Do you wish you could pay off your student loans as quickly as possible? Are you starting to feel like you’re beginning adulthood with more debt than you can handle?
According to the site EducaitonData.org, the average borrower has a balance of $36,510 in federal loans and $54,921 in private loans. Making payments over the next 10 to 30 years is certainly going to cut into other financial priorities like buying a house, raising children, and saving for retirement.
Unfortunately, the only way to deal with student debt is to take it on head-first. To help you get the upper hand, here are 10 smart ways to pay off your student loans faster.
1. Pay the Capitalized Interest Early
If you’re in school and have an unsubsidized loan (one where interest begins accruing immediately), then the interest will be capitalized or added to your loan amount each year until you graduate. This is naturally going to increase the total amount that you owe and make your payments larger.
To avoid capitalization, try to pay off as much of your loan or the interest as possible while you’re still in school. Even though you’re not required to start making payments until graduation, the sooner you start, the less your balance will ultimately be.
2. Put Extra Money Towards the Principal
Sending in extra money with every loan payment to put towards the principal is the classic way to pay off any loan faster. This is because as you’re eliminating more principal on the front-end, there will be less money owed on the back-end of the loan. That will make your payback schedule shorter as well as shave away potentially thousands of dollars in interest.
To see for yourself how this works, try this free online calculator.
3. Refinance to a Lower Interest Rate
Whenever interest rates drop, you should consider refinancing your student loans. A lower interest rate will make the payments smaller which will give you the ability to put more towards the principal.
Generally, to qualify for a refinance, you’ll need to have a steady job, a debt-to-income ratio of 50 percent or less, and a minimum credit score of 650 or better.
4. Consolidate Your Loans
If you’ve got several student loans that you’d like to combine into one, then another option would be to apply for a consolidation loan. A consolidation loan is essentially a new loan that you will use to pay off all of your existing, smaller loans.
Most people seek out consolidation loans because the interest rates or terms will be better than that of the current loans. It’s also more convenient to work with one loan as opposed to managing multiple ones at the same time.
5. Avoid Income-Based Repayment Plans
One of the perks of federal student loans is that you might qualify to make lower payments if you start a job with a relatively low salary. While this is meant to provide relief, it’s not going to be helpful if your goal is to pay your student loans off as quickly as possible.
The less you have to pay, the longer it’s naturally going to take you to pay off the loan in full. Therefore, skip this option whenever possible.
6. Make Biweekly Payments
Instead of making your student loan payments once per month, check with your provider to see if they will let you switch to biweekly payments instead. Biweekly payments mean you’ll pay half of your normal payment every two weeks.
The advantage is that you’ll effectively make one extra payment per year than you normally would. This is because you’ll make 26 biweekly payments which will result in the same thing as paying 13 monthly payments. That’s one more than you’d normally pay on a monthly schedule.
7. Get an Autopay Discount
Another thing to check with your student loan provider is if they give discounts for signing up for autopay. This is a perk offered by many lenders because using autopay means they don’t have to deal with the hassle of collecting checks and manually processing your payments.
8. Claim a Student Loan Interest Tax Deduction
If you paid interest on an eligible student loan this year, then you may be able to deduct up to $2,500 of it on your next federal tax return. That’s a savings of $550 that you could put towards the principal instead (if you’re in the 22% tax bracket).
The loan has to have originated in your name; not your parents’. Your income also has to be less than $70,000 (or $140,000 if you file a joint return) before the deduction eligibility starts to phase out.
9. Qualify for Student Loan Forgiveness
Is your job with the government or a not-for-profit organization? Did you become a teacher at a low-income school? If so, then you might qualify to have certain types of student loans forgiven.
Check the official StudentAid.gov website to learn more about which occupations qualify, and contact your loan servicer if you think you might qualify.
10. Use the Debt Snowball or Debt Avalanche Method
When it comes to paying down any form of debt you might have, two acceleration strategies that have worked really well for thousands of people are the debt snowball and debt avalanche methods. In this article from Business Insider, a young teacher used them to pay off $16,000 of her loans and get on track to be debt-free in two years.
The debt snowball method is where you pay off your loan with the smallest balance first. Once it’s gone, you roll that payment towards the one with the next highest balance, creating a larger payment with each cycle.
The debt avalanche method is similar but starts by paying off the loan with the highest interest rate. Once it’s gone, you roll that payment towards the one with the next highest interest rate for a larger payment with each cycle.
If you’d like to apply for as much money as possible towards paying down your loans, then you’re going to need to examine your budget and ensure that every dollar is going where you want it to. To do this, you’ll need a reliable budgeting app like Buxfer.
Buxfer seamlessly connects to your bank and credit card accounts and automatically imports all of your transactions into one convenient dashboard. From there, you can learn more about your spending habits and find places where potential savings could be made.
Click here to learn more about how Buxfer can help you budget and find more money to put towards paying off your student loans.
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