10 Ways On How To Pay Off Student Loans Fast
Most students in school today may have borrowed money to pay tuition or for other school expenses. Even before you leave school, you should have a plan of repayment.
According to cnbc.com, there are more than 44 million Americans who collectively owe $1.5 trillion in student loans. To get out of this, follow these strategies on how to pay off student loans fast. No matter the amount owed, you can pay it off, if you are determined. Here is how to achieve it.
10 Ways On How To Pay Off Student Loans Fast
Here are 10 ways on how best to pay off your student loans fast:
1. Know what you owe
The first step to paying off your student loan is to find out how much you owe. To do that, first, find out which student loan servicers you owe and the exact amount you owe each servicer. The second thing to do is to find out which of your loans are from Federal and which are from Private organizations.
Thirdly, you must know the minimum amount that you have to pay each month for each loan.
And lastly, you have to get the interest rate for each of these loans. And after you have all these facts, then go to the next phase, which is to choose a repayment plan.
2. Evaluate student loan repayment options
As you think of how to pay off student loans fast, the second step after finding out how much you owe is to choose a repayment option.
The repayment of any loans rests on three factors. They include the type of loans you take and the amount, how much you can afford to pay, and the goals you have for money.
Different people have different financial goals. Some want the flexibility to pay at a longer time span while some may want a plan that will help them repay their loans fast.
You may wish to look at a range of student loan repayment plans. For instance, if you owe federal loans and desire a flexible repayment method then you have to choose a repayment plan that is income-based. This is usually a 10-year repayment plan.
Also, you may get debt forgiveness if you choose an income-based repayment plan. But, any potion of loans that you get debt forgiveness on will be treated as a taxable income.
On the other hand, if you want to pay off your loans fast then choose the shortest term and pay higher monthly repayment. You can use a loan calculator to evaluate loan repayment plans like those offered by the Education department.
3. Use the grace period to your advantage
During the grace period, you are not expected to make repayments of the loan. This period is usually the first 6 months after you finish school. Also, how long this grace period lasts for Private loans, depends on your lender.
Whether it is private or federal loans, interest continues to run even during the grace period. At a later time, this interest is added to the total amount you owe or capitalized.
So to use this grace period properly, you need to make advanced payments to reduce the loans. If you pay to reduce the principal, it means fewer interest charges. During the grace period, the worst-case scenario is for you to try and pay the monthly interest only to reduce what you owe.
4. Consider consolidating or refinancing student loans
As you think of how to pay off student loans fast, you can consider consolidating or refinancing student loans. If you choose this option, there are two ways to simplify student loan repayment.
You may go for debt consolidation or student loan consolidation. In this case, you add all your loans together and get an average interest in all of them. You can also do this with federal student loans and merge many loans (to add monthly loan repayments) into one.
The second way out is to get Refinancing. This means getting a fresh loan to pay the old student loans. This plan will also give you one monthly payment. However, if the new loan interest rate is lower than your former student loan rate, then you have successfully saved some money provided you don’t extend the term of that new loan.
But to refinance a loan, you will need credit to qualify and that means you may need a cosigner to make that happen. Note that you may refinance Federal and private loans together to a new private student loan but you will lose some federal loan protections like deferment and forbearance periods.
5. Pay your loans automatically
If you don’t want to worry about late payments that could affect your credit score, then you can plan for your loan payments to be deducted directly from your paycheck monthly.
You may also get a discount if your lender has this feature for those that opt-in for automatic payment.
Also, Federal loan servicers and most private lenders offer this discount. The discount could add to just a quarter of the percentage point but this could make a difference in how fast you pay off the loans over the years.
6. Pay extra and be consistent
Paying extra and being consistent is a strategy on how to pay off student loans fast. If you pay off only the minimum required alone each month, this will only elongate the repayment of your loans.
To pay off your loans faster, you can choose to pay extra each month. So if you can pay extra, focus on one loan at a time and pay the minimum for others. The question that arises now is whether you should use the debt snowball or debt avalanche method.
When making the decision to pay off your student loans, choose the option that will free up your cash flow fast. This will let you service the next loan. Also if your cash flow grows, then move to pay loans with the highest interest rates.
7. Apply found money to loan balances
Found money means money that you do not budget as part of your monthly income. And if you use found money to repay the principal of the loans, you will gain more speed.
So what makes up found money?
They are tax refunds, rebates, annual salary bonuses, the income you earn from other side jobs, and cash gifts you receive for holidays or birthdays. Besides, if you inherit any money from your relatives or get a lawsuit settlement, you can use them to quicken repayment of your student loans.
8. Investigate debt forgiveness and reimbursement programs
Trying to get debt forgiveness and reimbursement is another method on how to pay off student loans fast. Public service loan forgiveness is offered to relieve students who choose to have a career in public service.
What happens is that as you work in the public service job and make several loan repayments. At a point, you could get debt forgiveness of a portion of the student loan with the employer’s help.
And if they evaluate your request for loan forgiveness and you don’t qualify, you may get a student loan reimbursement from your employer. So meet your HR department and find out if you can get reimbursement as a staff. Also, ask how to qualify for it.
9. Do bi-weekly payments
You can try this method to pay off your student loan. Switch from monthly to Bi-weekly payments. Also, if you are paying off a mortgage, this method will help you to get an extra loan repayment yearly. Discuss with your loan servicer to find out if it allows the Bi-weekly repayment method.
If it is not available, you can pay extra using your online account and request that it be applied to the principal only. And if you pay personally, you can do the payment, when it is convenient.
Volunteering is the last strategy on how to pay off student loans fast that we are looking at in this post. Look for organizations that offer assistance to students to pay off their student loans and work for them, even for free.
One organization you can approach is SponsorChange. This organization will link volunteers that have the skills that they need with a sponsor. Later on, this sponsor will then pay for the student’s loan for each project they complete.
But you must follow guidelines strictly to succeed in completing a project and qualify for loan repayment assistance. You can use this method to give back to society and at the same time, reduce the outstanding balance of your student loan.