At the start, it may seem impossible to get an edge over your student loans. You go beyond the minimum and hit your principal to pay it as early as possible.
While the path towards paying off your loan may look simple, however, it rarely isn’t the case when you’re doing it.
The good news is that it’s only the first steps that are hard. As you get more into paying the loan, the less interest you’ll owe and the faster you’ll get on track to being debt free.
Some tips and strategies can make it easier. So, if you’re wondering how to pay off student loans fast, here are some things you can do to give yourself more opportunities.
1. Pay During Your Grace Period
Most student loans have a grace period that lasts during your entire time in college. For example, your loan may have a period in which interest doesn’t accrue until a certain point after studies.
While you aren’t required to do so, it doesn’t mean you should neglect to make payments while in school. If you have the means to gain extra money working on the side, then paying in the grace period may be your most notable advantage.
The reason is that there isn’t any interest yet in your account. Each payment you make during the grace period affects the entire principal.
Others may have a lower interest during the grace period but should consider paying at least the interest. That way, you’ll have to worry less about making payments when it normalizes.
If your goal is to be free of student loan debt early, you may want to make some sacrifices. Getting a part-time job or using some of your extra money towards the debt will go a long way.
2. Setting an Extra Payment Period
Most lenders will give you a period in which you’ll make payments. For example, you may be paying once or twice a month at a time when interest applies to the loan.
Aside from paying more than the minimum, a strategy you can employ is to set an extra pay period. If you can give money three times a month instead of two, that extra payment will go towards the principal, helping you settle the loan faster.
However, there is a caveat. Some lenders will not apply your extra payments to your current cycle and offset them to your next cycle. If this happens, you will not be able to make any significant dent in your principal.
Contact your servicer and tell them that any overpayments apply to the current balance.
Make sure they aren’t applying any extra to the following due dates. This helps you pay off your loans faster.
An alternative to the extra payment cycles is making a lump-sum payment. Did you get a significant year-end bonus or tax returns?
You can use that money to work towards your student loan, saving you lots of money in the long run.
Adding $100 to your current payments can shave off five years from your 10-year repayment plan. Any little added helps because it reduces the interest you need to pay in the long term.
3. Consider a Refinancing Plan
You may have little to no credit when you start your student loan journey. That means you’re getting interest rates and plans you barely have any control over.
You’ll likely increase your credit score as you make payments without fail. Over time, you’ll get access to better plans, lower interest rates, and more comfortable terms.
Going for a refinancing option is something to consider if it shows that it will lower your monthly payments significantly. Combining different loans and getting a lower interest rate can free up your finances.
The extra money can fuel additional contributions.
Alternatively, you can shorten the term, which will help you pay the debt faster while minimizing interest. However, it will mean that you have to pay more each month.
You’ll want to consider refinancing if you have a reliable income and your debt is lower than 50% of your income. With a credit score in the high 600s and beyond, you’ll be able to access plans that were not previously available.
However, if refinancing isn’t an option for you, work towards something like income-driven repayment or loan forgiveness. With some requirements, they can help remove the loan at a certain point in its lifetime.
4. Consider Auto Payment
Many loan servicers provide lower interest rates if you enroll in an auto payment system. They want to encourage this because it helps ensure that borrowers pay on time, increasing the chances of fulfilling their loans.
By enrolling in autopay, they will automatically deduct payments from your bank account at a set time. Both federal and private lenders offer these plans.
While it isn’t a significant interest rate discount, every little bit helps you pay your student loans faster.
It’s also something to consider if you find it challenging to find time to remember to make your monthly payments. You’ll avoid late fees and impact your credit score.
The best way to discover any discounts is to talk to your servicer and find out.
5. Focus on Higher Interest Loans First
One of the things that can hold you back from paying off your student loan fast is high interest. It may be because you have multiple student loans or other debt.
It may sound counterintuitive, but completing these first will help you pay your student loan faster. Once you begin lowering the principal of these loans, you are freeing more of your money.
“Don’t take on more student loans than your future-self can handle” - Carol Cox
The money you free up can pay off your student loans faster. If you’re handling multiple loans with a servicer, consider contacting them and letting them know what you want to prioritize.
