6 Tips to Pay Off Student Loans Faster
Don’t be discouraged by student loan debt. Use these six easy tips to pay it off fast.
When you took out your student loans, you were eager to immerse yourself in higher education in pursuit of a degree in your chosen field. Now that college is behind you and you are building a career or a family, or both, it would be nice to put those student loans behind you, too. Here are six tips for paying off your student loans faster.
1. Enroll in Auto Pay
Having your student loan payments automatically deducted from your bank account can save you time and money. Some months, you might be tempted to spend your money on something more fun than your student loan, but auto pay protects your credit by taking that decision out of your hands. With auto pay, you will know your student loan payments are on time and paid in full every month.
With many student loan programs, auto pay also offers discounts. Federal student loan programs offer a quarter-point reduction in interest rate for using auto pay. Many other loan programs offer discounts as well, because auto pay gives lenders some guarantee that payments will be made on time. Auto pay will also save you the expense of late fees, which can compound if you’re not careful.
2. Create a Budget
Student loan debt can seem overwhelming, but don’t let that discourage you from making a plan to pay it off. When you put it in the context of a monthly budget, you will see it may be possible to pay off your student loans faster.
Budgeting is an essential strategy for achieving your financial goals. Creating a budget and sticking to it will keep you on track for paying off your student loans and help you avoid late fees. Consider all your debt when creating your budget, not just your student loans. That way, you’ll see how much money you have left over each month after making your monthly payments. Creating a budget may also help you find “extra” money you could put toward your student loans. For example, your budget will show you the subscriptions or memberships you pay for but rarely use. By canceling those, you’ll save more and be able to apply those funds to paying down your student loan debt.
3. Pay More Than the Minimum
Paying more than the minimum payment or paying your student loans off early carries no penalties. If you are struggling to make the minimum payments on your student loans, paying more might seem out of reach. But even rounding your payment up each month can help pay your student loans off faster.
Budgeting is an essential strategy for achieving your financial goals.
For example, say you have $28,000 remaining on your student loans with an interest rate of 2.73%, and your monthly payment is $266.89. It will cost you $32,027 to pay off this student loan over 10 years. By rounding your payments up to $300, you will have the loan paid off in eight years and 10 months at a total cost of $31,510. You would save $517.26 in interest charges.
You can also make lump-sum payments when you receive extra money as gifts, tax refunds, or bonuses. Contact your loan servicer to be sure the extra payment is applied to your principal and not future payments. Reducing your principal will reduce the amount of interest you pay on your student loans and help you pay them off faster.
4. Avoid Extended Payment Terms
Extended payment terms are kind of like getting an extended deadline for a college paper. The extra time might make it seem easier to complete the paper, but now you have less time between finishing the paper and the deadline for the next assignment. Sometimes in life, it’s best just to dig in and get the work done in the time allotted.
Stretching your student loans out to reduce the monthly payment may seem like a good idea now. You will not think so in the future when you are trying to save for your child’s college tuition and still paying off your own student loans. By extending the repayment time on your student loans, you will also be adding to the total payoff amount by adding interest charges.
5. Consider Payoff Strategies
If you are paying off federal and private student loans, you could use the avalanche or snowball approaches to paying off your student loan debt faster. Here’s how they work:
- The avalanche method focuses on paying off the largest student loan first. Pay the minimums on all the student loans except for the largest. Put as much extra money as possible toward monthly payments for that loan until it is paid off. Then, move to the next-largest loan and take the same approach, until all the loans are paid off. This method will save the most in interest payments.
- The snowball method works in reverse of the avalanche method. Pay the minimums on all the student loans but focus extra attention on the smallest. Once you get that one paid off, you can apply the amount of that monthly payment to the next one on your list to get that one paid off faster, too. You will see how paying off the smallest ones first builds momentum toward getting all of your debt paid off.
6. Consider Refinancing
No rule says you have to stick with the lender and the loan terms of your private student loan. You may be able to get a better interest rate by refinancing. By refinancing your remaining principal at a lower rate or for a shorter term, with the same or a different lender, you can reduce the amount of interest you will pay over the life of the loan.
Refinancing a federal student loan is also a possibility, but you would be changing it to a private lender. You would lose some federal benefits by refinancing your federal loan, but refinancing could help you pay off the debt faster. When deciding whether to refinance your student loan, be sure that you are getting a better interest rate, that you are not giving up payment options you might need, and that your loans qualify.
It doesn’t cost anything to refinance student loans. Generally, you would need a steady income and a credit score at least in the high 600s. If you can’t meet the qualifications, you might consider getting a cosigner who can.
It’s time to get that student loan behind you. If you have questions about the best way to pay it off faster, contact your financial institution for suggestions.