Student loan debt–approximately $1.6 Trillion of it–is causing Americans to delay or forego getting married, buying houses and cars, growing their families, and launching businesses.
In fact, last year, the Federal Reserve issued a report showing that student loan debt prevented about 400,000 young families from purchasing homes, accounting for about a quarter of the drop in home-ownership rates in this demographic over the last decade.
Another study examined the link between student debt and marital timing, and found that a $1,000 increase in student loan debt lowered the odds of marriage by two percent a month among female bachelor’s degree recipients in the first four years after graduation.
If you’re feeling the burden of debt keeping you from pursuing your life goals, you might want to try to pay off your student loans faster. Although making your minimum monthly payments is a good start, you’ll want to be a little more aggressive if you want to pay off your debt quickly.
If you’re feeling the burden of debt keeping you from pursuing your life goals, you might want to try to pay off your student loans faster. Although making your minimum monthly payments is a good start, you’ll want to be a little more aggressive if you want to pay off your debt quickly. Here are six tips to help you pay off your student loans fast, to help you fast-forward to your debt-free future.
Take an interest in interest rates
Do you know how much you’ll pay in interest over your debt repayment term? When people actually sit down and calculate how much money they’ll pay in interest over time, they’re often shocked. In fact, doing this math is a great way to motivate yourself to pay off your loans faster!
Student loans are notoriously complicated. They come in many different types and with varied interest rates—so it’s hard to come up with an average interest rate across the board. As a proxy, we’ll use this year’s federal interest rate for direct unsubsidized loans for undergraduate students, which is 4.53%.
Let’s say you took out the average student loan—which is $28,650 per borrower—five years ago, at an interest rate of 4.53%. You’ve made the minimum payments each month, and plan to finish paying off your debt five years from now (in a standard 10-year term).
Even at that fairly low rate, the average student loan borrower will pay $7,030 in interest in total, or an average of about $703 a year. Borrowers who take out private loans could end up paying even more than that.
That’s $7,030 that you’re paying on top of the principal balance you already owe! Paying off your debt sooner by making extra payments is the best way to shrink that number.
Using Bankrate’s Student Loan Calculator, take some time to calculate how much interest you’ll pay if it takes you 30 years to pay off your loan. Then calculate it again, but for ten years. Then five years. Then two years. Once you see how much that seemingly low interest rate adds up over time, you’ll be motivated to pay off your student loans faster!
(You can also try to get a lower interest rate—more on that below.)
Budget for your student loan payments
Just like anything else you want to accomplish in your financial life, if you want to pay off your student loans fast, you need to budget for it!
Typical personal finance advice says to aim for a 50/30/20 balance in your budget: 50 percent for needs, 30 percent for wants, and 20 percent for saving and paying off debt.
If you know your net income (how much you take home after taxes), you can use this budget calculator to figure out how much you should be devoting to each of those categories.
If your top priority is to pay off your student loans as quickly as you can, then your percentages might be different, skewed to help you pay off your debt faster. You might look for ways to reduce the cost of your ‘needs,’ and limit the amount you spend on ‘wants’, until your debt is paid off. Maybe you can live with family and hold off on getting a car to keep your ‘needs’ closer to 30 percent - freeing up another 20 percent to use for debt payments!
Although being ambitious is admirable, make sure that your budget is realistic. Your best bet is to pick a monthly contribution amount that is a stretch—but not so much of a stretch that in order to make it, you’ll get behind on your bills or go into debt.
Once you figure out how much you can devote to student loans each month (without going into further debt or getting behind on any of your bills), create an Expense for them with Simple! Using Expenses will help you set aside the money you need automatically, so you don’t accidentally spend it.
Avoid debt repayment scams
There are thousands of desperate students and graduates (approximately 44 million) who are looking for an easy way to clear their debt. Unfortunately, this has created an entire industry of scammers trying to take advantage of their financially (and emotionally) vulnerable state.
If you find a repayment plan online that sounds too good to be true, then it probably is. Remember that honest student loan debt relief organizations will never ask you for money up front. Here are eight other tips to help you recognize debt collector scams.
Work for the government
If you are employed by a government or not-for-profit organization, you may be able to receive loan forgiveness under the Public Service Loan Forgiveness (PSLF) Program. You can use this perk to shave thousands of dollars each year off your total loan. Some jobs pay off up to $10,000 of debt each year!
PSLF forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. Being in the military means that individuals go to college for free, but there are other jobs that also offer government loan forgiveness programs, such as teaching, working for the government, or joining the Peace Corps.
If you’re carrying a significant amount of student loan debt, see if there are any employment opportunities offered by the government that look interesting to you. This can be a great way to significantly reduce the total amount you’ll have to pay, and can help you achieve debt-free status faster.
Refinance your loans
When you refinance your student loans, you are essentially replacing all of your existing private and federal loans with a new private student loan. Your new private student loan is used to pay off all of your old loans, leaving you with one manageable monthly payment, hopefully with a lower interest rate.
What this means for you is, instead of worrying about making multiple student loan payments each month, you can focus on making one payment. Paying off debt can be overwhelming, especially if it feels like it’s all around you. Consolidating your loans into one loan can make the process seem more manageable, which can motivate you to stay on track.
While this may sound great, refinancing student loans is not for everyone. If you have less than $5,000 in student loan debt and your student loan interest rates are already low, then it’s likely refinancing your student loans won’t save you much (or any) money.
Learn more aboutwhether student loan refinancing might be right for you here.
Reduce housing/rent expenses for a few years
More and more young adults are living with family well into their 20s—but not because they’re afraid to leave the nest. For most young people, rent is one of the biggest monthly expenses. The average renting price for a one-bedroom apartment in a city center in the U.S. is $1,216. This is way more than our parents or grandparents would’ve paid, even when adjusted for inflation.
If possible, consider moving somewhere cheaper to reduce your financial demand, making it easier for you to make larger student loan repayments each month.
Moving in with your parents will save you a lot of money, but this option isn’t for everyone. You could also consider moving to an apartment that is out of the city center, or in a cheaper state. You might even get more living space for less: Living in a bigger house that you share with friends is normally cheaper than living alone!
Reduce other expenses
One of the best parts of being an adult is finally having your own money; you make the rules now! But when you’re just starting out, and you have student loan debt, you probably don’t have that much of it left for spending, either (womp womp).
You might not be able to get the new iPhone as soon as it comes out and pay off your student loans quickly and pay all your bills on time. And that’s okay.
Remember that the faster you pay off your student loans, the more money you’ll save in interest payments! And the money that you save in interest…can go right to your new iPhone.
It can be helpful to remember that as long as you follow some sort of debt repayment plan, you won’t have student loan debt forever. This is a temporary season of sacrifice.
Once your debt is paid off, you’ll have more flexibility in your financial life—but the more you can reduce your expenses each month, the faster you can begin your debt-free life. So in the meantime, you might as well make a game of it, and make it your mission to save money wherever you can!
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