6 Steps for Paying Off your Student Loans Faster
According to the College Board, the average cost of a college education has risen by more than 130% in the last 20 years. If you’re paying for college, that’s enough to make student loans a necessity. So much so, that Americans have racked up over $1 trillion in student loan debt. If you’re one of the many out there still paying off student loans, this guide is for you. Below we’re put together 6 tips for paying off your student loans faster.
1. Get Organized
Start by categorizing your debt in order from highest to lowest interest rates. It usually makes sense to pay off the loans with the highest interest rates first, since those are the ones that will incur you more debt at a faster rate.
2. Create a budget
Once you know what you want to pay off and when, lay out all of your current expenses. Determine what you’re willing to cut back on in order to have more later. Maybe this means living in a less expensive area to avoid spending your paycheck on rent, or cooking at home instead of eating out. Small changes will make all the difference down the line.
3. Make more than the minimum payment
Often, people will pay the smallest monthly payment possible on their student loans. This is a mistake, because it will mean paying thousands of additional dollars in interest over the lifespan of the loan. Shoot to put at least 10% of your pre-tax income towards your student loan debt each year. The more you can comfortably put towards your loans, the better. Use studentaid.ed.gov to calculate a repayment plan that works for you.
4. Consolidate and refinance
Based on your financial situation, it may make sense to refinance your loans. Doing this means working with a private lender to combine both your private and federal student loans into one new loan, ideally with a lower interest rate. In order to do this, you must meet certain qualifications based on your credit score, income, savings, and type of college degree. However, if you do not think you will qualify, you may apply with a co-signer to increase your chances of being approved.
5. Repurpose your Raises
When you get a pay increase at work, consider taking that money and putting it towards additional payments on your student loans. This might not be the most exciting way to spend your hard-earned money, but looking at it as additional income outside of what you currently need to spend, will help you to pay off your debt faster. You may also want to consider putting your tax return towards your student loan debt.
6. Sign up for automatic payments
Most federal loans will decrease your interest rate by .25% when you sign up for automatic payments. This may seem like a small amount, but it adds up over time. Plus you won’t have to worry about late or missed payments. If you don’t feel comfortable signing up for automatic payments, at least consider having part of your paycheck automatically moved to into a savings account. This will enable you to set aside money without thinking about it- instead of accidentally spending it on unnecessary things.