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If you want to get rid of your student loan debt but don’t have the money to pay off your student loans in full, these 7 ways can help you pay off your loans faster. (iStock)
Concerned about graduating with student loan debt? You’re not alone. Students who have a bachelor’s degree on loan from a public college or university $26,100 in student loans on average, according to the National Center for Education Statistics. This number is even higher for students in private not-for-profit and for-profit organizations.
The good news is that you can pay off your student loans and save money.
Student loan refinance could be an option that can help you pay off your loans faster. You can Learn more about student loan refinance by visiting Credible, where you can compare interest rates from multiple private lenders on student loans.
1. Understand all your debts and then make a plan
Many people leave college with multiple student loans, including Federal and private student loans. Your first step should be to figure out how much you owe so you can create a plan.
To find out how much you owe in government student debt, log in to your StudentAid.gov Account. There you will find the current balance, interest rate, loan administrator and payment schedule of each loan.
To get information about your personal loans, you may need to call your loan servicer for details of your loan balance, interest rate, and payment schedule. If you don’t know who your servicer is, check your original loan documents, check with your university’s tax office, or check your credit report.
Once you’ve gathered information about each loan, create a spreadsheet with all of your loan details.
2. Consider consolidating or refinancing
consolidation or Refinancing your student loans combines multiple loans into one monthly payment with one service provider. So what’s the difference?
Consolidation combines all or some of your federal loans into one Direct Consolidation Loan. Consolidation doesn’t lower your interest rate – your new interest rate is a weighted average of all yours consolidated loans, rounded up to the nearest eighth of a percent. Luckily, the new loan has a fixed interest rate, so if interest rates rise, your loan payment doesn’t go up.
refinancing combines all or some of your government and private student loans into a new loan from a private lender. Refinancing allows you to lower your interest rate or decrease your monthly payment by extending your repayment period. Your new interest rate can be fixed or variable.
Keep in mind that refinancing federal student loans into a private loan means losing many of the benefits of federal student loans, including income-based repayment plans, deferral, forbearance, and student loan forgiveness.
You can easily Compare pre-qualified fares from multiple lenders with Credible.
3. Stick to a budget
Creating a budget (and sticking to it) is one of the most important things you can do to build good money habits and pay off your student loans quickly.
While many effective budgeting methods are available, the 50/30/20 rule is a common one. This budgeting approach suggests that you distribute your monthly take-home salary as follows:
- 50% for needs (housing, groceries, utilities, transportation, and minimum debt payments)
- 30% for wishes (Dining Out, Streaming Subscriptions, Entertainment)
- 20% savings (pension contributions, emergency savings and investments)
When you apply the 50/30/20 rule to paying off student loan debt, your minimum payments fall into the category of needs so you don’t default on your loans and negatively impact your credit score.
Any additional student loan payments fall into the savings category because once your debt is gone, you can allocate that money to savings.
Keep in mind that the 50/30/20 rule is only a guide and you may need to adjust these categories to suit your unique circumstances.
4. Decide between the debt snowball and the debt avalanche method
The debt snowball and debt avalanche are strategies to pay off your debt, provided you have decided not to consolidate refinance your loans.
With the debt snowball method, you pay off your debts in order of magnitude, from smallest to largest. You make the minimum payment on all debts and allocate any additional principal payments to the loan with the smallest balance. Once you’ve paid off that loan, focus on the next smaller balance and repeat this process until you’re debt-free.
With the debt avalanche method, you pay off your debts according to their interest rates – from highest to lowest. They make the minimum payments on all loans, but lend extra money to the loan with the highest interest rate.
The avalanche method is the most efficient way to pay off your student loan because it minimizes the cost of debt. However, many people find the frequent milestones of the debt snowball method more motivating.
5. Pay more than the minimum payment
Federal student borrowers are automatically placed on a standard repayment schedule with a 10-year repayment period. If you want to pay off your student loan in less than a decade, you will need to make additional payments on the loan amount.
You can do this by paying extra with your monthly payment or sending a lump sum if you have sufficient funds.
You can also make an additional payment each year by switching to bi-weekly payments. If you make payments every two weeks, you’ll make 26 half-payments per year instead of the 12 monthly payments you would normally make. For this strategy to work, you must make both halves of your payment by the due date.
Whichever method you choose, make sure your additional payments add up to the loan amount instead of paying interest upfront. Your credit servicer should be able to tell you how to make principal payments only.
6. Set up Autopay for a rate cut
State student lenders and some private lenders offer a slight interest rate reduction when you sign up for automatic payments — typically 0.25%.
While this discount won’t hurt your debt much, every dollar counts when you’re trying to pay off your student loans faster. Plus, it’s a great way to ensure you never default on your payments.
7. Stick to the standard repayment plan
Federal student loans offer income-based repayment plans that cap your monthly payment to 10% to 20% of your discretionary income. These plans are helpful if your monthly payments are too high compared to your income, but they’re not the best choice if you’re looking to get out of debt quickly.
Income-based repayment plans often extend your repayment period and increase the amount you pay in interest over the life of the loan.
If you want to pay off your student loans faster, consider the Standard Repayment Schedule, which ensures your loan balance is paid off in 10 years.
To start refinancing your student loans, visit Credible and Compare pre-qualified fares from multiple lenders.