5 Strategies For Paying Off Your Student Loans Fast
It can be depressing when you have thousands of dollars of debt with no real plan to get rid of it quickly. I understand because I've been there.
I graduated from business school with a monthly student loan payment that was more expensive than my rent in Los Angeles. Every month, I'd cringe a little as I watched that money leave my bank account.
After about a year of making minimum payments, I decided that I didn't want to be chained to my loan payment for 10 (or more!) years. I realized that it was keeping me from doing the things in life that I really wanted to do: travel, pursue a new career, and eventually buy a home. I made the decision to get rid of my debt quickly and made my final debt payment just three and a half years after graduation. My debt didn't disappear because of one specific thing, but there were a few factors that helped me get my debt under control and paid off faster.
According to CNBC, the average borrower owes over $37,000 when they graduate!
1. Understand Your Repayment
Life gets hectic right after you graduate. You wrap up your college life and say goodbye to your friends. You might move cities, go on countless interviews, and jump into a new career. Amid all of this, you start paying your student loan. Most of us just look at the amount that's due and focus on making that payment each month. But to get a real handle on your debt, it's important to understand what you're paying each month. Grab your loan statement and find these three items: principal, interest rate, and term.
When you make a payment, that money will go to paying down the principal and making interest payments.
The principal is the amount you owe. The interest rate is the percentage of interest you're paying each month, and the term is how long you'll be making loan payments if you only make the minimum payment each month. When you make a payment, that money will go to paying down the principal and making interest payments. Your loan statement should show you exactly how much of your payment is going to the principal (paying down the amount you owe) and how much is going to interest.
2. Refinance...Only If It's Right for You
If you have a loan with a higher interest rate, you might be tempted to refinance. When you refinance, you can combine multiple loans into one loan with a (hopefully) lower interest rate. Getting a loan with a lower interest rate will help you pay less in interest, which means you can put more of your hard-earned cash toward the principal.
Refinancing isn't right for everyone, so be sure to do some research first. If you have federal student loans, refinancing them to a private lender will mean that you lose some of the federal perks you may be eligible for, such as loan forgiveness and income-based repayments. Also, to qualify for refinancing and to get the best interest rate your lender will want to see that you have a steady job and a strong credit history.
3. Use Your Tax Return, Bonus, and Found Money Wisely
Have you recently come into some cash? This could be from anything: a bonus, a refund you weren't expecting to receive, or a tax refund. When you come into these windfalls, it's easy to spend the money. Instead, put it towards your loan. You may not think that it will make much of a difference, but an extra payment each time you have a cash windfall will help you pay down the loan faster without having to feel a pinch in your monthly budget.
4. Make It a Game
Paying off my loan became a lot less painful when I learned how to adjust my mindset. Rather than trying to scrimp and save and deprive myself of fun while I was digging myself out of debt, I decided to make it a game. Each time I caught myself about to spend money that I didn't need to, I asked myself if I'd rather spend that money or put it toward my loan.
I asked myself if I'd rather spend that money on things I didn't need or put it toward my loan.
For example, I was at Target about to check out with a bunch of things I didn't actually need. I asked myself what I'd rather do: buy these things I didn't really need or pay off my loan. I put the extra items down, took out my phone, and made a loan payment right there. I repeated that over and over again, always asking myself if I'd rather spend money or pay off my loan. Those small payments added up significantly.
5. Start a Side Hustle
Your side hustle doesn't need to be complex or glamorous. When you're paying off your student loans, it just needs to earn you a little extra cash on the side.
Do some babysitting, advertise your dog walking skills, or do some tasks on TaskRabbit.
If you have a great idea for a business or have a skill that you want to use to do some freelance work, do it! But if you're struggling to figure out what your side hustle can be, don't overthink it. Do some babysitting, advertise your dog walking skills, or do some tasks on TaskRabbit. Take all of the money that you earn doing the extra jobs on the side and put it towards your loan.
When you're deep in debt, it might feel like you'll never get out. But even small payments will add up and help you to become debt-free before you know it.