Student loans can be difficult to pay off. Depending on your situation, it could take you years before you’re able to pay them off in full. Don’t let that happen to you! Follow these tips to make the most of your student loans and start paying them off as soon as possible.
1) Know Exactly How Much You Owe
How do you pay your student loans early? You have a few options. First, you can take on another job. If that is not an option, but you want to take advantage of compound interest then you can cut down the number of years it takes by using the lowest interest rate available. Using an online calculator, determine how much time and money it will take to pay off your loan with different methods.
It’s often easy to find out the APR (annual percentage rate) which makes it easier when deciding what method is best for paying off your loan sooner rather than later.
2) Make a Budget
A key first step in paying your student loans off early is figuring out how much you’ll need each month to do so. Once you figure that out, it’s time to make a budget and set up a plan for transferring money. Let’s get started:
The first step is creating a budget that allows you to set aside funds for your monthly student loan payments. Look over your expenses, then estimate how much you can afford each month and make sure there’s enough left over for other expenses such as food, rent, and utilities. Once you know how much you have available each month, divide that number by 12 months and multiply it by the amount of money you need each month. That’s how much money you need in order to pay off your student loans early. If it seems like a lot, don’t worry! You can use tools like Mint or Personal Capital to help keep track of all your finances in one place so paying off debt becomes more manageable.
3) Put Any Extra Money Toward Your Loan
One easy way to put an extra $3-$500 a month towards your student loans is to start living with roommates. Sure, it’ll be a tight space and less privacy, but you’ll have more money in the bank each month that can go towards paying off your loans faster. You might also consider increasing your income by picking up a side gig or two. Whatever you do, try not to give up on your finances as soon as things get tough because tackling debt head-on is the best way out of it.
If you don’t have extra money laying around, then start cutting down on little things that may not seem like much but can really add up. For example, if you find yourself buying a $2 coffee from Starbucks every day or getting lunch from work every day that adds up to $10 a day or $520 a year. Consider making your own coffee and packing your lunch once in a while and it’ll help cut back on expenses big time. If you’re struggling with paying for school books, consider borrowing some from friends so you can keep working towards paying off your loans faster.
4) Consider Consolidating Loans
One of the most important ways to save on student loans is through federal consolidation. This can be done by submitting a single application for federal student loans and having one monthly payment processed through the Direct Loan Consolidation program. With this, you’ll also gain access to additional benefits such as lower interest rates and opportunities for fee relief. Generally, any remaining balance left on your old loans will transfer into the new Direct Consolidation loan, which will then have a 10-year repayment term with a 0% interest rate. One way that you could use the lowered interest rate is by making monthly payments in fixed amounts until the loan is paid off in full or reaches 240 months, whichever comes first.
5) Look Into Income-Driven Repayment Plans
Before you start making student loan payments, it’s important to explore your options and learn about all the different types of repayment plans available. Income-driven repayment plans offer low monthly payments that are based on income and family size. These plans can also help make loans easier to pay off since the outstanding balance is forgiven after 20 or 25 years (depending on the plan).
Interest will continue to accrue on all your loans, even if you’re on an income-driven repayment plan. You’ll also have to re-certify each year and make sure you’re still eligible for a lower monthly payment. While some of these requirements can be complicated, income-driven repayment plans are worth it if they help get your loan payments down to a manageable level.
The financial relief gained from one year under an income-driven repayment plan could put hundreds or thousands of dollars back in your pocket over time. And once your loans are forgiven, any remaining balance is considered taxable income for that year, so there’s a chance you may end up paying taxes on more than just what you originally borrowed.