All of us can agree on one thing: it is not fun paying off a student’s loan.
One of the worst things is opening your paycheck or seeing money in your account, only to remember that you have to use most of the money to pay off your student’s loan.
With this student loan, it seems as if the debt will last forever-this should not always be the case. If you want to finish off the student loan faster, you have to change the strategy you use to repay the loan.
The good thing is that you have many options of how to pay off the loan they include the following:
- Paying off more than minimum requirement
- Refinancing or consolidating your student loan
- Paying off in one go when you get large sums of money
- Start working some place where you do not have to pay the loan
- Engage in other activities that will help you repay your loan
- Increase loan repayment by cutting on your budget
- Use all the raises that you get to increase your loan payment
If you want to get more options that are available, below is our guide on how you will pay off your loan faster with strategies that work for everyone.
1. Pay more than what is the minimum (Effectiveness – medium-high)
This method is among the easiest you can use to reduce your debt. Just pay as you were paying before and add some extra payment to these.
You should have your set up ready so that anything you get extra goes straight towards paying the loan.
There is an easy way to achieve this. Set up payments that are automatic with the extra amount in. This ensures you do not have any indecision and you cannot change your mind.
It does not matter how less you can afford, as an extra even if it is $20 do not underrate it. You need somewhere to start then you will upgrade gradually.
2. Know when you will be paying off your debt (Effectiveness – low)
Do you have an idea of when you will be free of the student loan debt? The truth is that very few people know.
Nevertheless, knowing when to start paying off your debt is a great place to start when you want to be in control of your debt. The reason is once you know the date then you will bring it closer.
3. Refinance and consolidate (Effectiveness – high)
Refinancing is one of the moves you should follow when you are paying your student loan. What you achieve by refinancing is that you decrease the interest rates.
This means more of your money will be going towards paying your student loan. If you decide to refinance several student loans, you will get one consolidated loan that you will pay once a month.
Another method you can refinance one of the loans and get a lower rate. The only time you may want to refinance is where your interest levels can go down.
A good example is that you will be able to refinance your loan at rates that are below 3 per cent. You should see the current rates on all student loan refinancing to know how much you will pay.
4. Use the cash windfall (Effectiveness – medium)
There are various forms of cash windfalls. They include an inheritance, lottery winnings, insurance claim, settlement from a lawsuit, and more.
When you get money in such a quick manner you may be tempted to spend it. It is very tempting that there are reports that show that over 70 per cent of those who get cash windfalls waste it within a few years.
For these reason you need to spend money on something that you will be able to remember, like paying off your student loan.
Even if the money is not from lottery or something of the sort, many people still get cash windfall that comes in the form of tax refund. Many tax refund strategies for your loan debt work with most of the financial windfalls.
What you ought to do is put some of these tax refund towards repaying your loan. It is not necessary you put in 100 per cent.
5. Take a loan forgiveness job (Effectiveness – medium-high)
There are some jobs especially in the public sector that will forgive part or all your student loan. This is great as it means free money. All that is required of you is to meet student loan forgiveness requirements.
There are some criteria you have to meet and forms to enter before you are considered. You also have to work for the full period before you qualify for the loan forgiveness.
The forgiveness programs run side by side with the income based repayment plans, your payments might decrease, but the charges will keep growing. If for any reason, they do not offer you forgiveness you will be stuck with great interest charges.
In addition to the loan forgiveness programs offered by the states, there are some states, which offer repayment assistance programs [LRAPs]. The LRAPs come with work requirements, and you get money if you qualify.
6. Apply for a pay rise (Effectiveness – high)
If you are lucky, you will work at a place where they offer you a pay raise as part of the compensation. The big question is what you do with this pay rise. You can decide to get more stuff – a better car, a bigger TV, or exotic vacations. However, the best way to use this extra money is paying your student loan.
Though we addressed this post when we were talking about how to start investing, you can use this strategy with your student loan. Take a bigger chunk of your pay raise and use it to repay your loan. You can do this by increasing your automatic loan payment or transferring this money to another account.
7. Avoid repayment programs (Effectiveness – depends)
All your focus might be on lowering your student loan; it will make sense especially because you are having a rough time to clear the loan. However, if you want to pay off your student loan fast, you have to avoid the programs that are income driven to repay your loan.
Why should you do this? All of these programs by the federal government try to increase the length of the loan term by decreasing the payments. This means you will be paying your students loan for a very long time.