While paying off the high-interest loans, you shouldn’t neglect the regular payments on other loans either. Stay consistent while allocating extra money to pay off the high-interest ones.
That way, you don’t accrue interest on your other debt, making it easier to pay it once you transition.
6. Discover Found Money Opportunities
Found money is a term for any cash you own legally left unclaimed. Some examples of this include:
- Back Pay from previous employers
- Insurance policies
- Old bank accounts
- Money from government agencies
You may be eligible for the money you have not claimed or didn’t know existed. Thanks to the internet, it’s easier to search for found money attached to your name.
There are official government websites that list them down.
If you’ve been moving a lot or were in a different location for college and work, you may want to check found money in every state. It doesn’t matter how long or short you’ve stayed in these locations.
If you’re married, your partner may also have some money they don’t know exists.
You’ll find many stories of people stumbling upon forgotten inheritances, and old accounts tied to their name. All it takes is a small effort to check, and all this money can be a way for you to pay debt earlier.
7. Take Advantage of Windfalls
At several points in your life, you’ll gain both expected and unexpected windfalls that will leave you with more money than you have. Some examples include:
- Inheritance
- Bonuses
- Tax Refunds
If your goal is to be free from debt, you may want to consider allocating most, if not all, of these windfalls towards your student loan.
Putting them towards the loan can quickly accelerate your path to debt freedom.
Understandably, you may want to use the money for several other things. As long as you allocate a percentage towards your loans, you’re helping yourself get ahead without rushing.
List your goals and expenses to see how much you need to cover them.
The windfall may help with your necessities at the moment, and you may also want to allocate it to other things. For example:
- Other debt
- Emergency fund
- Recent bills
- Insurance payments
- And more
8. Be Careful When Changing Repayment Options
You’re often in a standard 10-year repayment plan in a federal student loan. You may alter it or be in one that has different repayment, though these are uncommon.
The standard repayment plan is the best option for most because it helps you pay off the loan within ten years.
If you earn more than what you need to pay in those ten years, you’ll increase the chances of getting off your loan earlier. Other repayment plans may seem appealing because you pay lower monthly, but you’ll have to commit more years.
For example, an income-driven repayment plan may lead you to pay off a loan in 20-25 years.
Unless you believe you can aggressively make payments in a long-term plan, you’re better off working on a standard 10-year. The interest skyrockets if you commit for more time.
Adding 10-15 years is more than doubling what you need to pay on a standard one.
If you don’t need these options, go for a reliable 10-year plan. At the very least, you’ll commit to 10 years of payments and can work your way from there.
9. Set a Budget for Payments
Creating a budget isn’t new, but knowing where your money goes will help you commit to it. You’ll understand where you’re overspending and can make adjustments accordingly.
If you save on a particular category, you can allocate that money to making the extra payments for the student loan that month.
It doesn’t have to be pen and paper anymore, either. Today, we have many apps that can help you create a budget and adjust it on the fly.
You’ll see progress and track it. It will motivate you to keep working on that loan and eliminate it.
10. Cut Down Spending
There is always room for improvement, no matter how normal we think our lifestyle is. Reducing deliveries or canceling a usual night out can cut down spending significantly.
Any small amount you save adds up, and the extra money can go towards your student debt.
Get an overview of your lifestyle and rank your spending based on how much you need things. You may find things such as:
- Subscriptions you no longer need
- Extra rooms you can rent out
- Fewer trips to restaurants or entertainment venues
- Selling extra items you aren’t using
- Cook at home or brew at home
There are many ways to stir your creativity and find ways to save money. Reducing debt fast requires some sacrifice, but there’s always a compromise that doesn’t eliminate your wants.
All you need to do is explore the other options available to you.
121 FCU: Your Friend in Eliminating Debt
The challenge among many tackling student loans is that they don’t have a financial partner to rely on when making important decisions. A traditional adviser or bank may not be working in their best interest.
You may get offered plans that only extend your debt or don’t make any progress towards your goal.
121 Financial Credit Union is different. Our goal is to help our members find the best financial possibilities that don’t exist in other establishments.
Are you looking for a new refinancing plan or someone to help you sort your repayments? We have experts ready to guide and advise our members.
Our priority is ensuring that you thrive. Contact us today to learn more about the many possibilities available to eliminate debt.