meet the eligibility requirements. Make sure you understand the requirements and the impact on your overall financial situation before making a decision.
Use your employer's student loan repayment assistance program
Some employers offer student loan repayment assistance as part of their employee benefits package. This can help you pay off your student loans faster and save money on interest over time.
If your employer offers this benefit, make sure to take advantage of it. If they don't, consider negotiating with your employer to see if they would be willing to offer this benefit in the future.
Here are some action points to consider when using your employer's student loan repayment assistance program:
- Determine if your employer offers a program: Check with your employer to see if they offer a student loan repayment assistance program. If they don't, consider advocating for the implementation of such a program.
- Understand the program benefits: Each employer's program will have different benefits, such as a monthly payment contribution or a lump sum payment. Make sure you understand the program benefits and how they can help you pay off your loans.
- Determine eligibility requirements: Your employer's program may have specific eligibility requirements, such as a minimum length of employment or a minimum number of hours worked. Make sure you understand the eligibility requirements and whether you qualify.
- Apply for the program: If you meet the eligibility requirements, apply for your employer's program according to their guidelines. Be prepared to provide documentation, such as proof of employment and loan information.
- Understand the impact on your taxes: Employer contributions to your student loans may be considered taxable income, which can result in a higher tax bill. Make sure you understand the tax implications of your employer's program and plan accordingly.
- Continue making payments until assistance is received: Your employer's program may take some time to process your application and make payments. Continue making your monthly payments until you receive confirmation that your loans have been paid off.
- Consider other repayment options: Employer repayment assistance programs may not be the best option for everyone. If your employer doesn't offer a program or if you don't qualify, consider other repayment options to pay off your loans faster.
Remember, employer student loan repayment assistance programs can be a valuable benefit. Make sure you understand the program benefits and requirements, as well as the impact on your overall financial situation.
Look for opportunities to earn extra income
Finding ways to earn extra income can help you pay off your student loans faster. Consider taking on a part-time job or freelancing to earn some extra money each month.
You can also consider selling items you no longer need or doing odd jobs for friends and family. Any extra money you earn can be put towards your student loans to help you pay them off faster.
Here are some action points to consider when looking for opportunities to earn extra income to pay off your student loans:
- Identify your skills: Consider your skills and talents to identify potential opportunities to earn extra income. For example, if you have strong writing skills, you may be able to earn extra income as a freelance writer.
- Explore part-time job opportunities: Look for part-time job opportunities that fit your skills and schedule. Consider jobs that offer flexible schedules, such as working from home or working weekends.
- Consider the gig economy: The gig economy offers many opportunities to earn extra income, such as driving for a ride-sharing service or delivering food with a meal delivery service.
- Sell unwanted items: Sell items you no longer need or use, such as clothing, electronics, or furniture. You can sell items online or at a garage sale.
- Take on freelance work: Freelance work can be a great way to earn extra income, especially if you have skills in areas such as writing, graphic design, or web development.
- Offer services to others: Offer your services to others, such as pet-sitting, tutoring, or house cleaning. You can advertise your services online or through social media.
- Create a side business: Consider starting a side business that aligns with your skills and interests. For example, if you enjoy baking, you could start a home bakery.
Remember, earning extra income can be a great way to pay off your student loans faster. Consider your skills and interests to identify potential opportunities, and be willing to put in extra effort to achieve your financial goals.
Make bi-weekly payments
Making bi-weekly payments instead of monthly payments can help you pay off your student loans faster. By making a payment every two weeks instead of once a month, you'll end up making 26 payments a year instead of 12.
This means you'll be making an extra month's worth of payments each year, which can help you pay off your loans faster and save money on interest over time.
Here are some action points to consider when making bi-weekly payments on your student loans:
- Contact your loan servicer: Contact your loan servicer to find out if they allow bi-weekly payments. Some servicers may require a specific process to set up bi-weekly payments.
- Understand the benefits: Bi-weekly payments can help you pay off your loans faster and save money on interest charges over the life of your loan.
- Calculate the savings: Use an online student loan calculator to determine how much you could save by making bi-weekly payments. You may be surprised at how much you can save over time.
- Adjust your budget: Adjust your budget to accommodate bi-weekly payments. By splitting your monthly payment in half and making payments every two weeks, you can avoid the temptation to spend the money elsewhere.
- Automate your payments: Set up automatic payments to ensure that your bi-weekly payments are made on time. This can also help you avoid late fees and penalties.
- Monitor your progress: Keep track of your progress to see how much faster you're paying off your loans. This can help motivate you to stay on track and continue making bi-weekly payments.
- Consider other repayment options: Bi-weekly payments may not be the best option for everyone. If you have other financial goals or need to focus on building an emergency fund, consider other repayment options that better suit your needs.
Remember, making bi-weekly payments can be a great way to pay off your student loans faster and save money on interest charges. Be sure to understand the process for setting up bi-weekly payments, adjust your budget accordingly, and monitor your progress to stay on track.
Avoid defaulting on your loans
Defaulting on your student loans can have serious consequences, including damage to your credit score and wage garnishment. If you're struggling to make your payments, make sure to contact your loan servicer to discuss your options.
They may be able to offer you a deferment or forbearance to temporarily suspend your payments or work with you to set up a more manageable payment plan.
Here are some action points to consider when trying to avoid defaulting on your student loans:
- Know your loan terms: Make sure you understand the terms of your loans, including interest rates, repayment schedules, and payment amounts.
- Make timely payments: Make your payments on time every month to avoid late fees and penalties. Consider setting up automatic payments to ensure that you never miss a payment.
- Communicate with your loan servicer: If you are struggling to make your payments, contact your loan servicer as soon as possible to discuss your options. Your servicer may be able to offer you a deferment, forbearance, or other repayment options that can help you avoid default.
- Stay organized: Keep track of your loan information, including your payment due dates, interest rates, and loan balances. This can help you avoid missing payments and stay on track with your repayment plan.
Remember, defaulting on your student loans can have serious consequences, including damage to your credit score and wage garnishment. By understanding your loan terms, making timely payments, communicating with your loan servicer, and exploring repayment options, you can avoid default and successfully pay off your student loans.
Conclusion
Paying off student loans can feel overwhelming, but it's important to remember that there are many smart strategies you can use to achieve financial freedom. By making a budget, paying more than the minimum payment, and exploring options like refinancing and consolidation, you can save money and pay off your loans faster.
Consider all of your options, and don't be afraid to reach out to your loan servicer or a financial advisor for help. With dedication and smart planning, you can successfully pay off your student loans and move towards a brighter financial future.