An example is the [PAYE] pay as you earn that will stretch your terms of repayment from 10 to 20 years. That is a very slow way of paying any loan.
The direct loan consolidation will also prevent fast repayment of a student loan. This is because all your loans regardless of their interest rate are blended together. After consolidation, you will not be able to target the high interest loans that have extra payments.
8. Reduce your budget (Effectiveness – medium-high)
If you want to have more money and you do not know how to go about it just reduce your budget. While others may view this as extreme, it is a very effective method.
For example, you may decide to move to a cheaper apartment, skip the unnecessary meals, and reduce outings.
How to succeed: you do not have to do this forever; it is for a short period. You just have to stay focused and pay the loan as fast as possible.
There are strategies that you can employ including:
- Give up or reduce alcohol consumption
- Do not go out with friends
- Cancel cable TV
The options are limited to your motivation and creativity. Even if you do it periodically, it will come in handy in reducing your loan. You can also decide not to buy anything for a whole year and put all this money towards loan repayment.
9. Earn some extra cash with a side gig (Effectiveness – medium)
When reducing your budget, you can use a side gig to supplement your income.
Side gigs usually comes in all sizes and shapes. You could offer online services such as design, tutoring or editing. In that case, you could maybe take your used clothes and sell them or you could start a new business.
Any form that your side gigs will take; you can earn some extra cash using it. You can then apply the extra earnings to your school balance loan directly. The extra money will enable you to pay off your student loans faster and in the process, you can learn new skills.
10. Be strategic with your debt (Effectiveness – medium)
The first step to repay your loans faster is to increase money to your student loan payment. However, there could be a big difference on how you will apply the extra money.
For the student loans, it is best to pay off loans that have highest interest first. This method is known as dept avalanche. This means you will only pay the minimum on all however, the highest rate of the student loan.
It is good to target first the private school loans. Private student loans repayment means increased interest rates and repayment terms that are less flexible than federal student loans.
The private loans can have interest rates that are variable and this means over time your rates could rise.
You will be able to save most of the money on interest if you target increased interest rates loans first. You can use Snowball method as an alternative. Where you can pay off your loans with the reduced balances first.
From closing out an account, you will get psychological boost even though you will not be able to save much on interest.
Choose any method that will help you to pay off your student loans faster.
11. Take reductions in interest rates (Effectiveness – low)
While you will be able to cut down on your student loan cost, there are other big wins with this strategy. You will be able to add on your savings. You will get interest deductions once you sign for the automatic payments.
Most of these services will offer you an interest rate reduction of 0.25 per cent on your loan once you enroll for the automatic deductions though not much it will go a long way in reducing the period you pay the loan.
The automatic payments will also simplify your life. You will never worry about missed deadlines as it automatically deducts from your account.
12. Use the credits and tax deductions wisely (Effectiveness – medium)
If you are paying the student loan, you will get deductions on your federal taxes. You will deduct a certain amount on your taxes on the interest you would pay on your loan.
Even though there are other requirements for you to be eligible, most of the students in their 20s will qualify. That is because you can take these deductions even if your taxes do not itemize.
Tax deductions are less valuable than tax credits. Generally, you save a lot of money with tax credit than a deduction.
You will also get tax credit if you are paying tuition. This includes when you are in grad school. While there are no tax credits for paying student loans, you should check while you are in college or want to go back soon.
13. Understand that student loans are a baggage (Effectiveness – low)
There is always talk about good vs. bad debt. Though the student is a good investment, will increase your future earnings? And should you keep it around? Definitely not.
How does this debt allow you to increase your general worth? By going to school you will most likely increase your salary. Keeping your student loan hanging around is not a good idea.
14. Pay twice a month (Effectiveness – medium)
Another way you can pay your loan is doing it twice in a month. You do not need to double pay what you did in a month, below is a strategy you can use
- Divide the monthly payment into two
- Ensure you pay after two weeks
If you follow these two methods, you will have paid two times more by the end of the year.
15. Think about a student’s loan free future (Effectiveness – low)
Even though it is not a repayment strategy, it will give you motivation to reduce and get rid of your debt. Especially if it stresses you out.
One way to start visualizing is thinking of all the things you miss because of the loan. May be a vacation, time out with friends, and buying some new clothing’s you always dream of.
You may be driving an old car because you cannot get money to buy a new one. Imagine how our life would change for the better without the loan. You will have peace of mind knowing you owe no one.
You can get a loan free life if you want, all you need to do is work hard, and it will be a reality